Population growth and low housing supply, rising development charges and construction costs, low interest rates and buyer anxiety: a perfect storm for a fiery market. 

The Toronto real estate market is hot. It’s scorching. It’s blazing. This sentiment is everywhere. Real estate blogs, finance reports, and news articles frequently proclaim the burning flames of Toronto home sales. And the data consistently supports this ubiquitous heat-related jargon. In semantics, this type of comparison is called a conceptual metaphor––a way of explaining something abstract by comparing it to something concrete. In language, you will frequently see declarations that Happiness is Up and Sadness is Down, Important is Big and Unimportant is Small, and, Activity is Hot and Inactivity is Cold. We use our physical experiences of the world to understand more intangible and complex phenomena such as emotions, values, or, even, economic realities. As real estate professionals, while we closely watch the story of Toronto real estate unfold, we are observing a great, evolving momentum, one fueled by several diverse sparks. So, let’s explore the fury and possibility of this fire. 

First, it is clear that housing prices in Toronto are rising and rising fast. According to the most recent data released by the Toronto Regional Real Estate Board (TRREB), home prices in the Greater Toronto Area have grown 33% from last year. The average selling price this April was $1,090,992; in 2020, it was $820, 2226. The most obvious reason for rising home prices is population growth. The population in the GTA has grown significantly over the past few decades. Since 1986, the GTA has added 3.1 million residents, growing from 3.9 million to 7.0 million in 2019. And, of course, this number will continue to soar as Canadian immigration efforts bring in 1.2 million new citizens over the next three years. In 2030, North America’s fastest growing city will have around 8 million residents. And housing supply has not kept pace. Scotia Bank reported that Canada has the lowest number of housing units per 1000 residents of any G7 country with 424. The average across G7 countries is 471. Compared to Canada’s ten largest Census Metropolitan Areas, Toronto has the bottom score, with 360 units in 2020—a drop from 365 in 2016. It’s simple supply and demand. Year after year, the amount of buyers climbs precipitously, surging ahead of the number of available products. 

The second factor—and one that is sometimes overlooked—is rising development charges and construction costs, specifically for residential towers. The BILD Association revealed that new homes in the GTA receive some of the highest development charges in North America. Development charges are fees collected from developers by the government to pay for surrounding infrastructure. The report explains that these charges add $222,000 to the cost of an average new single-family home and $124,000 to the cost of an average high-rise apartment. And, recently, Altus Group released its 2021 forecast for construction costs for high-rise multi-family buildings in major Canadian cities. The company expects Toronto to experience an estimated cost increase of five percent this year, primarily due to the rising value of formwork, a temporary mold that holds together poured concrete. These two issues foreshadow significant real estate price increases as it becomes persistently more expensive for developers to finance projects. 

Lastly, adding fuel to the fire, Canada experienced historically low interest rates during the pandemic. For example, at the beginning of 2021, The Bank of Canada placed its target for the overnight rate at 0.25%, with the bank rate at 0.5% and the deposit rate at 0.25%. Appealing mortgages combined with consumer anxiety and an increasing fear of missing out drove many first-time buyers into the market.

Like many economic events, the heat of Toronto’s real estate market involves various distinct influences, ones that are certain to compound and expand over time. The pandemic has indeed caused a lot of uncertainty and bewilderment; however, looking at the numbers, one thing is undeniable: real estate in the GTA is a sure-fire investment. Home prices will continue to ascend and those who buy now will benefit greatly in the future.