Intensification policies impact GTA home prices
Housing affordability is key to the economic health and competitiveness of the GTA. But affordability isn’t only about the price of homes; it’s also tied in with incomes and interest rates.
Historically, the main way to offer a snapshot of the cost of housing is to use average home prices. And why not? Averages are a simple, powerful and age-old method of measuring markets. When it comes to understanding home prices in the GTA, however, the use of averages could be potentially perilous.
The trouble with average prices is that the real estate market features a wide variety of housing types, including single-family homes, semi- detached houses, townhouses and apartment condominiums. Does it make sense to use a single average price to represent all these different sorts of homes?
Every home that exists today (referred to as the stock) was at one point a new home (referred to as the flow), and that home was built in accordance with policies of the day.
As GTA development over the past decade has been carried out in accordance with provincial intensification policies — building up, not out — the composition of the flow of new homes into the stock of the market has shifted away from traditional ground-oriented forms, like detached houses, and toward higher-density forms, such as condominium apartments.
How does this impact prices? It’s basic economics. The prices of the home types we are making more of (condos) are relatively flat, while the prices of the home types we are making far fewer of (detached houses) are rising.
So looking to a single average home price to provide insights into the state of such a diversified housing market can prove to be dangerously inaccurate.
A better way to understand prices in the shifting and complex GTA housing market is by using price indices, which offer greater precision around what kind of home type is being measured. Price indices — such as the Home Price Index used by the Toronto Real Estate Board to assess the resale market, and the RealNet New Home Price Index used to measure the new home market — provide far better insight into home pricing. In July the RealNet New Home Price Index for lowrise homes (detached, semi-detached, townhouses and link homes) reached a record high of $806,395, an increase of 17.7 per cent over the previous year. Meanwhile, the price index for highrise homes (condominium apartments, lofts and stacked townhouses) increased by only 1.2 per cent, to $446,398.
That’s a significant difference, one that could be greatly obscured by the use of average prices to assess the market. As the composition of GTA housing stock continues to shift as a result of intensification, an understanding of the limits of average prices will lead to above-average insights. George Carras is the president of RealNet Canada Inc. His column appears in New in Homes & Condos once a month. For more information, visit realnet.ca or Twitter @realnet_canada.