Vancouver Sun

Sup­ply woes drive soar­ing home prices in Van­cou­ver, Toronto: re­port

- NAOMI POW­ELL Canada News · Real Estate · Business · Toronto · Calgary · Montreal · Edmonton · Montreal · Canadian Imperial Bank · Ontario · British Columbia · Vancouver · Greater Toronto Area · Grow

Home con­struc­tion in Toronto and Van­cou­ver failed to keep pace with surg­ing de­mand be­tween 2010 and 2016, leav­ing prices with “nowhere to go but up,” ac­cord­ing to a new re­port from Canada’s fed­eral hous­ing agency.

Home prices soared 40 per cent in Toronto over the pe­riod ex­am­ined and 48 per cent in Van­cou­ver.

While con­ven­tional eco­nomic fac­tors such as pop­u­la­tion growth, mi­gra­tion to cities and low mort­gage rates were im­por­tant drivers be­hind those in­creases — ac­count­ing for 75 per cent of the price jump in Van­cou­ver and 40 per cent of the rise in Toronto — a “weak sup­ply re­sponse” to surg­ing de­mand was also a cru­cial fac­tor, the re­port found.

“Large Cana­dian cen­tres like Toronto and Van­cou­ver are in­creas­ingly be­hav­ing like world-class cities,” said Aled ab Iow­erth, deputy chief econ­o­mist at the CMHC. “When you have weak sup­ply re­sponses, as you do in these mar­kets, prices have nowhere to go but up.”

Data gaps have pre­vented the fed­eral hous­ing agency from fully un­der­stand­ing what’s be­hind the sup­ply short­falls in Toronto and Van­cou­ver or why they have grown so vast in com­par­i­son to Cal­gary, Mon­treal and Ed­mon­ton. Sup­ply re­sponses were stronger in each of the lat­ter three cities and price in­creases were more mod­est.

“What seems to be hap­pen­ing in Cal­gary and Ed­mon­ton is when de­mand comes along, the cities are spread­ing hor­i­zon­tally, so there’s a bit of sprawl go­ing on,” ab Iow­erth said.

Mon­treal al­ready has a large rental sec­tor, a greater com­fort liv­ing in denser hous­ing, and more readi­ness to con­vert in­dus­trial land to other uses, he added.

In Toronto and Van­cou­ver, a num­ber of fac­tors in­clud­ing the avail­abil­ity and price of land have prompted sup­ply ef­forts to shift away from sin­gle de­tached houses and to­ward con­do­mini­ums and more ex­pen­sive high-end homes. These mar­ket forces have co­in­cided with mu­nic­i­pal and pro­vin­cial poli­cies en­cour­ag­ing in­creased hous­ing den­sity.

Though the ob­jec­tive is to com­bat ur­ban sprawl, “den­si­fi­ca­tion … needs to in­crease the sup­ply of all hous­ing,” the re­port states.

The sup­ply prob­lems in Toronto and Van­cou­ver are largely due to gov­ern­ment pol­icy in­ter­ven­tions that fo­cus on the de­mand side of the hous­ing mar­ket equa­tion, said Ben­jamin Tal, deputy chief econ­o­mist at CIBC World Mar­kets Inc.

On­tario and Bri­tish Columbia have in­tro­duced mea­sures to cool mar­kets in Toronto and Van­cou­ver, in­clud­ing taxes on for­eign buy­ers. New stress test­ing rules, mak­ing it harder to qual­ify for mort­gages, were brought in ear­lier this year by the Of­fice of the Su­per­in­ten­dent of Fi­nan­cial In­sti­tu­tions (OSFI).

“We’re us­ing de­mand tools to fight sup­ply is­sues,” Tal said. “It is lag­ging way be­hind.”

Tal pointed to On­tario’s Places to Grow Act, which sets out land-use plan­ning and de­vel­op­ment rules for the Toronto re­gion up to 2031, as “the No. 1 rea­son home and land prices are go­ing up in the Greater Toronto Area.”

Un­der the pol­icy, land is re­leased based on pro­jected pop­u­la­tion growth and den­sity tar­gets.

On­tario is 40 per cent into that tra­jec­tory, but im­ple­men­ta­tion of the plan is 10 per cent be­hind, he says.

“This, in my opin­ion is the dom­i­nant is­sue. Van­cou­ver has a ge­og­ra­phy prob­lem. It’s an is­land, ba­si­cally, and there’s no room to build, but Toronto has a pol­icy prob­lem and sup­ply will only get worse over the next 10 years.”

Even though of­fi­cial data sug­gests the in­volve­ment of for­eign in­vestors in Toronto and Van­cou­ver hous­ing mar­kets is limited, their “per­ceived im­pact” could be in­flu­enc­ing the prices buy­ers be­lieve they should pay for a home, the CMHC re­port stated.

A sur­vey by the agency found that 52 per cent of buy­ers who pur­chased a home in these cities be­lieve for­eign buy­ers are hav­ing an in­flu­ence in those cities.

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