The Greater Toronto Area (GTA) market is “fast approaching a full-blown affordability crisis,” according to research published by the Canadian Imperial Bank of Commerce (CIBC) on Thursday.
“Until 2016 the combination of strong demand and lack of supply generated a robust, but relatively predictable path of house price appreciation in the GTA. But the notable hockey stick-like acceleration in house price inflation in 2016 suggests that other forces are at play,” wrote Benjamin Tal, deputy chief economist at CIBC World Markets.”
The 17.3% increase in average prices in 2016 is by far the strongest since the late 1980s, according to Tal. He stressed that the fundamentals for strong price acceleration are still in place. Not only is demand strong, but it’s also stronger than perceived, “as official data underestimate the number of households in the GTA by roughly 60,000 due to clear undercounting of the number of non-permanent residents in the region.”
However, 2016 stands out due to the “notable” increase in the price of high-rise units. According to CIBC, condo prices rose by close to an annualized 16% in the fourth quarter of 2016—the largest gain since the recovery year of 2010.
“[A]s opposed to popular perception, the condo market is actually undersupplied. No less than 27,217 new condo apartments were sold in the GTA in 2016—a record year–over–year growth rate of 34%. But that surge in demand is not being met with a similar increase in supply,” said Tal.
CIBC figures showed that the number of new condo launches last year was down by 6% and the number of unsold inventories fell by 50% to a 10-year low.
Tal said skyrocketing prices in the GTA should be addressed with area-specific policies. “A good start would be to shelve the proposed amendments to the region’s intensification and density targets.” For the economist, imposing a tax on foreign buyers would work to soften activity, but it will not be a “game changer.”
He said “increased rental propensity” and “supply of purpose-built apartments” must be part of the solution. “With the propensity and composition of rental activity changing, it’s becoming clear that the condo market can no longer be the only option available to renters. The new wave of renters will need the stability of long-term renting and that’s where purpose-built developments enter the picture.”
“The market will eventually be tested when interest rates rise and/or the economy faces its next recession. What we do between now and then will determine the ability of the region to face that test.”
Associations for housing affordability
Price of homes sold in Greater Toronto Area soars 27.7%, real state board says