Report: First-time home buyers face affordability obstacles in Toronto

The latest data from the Canadian Real Estate Association shows that the average price of a home in Ontario exceeds $850,000 as of July 2023.

In Toronto, the median price for a single detached home in the second quarter of 2023 was $1,350,000.

A new study, How Low Can Prices Go in T.O.? Even A Severe Recession Likely Won’t Make Housing Affordable in Toronto released by Desjardins has found that buying a house in Toronto is likely to stay difficult for years to come.

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Marc Desormeaux, one of the report authors, spoke with CIC News and elaborated on the Desjardin report's findings. He explained that Toronto was chosen for the case study because it would help them explore what could happen to prices in the largest city in Canada under various scenarios

Further, he believes the state of the economy and the housing market at this juncture, particularly after a weaker than expected, second-quarter GDP in Canada warranted exploration of possible scenarios with more precision in Canada’s largest housing market.

Canada is experiencing record population growth through immigration. Data from Statistics Canada shows that in 2022, Canada welcomed 437,180 immigrants and saw a net increase in the number of non-permanent residents estimated at 607,782. The Immigration Levels Plan for 2023-225 shows that Canada is targeting 500,000 new permanent resident admissions per year by the end of 2025.

As Canada’s largest city, with well-established immigrant communities, Toronto continues to attract the most newcomers of any destination in Canada. Census 2021 data shows that in 2021, close to half (46.6%) of the population living in Toronto were immigrants.

Supply and demand

Desormeaux says that in simple terms, lack of affordability comes down to supply and demand. More people want housing than there are homes available which has led to obstacles for first-time home buyers, such as newcomers, as prices have gotten out of reach for many.

“I think the report speaks to the very challenging starting points when it comes to affordability that exists for first-time home buyers and for policymakers who are trying to improve it. We've seen house prices rise very significantly, especially relative to incomes over the last several years.”

The report outlines three possible scenarios to show what could happen to housing affordability in Toronto.

In a scenario in which Ontario plunges into the type of financial recession not seen since the early 1990s, the price of houses would drop by $185,000 but according to the report, the home price‑to‑per capita disposable income ratio (the amount that the average Canadian would be able to pay for housing expenses, relative to their housing costs) would still be stretched. It points out that in a 90s-style recession, Ontarians would face a $35 billion reduction in employment income and half a million job losses.

In a less severe recession, with fewer job losses, the report predicts Toronto house prices would be 5% lower than they are currently and slightly improve affordability. However, the impact would not be significant and would be more in line with the early 2021 price-to-disposable income ratio.

The third possibility is the best-case scenario for current homeowners and assumes that population growth in Canada remains steady at the recent, record, rate of 3% annually through 2026. This means the demand for housing would stay high. It also assumes that new home listings remain 15% below the level of equilibrium (price-to-disposable income).

Key indicators

According to the report, the health of the labour market is a key driver of the health of the housing market.

“I would say that the labour market impacts both the demand and the supply side of the housing market. A stronger labour market means there's more income being generated, more jobs being created. And that's a driver of housing demand,” says Desormeaux.

“If you have a rise in unemployment, you tend to see weaker sales demand because there are fewer people employed and in a position to buy. And you also see you know more. People list their homes when financial conditions become more difficult, so it has kind of a double effect on the housing market.”

The latest payroll employment data from Statistics Canada shows that employment in Canada rose by 40,000 positions in August, but the increase was outpaced by a population growth of 103,000. So, despite the rising employment rate, the proportion of people in Canada who are of working age and employed has actually dropped by 0.1%.

Report conclusions

The report points out that as Toronto becomes less affordable, more young people are leaving, which means that the city is losing economic dynamism as well as its competitive edge as a global financial hub.

Still, Desormeaux believes that the imbalance between housing supply and demand has been building for a long time and it will take a long time for the solution.

The report concludes “Considering the depth of the current crisis and the significant amount of time and effort needed to remedy it, we can’t waste time on blame or partisan attacks. Instead, we need all levels of government and the private sector to work together to address the herculean challenge ahead. Toronto’s—and indeed our country’s—status as a welcoming and prosperous place to live depends on it.”

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