The House Price Boom In Toronto And Why It Basically Sucks.
On Monday my wife and I ventured back to Toronto to touch base with our kids over lunch and dinner. It was my first time back in since Christmas. I found it quite disconcerting to be back in the fast paced environment in which I had thrived for pretty much all of my adult life. But it also got me thinking about something that’s going on in Toronto that has pretty much gotten the attention of the world.
Over the past decade, in my former home base of Toronto, there has been a boom in residential real estate prices.
Over that period the average price of a house in Toronto has gone from just under $400,000 to, at last report, $910,000.
This, by any standard of measure you want to apply, is just plain crazy.
About 5 months ago, we sold our house, a nicely but not totally renovated bungalow in an OK neighborhood in the east end of the downtown core for approximately 3 times what we bought it for in 2002.
Now a lot of people would consider that a fairly decent ROI in real estate. But to be honest with you, the house only sold for what it sold for because the real estate market in Toronto has gone insane.
The Effects
This is actually a very bad thing for a lot of reasons. But the most important of those reasons is that young people starting out and wanting to buy their first house are, by and large, finding it an impossible thing to do.
This, in turn, creates a huge market for smaller affordable spaces. And that has resulted in a massive increase in the number of condo complexes and buildings bordering the downtown core’s busiest access route which is called the Gardiner Expressway.
These condos have basically choked off the Gardiner Expressway, leaving no room for a much-needed expansion which, in turn, is creating rush-hour conditions in Toronto, pretty much all day long. More insanity.
This, in turn again, reduces productivity for the businesses in the downtown core because everybody gets to work late and wants to leave early to ‘beat the traffic’, which has now become a complete exercise in futility.
It also creates a certain amount of craziness in the drivers, because the traffic flow is from west to east in the morning and east to west in the afternoon. As my old friend Doug Fisher was fond of saying: "Most drivers in Toronto are nuts, because they’re always driving into the sun."
The Causes
There are a number of factors contributing to the housing price boom. Here are a few:
The Flippers: Pretty straightforward. You see all kinds of TV shows about these people who buy fixer-uppers renovate them, really make them nice and then flip them for a reasonable profit. In Toronto, a lot of these people just buy houses sit on them for a month and then put them back on the market and make at least a couple hundred thousand for basically just a couple of hefty mortgage payments.
The Small Time Developers: These people will buy an older house or commercial building on a wide lot and, through their City Hall connections, get the permit necessary to tear the house down and build anywhere from 2 units to 32 units on the land. Even after all the expense and time it takes, these people can make amazing profits.
The Foreign Rich Folks: This has been happening in Vancouver for quite a while as a direct result of the influx of money from Asia. Rich people, especially those from China, (predominantly Hong Kong, Shanghai, and TaiPai) buy houses for their children to live in while they are attending university here. Then they buy a couple of other houses and rent them, which covers the expenses on the house they bought, then sell them later.
These people have a lot of cash and they understand that creating bidding wars only drive house prices higher and it you have enough of that going on, overall housing values increase in lock step.
This makes everybody else frightened and thinking they had better buy sooner rather than later and be prepared to get in a bidding war to gdet the house they want.
This, in turn, puts a lot of pressure on the banks who worry that people are borrowing money they might not be able to pay back and makes them even more tight-assed then they usually are.
In my own peanut brain, I kind of see this as a grass roots form of economic imperialism and a way for rich Chinese people to get out of what is basically a communist country and obtain a strong foothold in Canada.
Not saying that’s a bad thing overall. But it is most certainly a tactic that has had a devastating effect on the housing market and the opportunity people have in Toronto to own a home that’s not a box in a filing cabinet right next to the highway.
The Nightmare That Agents And Buyers Share
There was a story I saw on CITY TV last week about this agent in Toronto who reported that one of his clients has so far bid on houses 23 times and lost every one in a bidding war.
Since it’s a well know fact that the stresses involved with buying and selling homes are pretty much off the charts already, I can’t imagine how much stress there is on those poor buyers and how much their agent is losing on that deal, if one ever gets made.
And the worst part of all is that this is now quickly becoming the norm.
The Bubble Will Burst. Eventually
Toronto is a great city in a lot of ways. But what we have been seeing over the past several years is a city that has become, by reason of its growth, a much more violent place, a much more difficult place to get around in and now a much more expensive place to live overall.
I guess this is part of a medium-sized city growing into a big one. Some people are not going to like it and want to get out. Some people are ready to go and are simply cashing out to take advantage of this real estate insanity (guilty) and others are leaving because it’s just starting to cost too damn much to live there.
All these factors, believe it or not, are contributing to a slow and steady population growth in my new home base of St Catharines and virtually all the towns in between here and Toronto. (Vineland, Beamsville, Grimsby, Jorden, Smithville, Stoney Creek etc).
And why not? I can get to Mississauga, on the west side of Toronto from my house in St Catharines in virtually the same amount of time as it would take me to travel across Toronto to Mississauga, at almost any time of day.
Crazy, isn’t it?
My Advice
This isn't a marketing issue so much as it is a market manipulation issue. But there is a ceiling to everything...a point where it just becomes so crazy that it burns itself out. The problem is that no matter when that happens, house prices will never return to what they were and it will, pretty much for the foreseeable future, be crazy no matter what.
That's a longwinded way of saying I don't have any constructive advice that does not involve a buyer revolution of some sort, and I am too cynical to ever believe that would happen anyway.
If your business has reached the point where talking to an experienced communication professional would be the preferred option to banging your head against the wall or whatever, lets talk.
Download my free ebook