Toronto Is in a Housing Bubble
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Watching Toronto's market explode is like watching a horror movie that I saw take place in Vancouver over the last two years. The politicians, press, and real estate industry are spinning the same stories their counterparts in Vancouver did without providing an even plausible explanation for the rocket ship growth.
The key issue with Vancouver's market is that prices have become decoupled from local incomes. The same thing is happening in Toronto.
In Vancouver, the main driver of decoupled home prices is foreign investment dollars, mainly from China. I suspect the same is true in Toronto because prices there started exploding after Vancouver instituted a 15% tax on foreign buyers in August 2016.
If you're interested in understanding the key drivers of the Vancouver real estate market, this paper by a SFU professor summarizes the data, provides a sensible solution, and convincingly refutes the tropes that are often provided as reasoning for the market's explosion:
http://www.sfu.ca/content/dam/sfu/mpp/pdfs/Vancouver's%20Hou...
1 - where unaffordable is defined as the ratio of median home price to median income.
Single data point as an example: Last month a friend, who between he and his partner make approx. $200k (before tax) combined household income, bought a semi-detached property on the east end (west of the DVP, south of Dundas). "$200k you say, that is a lot!", right, it isn't insignificant, but it's also just two skilled people who make $100k in a major city. There are a significant volume of $100k jobs out there (so if they lose them, I suspect they will find another fairly soon). It's just not as impossible to do as people say, but most of us are not willing to pack a lunch every day, stop drinking lattes make it possible.
When hunting for a house in Toronto there were 3 things that really bugged me that would be great to have addressed before we freak out over the possibility of foreign money:
1) "Second round of offers". It's a trick relators play. Basically they get all the offers together and then come back and say "uh, they're all super close, we're looking to get an outlier". Of course some people come back with bigger offers...and the highest is accepted, or the highest offer from the previous round is accepted.
2) Poorly done home-owner renovations. People doing shitty renovations and then later selling the place (often these are flips). Uneducated buyers see these 'improvements' as positive things when most of the work will be to be re-done due to the job not being done properly. It just keeps Home Depot humming and inflates the cost of the house by the cost of materials + repairs down the road. It's compounded by the fact all offers [in practice] need to be unconditional or they won't get considered. So no inspection, the buyer doesn't get the chance to really find out until later. Sellers often include inspections, but these are always terrible sources of info.
3) Illegal housing; So many listings say "Potential basement suite", and people do the math expecting to get $800-1500 / month extra income from it. They say "potential" in the listing because it's nearly impossible to create an actual legal basement apartment in your house in Toronto [and they know it], but people are willing to risk it or simply unaware of the exposure this places on them. Legal basement apartments need fire rated rooms, to include a parking spot (which is super hard to do in Toronto!), have a separate HVAC system and much much more. 99% of basement apartments do not comply, but due to either people not knowing, or not caring, they rent them out to increase their housing budget. Banks are partly to blame here, they enable this by increasing the lending amount accordingly based on an assumption that the second unit will be rented 10/12 months per year.
I think the thing we're truly seeing here is what access to cheap capital produces in established major (aka historically low risk) cities. Interest rates are sub 3% with no signs of increasing, people make decent money and are willing to sign up for 30 year commitments. There is risk, but when you look at the key factors, it's pretty low give the likely outcome over that time horizon. This isn't a small suburb hours away from a major city [i.e. Hamilton Ontario - where prices are going up despite the fact lots of the residents commute hours to Toronto every day] where one company going broke will send everyone into the poor house, it's a major city with a very good history of having available skilled work.
I'm personally more worried about robots taking skilled jobs than I am the possible housing market crashing. Those things will probably be related events, and housing will be one of the many industries not ready for that shift.
Finally, having said all this, a well timed quote from a conversation i had on Friday "If i lose half the value in my house, i won't be upset or surprised...I went into it assuming things might not go my way". Not everyone has that luxury or time horizon to not mind waiting around like I do, but I'd encourage more people to not see a house as an investment but more as a cost (as you would rent) and use that emotional response you get to help you justify your next decision in the house buying process.
That single data point is in the top 3% of Canadian incomes.
Are you sure you're talking about Toronto? My wife who is is an Executive in a particular industry has told me that there are engineers from Waterloo making 55-60k a year. At her last assignment there were several folks with CS Degrees making 55k and a UoT Grad with a Masters in CS making 65k. Being from the US she was surprised at the level these Grads were being utilized and quite astonished that they would be working for such poor wages.
Anyway, the home we had in Bloor West Village was purchased in 2005 for 440k.That same house (nothing was done to it) sold for 1.4 million within the last year. 11 years and a 1 million appreciation. Quite the investment.....
If things continue at the current rate that home will be worth about 10 + million in the next 10-15 years.
I'd say the most common range I see new grads start at is between 65-80, sometimes 85-90 but that's rare, with the right experience and attitude later in life I regularly see people ranging from 100-150+ without any questions being raised.
It's complicated but at the end of the day you're worth what you can justify. To me this is a question of how much I expect you can realistically contribute, which will not be the same for every place you interview due to the factors I mentioned above.
1. On top of that, there is also the fact that 100K new ppl move into the GTA every year. A good chunk of the wants to live in DT Toronto, further reducing the small supply;
2. Toronto produces 30% of Canada's economic output;
3. By many metrics, Toronto is extremely underpriced for the job and quality of life you get compared to other countries' largest cities;
4. Toronto is the 3rd largest North American city;
5. It's possible part of the prices are just tracking the USD as the CAD dropped ;and
6. The truth is, the majority of the Canadian population won't know/accept that in this single city people make 5-10x the income they make, hence "bubble" being thrown around as the obvious answer.
Don't get me wrong, there are definitely organic factors that contribute to the price growth in Toronto. But those cannot account for >15% year-over-year growth.
[1] http://www.torontohomes-for-sale.com/4a_custpage_2578.html
I'd argue that at least 20% of the price increase we're dealing with today is related to inflation.
Quebec / Montreal: historical politics pushed investment to toronto when separation was on the table and pushed by certain political groups (again bumping toronto prices and not helping those areas at all!)
Winnipeg / Calgary: isolation from other large cities, colder climate, less immigration friendly.
Isn't Manitoba one of the easiest provinces to immigrate to?
Out of interest, who tracks economic output? It seems Statscan does not. Although it is worth mentioning that Toronto CMA is home to around 18% of the population, and represents about the same percentage of the nation's GDP.
Not quite, that's only technically correct, due to the fact that major urban areas in the US don't 'incorporate' into major cities.
It's better to compare 'greater urban areas' with other regions. On that basis, it's not so big.
LA, Chicago, Dallas Ft/Worth, NYC all bigger, with Boston, Houston, Bay Area, DC, Seattle, (even Atlanta) about the same size. There's a few more on that list.
America is very populous and just outside many urban centres are vastly populated areas of slightly less density. Esp. in the North East.
Toronto's population grew by 10% between 2001 and 2016. https://en.wikipedia.org/wiki/Demographics_of_Toronto#Popula...
There is currently a vast supply of condos in the city, and considering the average number of children per household (1.1 in 2011), the supply should cover the housing demand in the city.
Things are a little different in the GTA, but this still doesn't explain the magnitude of the jump in prices in the last two months.
3 years ago your friends might have needed only $100k income for that semi, and in 3 years it will require $400k. Will your friends be earning $400k in 3 years? I doubt it. It's Toronto, not San Francisco.
In 3 years the number of families that could afford that semi-detached home went down by a factor of 6. [1] That's a problem.
I agree with you that the Toronto situation isn't as bad as others because Toronto has the most robust economy in Canada. A lot of the demand is driven simply by the fact that the city is a magnet for people from all over the country. I don't think the market will ever "crash". But the city's growth will be limited if the income needed to live in its core continues to rise from top 20% (2005), to top 10% (2013), to top 2% (2017) to top 1% and beyond. How will business attract highly mobile tech workers when a home in Toronto comes the same as SF but salaries are 1/2 or less? Since you live in Toronto you know the city is doing a desperately bad job of building new mass transit to alleviate the shortage/cost of housing the central parts of the city.
[1] http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/f...
So what's your theory about why Toronto has seen 20%+ YoY appreciation? Why now?
1. Historically low mortgage rates and weak rules on who can access government-insured high-leverage mortgages
2. Softness in the other, non-Toronto, engine of the Canadian economy - the Alberta oil industry. Lots of people who left the GTA to work out west are migrating back now
3. Redirection of foreign capital from Vancouver after growing public outrage and many disturbing investigative reports on fraud, money laundering and tax evasion in the Vancouver market - this probably accounts for a lot of the change from 2015 to 2016/2017
4. Positive feedback effect as boomers sitting on $1M+ houses sell them, downsize, but give much of the proceeds to their kids to buy back into the market at even higher prices
5. Weak CAD amplifying the effect of (3)
It seems clear than #3 and, less so, #1 and 5 are driving the majority of demand. I'm not sure how one can explain the decoupling of prices from incomes without either a massive influx of capital or lax lending from the banks. The latter doesn't seem to be an issue, which leaves the former.
If you're curious, read the PDF from the SFU prof that I linked to in the top comment in the thread. It's a summary of the data and is an excellent read if you're trying to unpack what's really going on (in Vancouver, but a lot is applicable to Toronto).
But to be clear, I didn't mean to say that the organic factors in Toronto justify the 20% YOY growth, just that in contrast with Vancouver there is more inherent strength in the market to cushion it from taking a big haircut if and when foreign investment tails off. In the Lower Mainland, real estate and associated construction industries account for around 1/3rd of total economic output - which means BC is more dependant on the Lower Mainland housing market than Alberta is on oil. Toronto at least doesn't have that potential double-whammy of having housing tank and losing its main economic driver at the same time. Housing is outpacing Toronto's economy, but housing IS Vancouver's economy. The latter scenario is a lot more dangerous, IMO.
Still don't totally understand "why now" wrt Toronto's market taking off if the answer doesn't include foreign money as a main driver.
I don't think foreign money can ever explain "why now". Even if we agree that there is foreign money being invested, there still has to be some underlying driver to make them stand up and take interest in that investment opportunity. We can assert that it is not simply foreign money wanting to own a piece of Canada, as many parts of the country are only keeping up with inflation, and sometimes not even that. I think there had to be some change in the makeup of, most notably, Toronto and Vancouver that made it appealing now, and I suggest it is down to these demographic shifts.
We need to double down on education, support the creation of new businesses, make massive steps forward in terms of transit networks and reduce the future need for high "demand" side in Toronto. If we invest in other areas now (that is not to say we don't invest in TO any less), it's possible that a more sustainable growth curve for TO will come to exist.
Oh, and NOT let Kevin O'leary win the PC leadership.
1 $100K earner is in the top 20%. Having both is quite rare.
You've made the opposite argument: those people should easily be able to afford a relatively nice home.
Homes are completely out of range for normal Torontonians, and it's a problem.
Remember that next time you vote. And that isn't a jab at the current government, it's more a statement to remind people that tax cuts and other incentives we can expect to come up on offer come election time are not what we are complaining about here.
That does not have to happen for a speculative bubble.
It's now at about 20% Chinese population as well.
I have no problem with immigration and foreigners buying houses, but they are making it basically impossible for the average Kiwi to consider purchasing in Auckland, and it is somewhat of a problem when a single group has been allowed to purchase in such intensity in a single area.
The wider New Zealand population is quite angry about it, but the government seems to be denying a problem. The problem was they were happy taking in foreign money, with complete disregard for the inevitable consequences.
They are now going to be implementing much increased tax on foreign buyers to try and stop the problem.
The thing is it's happening everywhere in NZ. The provinces are getting worse as well. For reference, a median multiple of 3 is considered affordable.
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&o...
Not a single region in NZ is affordable - and this is from 2012. It's only gotten worse.
Governments will do what's in their best interest. You literally pointed it out yourself in the next paragraph..
As someone who wrote code to forecast the demise of the housing bubble back in 2008, RENT vs BUY is still the strongest argument in my mind.
In 2005 I could choose to rent a 3bdr/2bth for $800 per month or I could buy it for $1200 per month.
Today, I feel like things are frothy but rent is actually more per month than "buying." I'd be curious to see when rental vacancies go up. That to me is a strong signal that a correction may take place in that local market.
Many of us chose to rent because rent was cheap, we were young, not wealthy, and most importantly didn't know if we would love in this or that city for much longer (perhaps we came to study and moved on to look for our first jobs).
By the time rent became unaffordable, or at least much more expensive than a (lengthy) mortgage, we had also been prices out of home ownership because we don't make enough even with our partner's wages combined. We just couldn't get a mortgage at the prices houses are going. It feels like been between a rock and a hard place.
The psychology of pain applies to both the individual, the city, and all the way to the state and federal government. Which is that in comfort, no one changes. The only one motivated to change in this scenario currently is the individual (household).
In planning, I generally try and first determine if a market is frothy and then predict where the pain could/should/will come from. If I can't determine a pain point, I assume that either a) I missed something or b) there is yet to be a point of inflection.
My plan for housing ended up by waiting 7 years (2005-2012) to purchase my home as a foreclosure. So it certainly took some patience and planning. With that said, if I hadn't seen some pain in the local RE market by around 2009, I would have moved to some place that afforded me a similar lifestyle but one that I could purchase a home, given my priorities.
So, something like that happened in Frankfurt in some areas.
Rent skyrocketed. Only offices.
Later in self interest the city changed some areas to living areas. With affordable living and rent.
Is this the same in Canada?
On other side note. I think why no city stops it. They are hoping to be the next new York. High rent, high income renter's. High income for the city.
Usually reality proves them wrong.
We got extremely lucky with our home purchase. We had an amazing agent that we've known for years, and we had only started looking in February. By April, we had our home purchased, with a June closing. We had one offer fall through, which in hindsight, thank God that it did. This was our first home purchase (and property).
We managed to snag our house for $5k under listing, after offering $10k under listing. We managed to avoid a bidding war, as no other offers came in. When we found this home, we moved quickly, making an offer that night, and giving them 24 hours to respond (we extended it to 48 for goodwill). This was a home that was renovated from top-to-bottom, and as an engineer, I'm happy to say was done properly.
With that context, now you know why I say we got extremely lucky. We worked hard to make our own luck, but I can't control the opportunities presented to us.
Anyway, we've watched many of our new neighbours sell their homes for 6-7% higher than what we paid. One of our neighbours has an open house going on right now and there are dozens of families coming in cars to check it out. It's listed $20k higher than what we paid for our home, and it's likely to go for $50k above that. We've seen the pictures, and it does not compare to the quality of our home.
So yeah, we might be in a bubble, but people are trying to buy. Speculators and investors may be the ones driving up the prices, but I think there really is just that much demand. People want to live here, and they'll find a way to pay for it.
Personally, I'm not too bothered by it since I didn't buy it as an investment. Sure, I do care about my home value, I want to make some money when I sell in 10 years to move to another home. But that's my unfair advantage compared to everyone else: I can live in my home as long as necessary to wait until the market recovers if this bubble were to pop.
Only 5% of buyers need to be speculative. They drive the 'price anchoring' for the rest - including the banks who 'deem the property to have x value'.
That's how bubbles work - a small number of 'price insensitive buyers' create poorly anchored prices which drive everyone else into the mania.
Those 'buyers' are there only because the banks are happy to give them loans using the asset as backing.
You don't need to be bothered by it as long as you are willing to sit on it for 10+ years and can afford to make the payments.
Is it simply that there is a multiyear lag before inventory starts coming on stream, or is there some fundamental reason why these larger cities can't provide enough housing?
It's worth remembering that a speculative boom creates extra demand.
As far as I recall it was almost universally accepted that Ireland had a shortage of supply ten years ago. Then the GFC happened and it very quickly became apparent that the shortage was of investment opportunities, not homes.
EDIT:
For some actual data related to this phenomenon, consider the Speculative Vacancies Report[0] published each year by Melbourne group Prosper Australia. Melbourne is, like many major anglosphere cities (London, Sydney, Vancouver, Auckland, etc), suffering something of a property price crisis. Each year Prosper Australia determines which Melbourne properties are vacant using water consumption data provided by the city's water utilities[1].
If you accept the narrative that is usually presented in the media; "prices are high because of a shortage of homes", then you would expect areas with the highest capital gains to be closely correlated with the areas that have the lowest vacancy rates. In actual fact the correlation is unintuitively the other way around - the areas with the highest capital gains have the highest vacancy rates (approaching 30% in the case of Melbourne's Docklands area).
[0] https://www.prosper.org.au/2015/12/09/speculative-vacancies-...
[1] Compare with the method for determining vacancy rates that is typically reported in the media: asking property managers what proportion of properties on their books are currently vacant.
* nepotism, current owners want to keep the inventory low so the price of their property and demand remain high
* nepotism, because owners are afraid tall building will make their city less appealing and lower the price of their property.
* silly zoning laws, because many believe central planning is actually a good thing despite the ridiculous amount of evidence that it doesn't work.
* simple inertia, bad laws and regulations are created all the time but almost never repealed.
I'm probably missing a few other reasons I'm sure others will point them out.
Also something worth saying, owners love to say that adding taller buildings and more buildings and people would kill the spirit of the city. But preventing new buildings has a effect of super high prices that makes it impossible to live in the city, in the end only billionaires can buy homes as investment and don't even live there while the few other building are rented to a few lucky high salary people which creates tension with the rest of the population. So you get a city full of empty houses, super rich people, high salary folks and regular people who are getting kicked out. Real people start living outside the city and its spirit is gone anyway.
"some zoning rules" is a veeery slippery slope.
Why is it so desirable for your landlord to be a business instead of a private individual who bought a condo? What problem does this solve?
> 40% have to be 3 bedrooms
What is this supposed to do? Yuppy roommates are still going to outbid working-class mom and dad every time. See San Francisco.
It prevents them from being bought by speculative investors and taken off the market. An alternative solution to the same problem is an empty-home tax, which is being rolled out in Vancouver.
> What is this supposed to do?
Its pretty obvious isn't it? It increases the supply of viable housing options for families.
I'm not trying to say this is the silver bullet - Its just some ideas.
My honest opinion is that Canadian housing should only be able to be owned by Canadian citizens, but that ship sailed long ago.
current owners want to keep the
inventory low [...] owners are
afraid tall building
In big cities the value of a low-rise house is almost entirely the value of the land on which it sits, and the owners would vastly increase their wealth if the zoning laws were changed so as to allow high-rise construction. Source of information: I own a low-rise house in the center of one of the world's biggest and most expensive cities, and I've tried hard to get building permission for adding a single floor, but that was denied on ground of making my building "out of character" with the neighbouring building.
I suspect that re-zoning is simply not a vote-winner (like e.g. adding a new runway to an airport), so politicians from all sides shy away from it.
The media focused on the south side murder rate but if you are north of the city there are plenty of safe and wonderful places to live.
My interpretation is that in SF, NIMBYism and city council members have blocked most efforts to build high-density housing. This means that it forces the prices on available housing up. SF is experiencing a huge influx of people wanting to live there, and there just aren't enough houses. Affordability is a big issue, and probably the biggest, but there are people that are able to afford the high prices. That line won't go on forever though.
Toronto has not shunned construction, far from it. We've built thousands of condo units. The problem is that they were built for investors in mind. Oh sure, if you're single or a couple, you could manage to get by in a 450-600 sf. 1BD 1BA condo, but as soon as you start to have a family, it feels cramped. A 2BR unit helps, and they exist, but there are not that many. Furthermore, our mentality in Toronto is that to raise a family, you must live in a house. That means moving out to suburbia.
A single-family home, townhouse, semi-detached, or detached, is always going to be in high demand, no matter where you are. In Toronto, it's what most of us were raised in. Getting us to move families into condos is a huge undertaking, and it's made impossible by the fact that developers don't want to build these units simply because no one buys them. It's a vicious cycle. So Toronto's issue isn't a lack of construction, it's a lack of foresight.
Finally, all large cities have this issue because of commuting. In Toronto, your options to get to work in the city are:
1) Live downtown, close to work to walk, bus, or subway in
2) Live in suburbia and spend 0.75-1.5 hours each way driving and/or commuting by bus or train
If you try to find more affordable housing by living further from the city, you start hating your life as you commute the 2+ hours in. It's like trying to live in Walnut Creek and work in SF. It can be done, but why?
Housing is a multi-faceted problem that isn't simply solved by just building more houses. You need to adjust people's expectations, habits, and start building viable transportation options to help move people.
Shouldn't savvy investors be able to see the market opportunity and put money into larger units?
The city I live in only builds 1%er apartments for investors, and construction is absolutely booming for them, which is very nice for those investors. Those are some very nice empty condo towers. The market for the lower 99% percentile income is totally separate and different, and frankly empty. There is no crossover.
Perhaps its like gold, in that its a commodity for investment but once price exceeds practical use levels for connector plating and tooth capping, its no longer relevant to the practical use fields at all, and its price can completely decouple and head to the moon. At some point the concept of owning a box full of air downtown will completely decouple from the concept of a place where humans live. At that point investment prices can and will go infinite with no effect on human housing, solely dependent on national fed rates and international currency exchange rates.
The answer to this is to pressure companies to move their offices out to the suburbs.
One of the reasons why Texas still has affordable housing with good commutes is because a lot of companies have abandoned the traditional central business districts and moved into boomburbs and edge cities.
I live in the burbs, and of the four jobs I've had here, I've commuted farther out into the burbs for three of them (with a 15-20 minute commute by car). The one company I worked for that had offices downtown was the most poorly-run company I've ever worked for; them having offices in a place where no other tech company has offices was the least of my problems with them, but I did think "what tech company in Dallas makes people commute downtown?" when I was working there.
Why are people in Toronto's suburbs not just working in the suburbs? Is it because the businesses there are still stuck in the old model of having all their offices downtown? If so, let's throw huge financial incentives at them to get them to move their offices to the suburbs.
I've been mulling around an idea for a while of placing massive tax penalties on companies that hire people to work in a different county from where they live. Let's make employers pay ten times the income tax on every employee that lives outside the county where they work, and at the same time make it illegal for companies to make a current employee move or discriminate against a potential hire based on where they live. This will make them relocate to where their employees actually live. Or at least get them to switch as much of their workforce to remote as they can. I'm fine either way.
Aren't companies already highly incentivized to not locate in the downtown core, simply by the astronomical cost of real-estate downtown?
It seems to make sense that highly specialized industries would locate downtown, because that gives them access to workers from virtually the entire metropolitan area, since all transportation infrastructure points downtown. If a company were to locate in some arbitrary suburb/exurb, sure the people in that area would be knocking down their door to work there, but people cross-town from there probably wouldn't even consider it, since the commute would be even worse (assuming they can't move).
And if they somehow got it sooner? Still nothing they can do, because all the supply chain is also backlogged! You need to contract with a rebar installer now if you want to start building your fancy new condo in 2019.
The City of Vancouver raised development fees in order to hire more people to approve development faster. Some will say they're still apparently not adding supply fast enough. Maybe the rate of supply creation isn't the problem here...
Houston and Dallas: http://time.com/80005/why-texas-is-our-future/ or, somewhat less usefully, http://www.forbes.com/sites/scottbeyer/2016/08/31/why-is-aus....
The big problem is zoning: https://object.cato.org/sites/cato.org/files/serials/files/r... as it was implemented in the '70s: http://www.amazon.com/Zoning-Rules-Economics-Land-Regulation...
By the way, there is much heat in discussions about housing prices and urban development, but very little light and much misunderstanding. A good rule of thumb is simple: If you don't see any reliable sources being cited, there's a good chance that the assertions aren't true or don't encapsulate the most important parts of the supply-demand picture.
The Dallas area has no natural boundaries whatsoever; there are no mountains and no coast, nothing to stop development from sprawling out constantly. I was born in 1984, and I've lived in Dallas my entire life. I've seen the suburbs balloon in size like you wouldn't believe; and I'm not just talking population here, but area. The idea that we have continuous suburban development extending all the way north to Prosper (and soon Celina) blows my mind. Suburban development used to peter out in the northern half of Plano, and honestly southern Plano wasn't fully built-out either (there even used to be huge unincorporated enclaves in Plano).
Another is business culture; companies, especially tech companies, have largely chosen to avoid the central business district and instead locate their offices in the edge cities [0] and the boomburbs [1]. Blame historical happenstance: this phenomenon was entirely thanks to two companies who decided in the 1950s to locate their offices in Richardson instead of Dallas. One was Texas Instruments, which was founded as a startup in Richardson (none of the founders were native Texans, oddly enough), and the other was Collins Radio (now Rockwell-Collins), an established company from Iowa who decided to put their Texas campus in Richardson. Between the two of them, anyone in North Texas who wanted into the tech industry worked in Richardson. After that, the founders of TI decided to start a technology-oriented university so they can grow their own talent right there in Richardson. Soon, they handed over the university to the state, who promptly renamed it the University of Texas at Dallas (despite it actually being in Richardson). Since then, UTD has become the most prominent school for engineering and computer science in the entire southwest (when I went there, the phrase "MIT of the southwest" was bandied about a lot), cementing Richardson as the home of the tech industry in North Texas.
I find it interesting; housing prices actually have spiked in the Dallas area thanks to an unexpected surge of demand (I expect prices to go down soon, as new sprawl catches up to the demand), but Richardson is still one of the most affordable cities in the Dallas area, and it's still recognized as being one of the best cities in the US to live. That combination of affordability and quality of life is rare; usually, the two are inversely proportional. You can still find a good house in Richardson for under $300k, and if you look carefully, you can go below $250k.
Now, I don't know too much about Houston, but it's pretty low on natural boundaries. Sure, it's not too far from a coast, but that's only to the south, and right now Houston's sprawling north and west. No mountains, either. I don't know much about how the business culture evolved, though.
The problem is that of speculative investment driven demand that is detached from local realities. This sort of irrational demand is endless and cities can't possibly be expected to keep up.
At this point this new housing supply is being partially left empty due to absentee owner/investors. It doesn't make sense.
Cities need to keep adding supply, but higher levels of government also have to have a look at new tools to control demand, such as more stringent lending rules and unoccupied housing taxes. In Canada foreign capital is an issue that has fuelled the housing bubble, but lax lending requirements and low residential taxes have also contributed.
Why compare the Toronto housing bubble with that in Japan or the US? You don't have to look further than Toronto for a direct comparison; [housing prices in Toronto decreased by 40%](http://www.torontocondobubble.com/2013/02/toronto-housing-bu...) between 1989 and 1997.
Second, a bully offer is not an "aggressively high" offer by definition. A bully offer is simply an offer that is submitted before an agreed upon offer date. He offers no evidence to his argument that houses are going for 6-figures above the asking price.
Last, ideally these statistics would have been given in context. Don't pull two historical housing bubbles and then compare their growth to Toronto's. Rather, pull all fast growth housing markets and compare their behaviour to Toronto's. In other words, how often is this growth not a bubble?
I'm 32 years old and consider myself very fortunate to be able to own in Toronto. This will allow my family to live in the city I love. Many of my friends are facing the choice where if they wait and growth continues they'll may be priced out permanently, but if they buy into the market they may be sitting on a bubble. There was tons of bubble talk when we bought, but we were more worried about being priced out.
This definitely is happening, but it's cherry-picked data. I live in what's considered a desirable area for chinese people (warden and steeles), and the latest sales around my area have mostly been for 6 figures over asking, with some being as high as 200k over asking. But around Unionville (a posh neighbourhood a few mins north), sales have actually been under asking (although, to be fair, the asking prices there are typically >1.5M)
Email me if you want a data source.
A condo costs less to live closer to the interesting things like work and culture and the higher density means the bottleneck resource (land) is utilized much more efficiently. I know there are cultural reasons not to, but to me living in houses is not something we would necessarily ever choose if we started today with a blank slate.
I think a world more along the lines of 80-90% green space with a sprinkling of 100+ storey condos in variable sizes and trim levels would be more livable. I struggle to see why one would want a backyard let alone feel entitled to one.
I think the relative price of land to median income will increase as population does (pretty easy to assert) and that we should instead just build very high density buildings surrounded by green space instead of engaging in zero sum competition for an unused backyard.
We talk so much about AI making web services better as a form of progress but how much of the middle class budget goes to web services? Sure it could make life better in the future but housing density could make life significantly better now.
You also have to take into account for the fact the Canadian dollar has fallen 25% to the Greenback since 2013
This is not an article about startup or the US stock-market bubble.
Addressing your actual comment by paraphrasing Burton Malkiel: "The market can invest irrationally for a surprisingly long period of time."
Toronto's housing situation is called a "bubble" because it's transitioning to a similar, global city status, and a lot of people are having a hard time facing that owning a house there is not meant for them.
I live in High Park. In a one bedroom apartment. I see for sale signs everywhere plastered with 'sold above asking!' labels.
The cold reality in Toronto is that it's just supply and demand. There are a handful of houses, and a handful of people with the resources to buy them and live in this beautiful place.
For the rest, take the GO train.
That is not the case in Toronto. The issue is not that prices are going up, but that they are going up exponentially in a way that doesn't relate at all to the growth of the local economy. Toronto is a city where an expensive restaurant is one that charges more than $40 for an entree. You will not find $100 cocktails or $500 tasting menus a la Hong Kong or New York in Toronto, because there would be nobody to buy them. You can still get a haircut for under $20 and see people in $300 off-the-rack suits in the Financial District, because the people there earn $70,000 or $80,000 not $800,000 or $8,000,000 as in NYC/London.
Supply and demand are both issues, there is a lot of the latter and too little of the former. But to say that Toronto has transformed into one of the richest cities on Earth simply isn't true in any regard except its housing market. And that is precisely the problem - it has the housing market of London with the salaries of Cleveland.
Uh, that is way, way off. A person making 70-80K/year in Toronto Financial district is like... junior analyst, junior software developer or so. That person is not going to make 10X or 100X as much in NYC or London.
But then, Google "Most expensive homes in NYC" (result: $72M-$120M) vs ""Most expensive homes in Toronto" (result $14.8M-$27.5M)
I guess it is clear that most expensive homes in Toronto are not even close to most expensive homes in NYC.
But make sure you also index that with median salary growth TO vs NYC. And also, you need to take into account CAD vs USD over the time period.
So... not easy.
NYC is fully of bankers, global elite.
SF is fully of tech-stars.
Toronto has no such industries with lots of super high paying jobs.
So yeah, I'm not too sure whether to be extremely happy or extremely worried..
Think of the $200k in terms of average annual household income, which is relatable.
Claims a 35.4% year over year increase. So that's a hot market.
Foreign money being injected into the process isn't helping, but I think the real problem in Toronto is unbelievably low interest rates and easy access to mortgages. Families are being approved for loans of such absurd proportions that everyone who has entered the real estate market in the last 10 years is house poor. Even small interest rate increases will make payments unaffordable and the whole teetering mess will come down.
Governments have exactly zero incentive to do anything about it, since greater property values means more revenue without the mess of a tax increase. The Ontario land transfer tax isn't high enough to stop anyone from speculating, but it's plenty to cash in on the situation.
but I think the real problem in Toronto is unbelievably low interest rates and easy access to mortgages.
Think of it as housing prices rising to capture most of the cheap money available on loan. If we see a significant and quick increase in prime rates it could see a real bloodbath develop.
A photo-sharing app with a market capitalization of 34.69 billion. Yes, it's a bubble.
This is not an article about startup or the US stock-market bubble.
The 2 issues might be relevant to each other, they might not. But you can't assume there is a relationship between the 2 issues.
Do you think $1 trillion++ of new debt per year affects nothing?