Land getting scarce, unsatisfied demand growing – no relief in sight for Toronto real estate market

Despite the recent slow-down in price growth of the real estate market in the GTA, most experts predict that the market will continue to see prices rise for the foreseeable future due to the strong fundamentals for growth. 

A growing scarcity of land for development has become a major factor driving real estate price growth. According to Altus Group Ltd. (via Bloomberg), the cost of land has nearly tripled in some areas in the GTA in the past five years. CIBC reports that, after the price hike in the spring of 2017, land now accounts for more than 55% of the total real estate sale price in the GTA.

The following may explain why land for development is so scarce in the GTA: according to Malone Given Parsons Ltd. (Bloomberg), under Ontario’s new growth plan, 17,200 hectares of land are available for residential construction -- much less than the 100,000 hectares the province says there are; while implementation of the Places to Grow Act, a regulatory land framework introduced in 2006, is lagging 10% behind schedule (CIBC).

On the demand side of things, things are tense as well. Young Canadian adults (aged 20 to 34) increasingly live with their parents or other roommates due, in particular, to escalated real estate prices. The share of young people living with parents has grown from 33.3% in 2011 to 34.7% in 2016, while those living alone or with roommates has grown from 20.3% to 23.4% over the same time frame.  It is expected that these individuals will eventually form households, with some estimates that this category could amount to 9,000 households in Canada, of which 6,500 are in Toronto (CIBC). Some see this as an army of potential buyers that will act as insurance against significant real estate price declines.

 

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