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Toronto Housing Crisis Update: It Is Getting Worse!

I have a lot of news to share with you today.

We are going to start off with the latest market watch report from the Toronto Real Estate board.

Then we’ll talk about our housing crisis.

There have been lots of discussions about reducing demand and increasing supply.

I’m going to share the latest movements on both the demand and supply side.

As we moved into October, the market continued to be very quiet.

In terms of sales activity, we saw 4,646 transactions in October, pretty much the same as in September.

In terms of average prices, the October prices were slightly higher than in September in both the low rise and high rise segments.

We can consider prices staying more or less flat.

Record population growth and a relatively resilient Canadian economy are helping to keep prices stable despite the very high interest rate environment.

So the real estate board is predicting that home sales will pick up quickly once mortgage rates start trending lower.

On October 30, Bank of Canada Governor Tiff Macklem said the central bank could begin cutting interest rates before inflation is all the way back to the 2% target.

Markets and Bay Street forecasters widely believe that the Bank of Canada is done with the historic rate hikes.

Many analysts are betting on rate cuts beginning sometime in the middle of next year.

The Bank of Canada also noted the resilience in the housing market even in the very high interest rate environment and here’s what Mr. Macklem said.

“We had a supply problem at low interest rates, we have a supply problem at high interest rates.  Obviously, interest rates have a big impact on the housing sector, which is very interest sensitive, but we’re not going to solve the housing shortage with interest rates.”

Back to the same old supply problem.

If we are struggling with supply, then can we reduce demand?

By the way, if you are enjoying this kind of news update so far, make sure you subscribe and hit the bell so you always stay up to date.

According to a recent report published by a public opinion research agency Nanos, 53% of surveyed Canadians want Canada to accept fewer immigrants than the permanent resident target for 2023, which is 465,000.

Back in September, the Canadian government did say they won’t rule out changing immigration targets to address housing challenges.

The official immigration targets for the next 3 years were announced just a few days ago, on November 1.

What do you think?

Reduce?  Same?  Increase?

The decision was to keep the current targets, no change.

485,000 new immigrants in 2024.

Half a million in 2025.

Another half a million in 2026.

You see, the housing demand will continue to be very strong going forward.

So we are not cutting demand, then what are we doing on the supply side of things?

The province of Ontario has set a 10-year building target for each city to meet.

The city that tops the list, of course, the City of Toronto.

Toronto needs to build 285,000 new homes in the next 10 years.

Mississauga is coming second, with a target of 120,000 new homes.

In third place, Brampton, 113,000 new homes.

Markham, 44,000.

Vaughan, 42,000.

Richmond Hill, 27,000.

Let’s focus on the City of Toronto.

Toronto’s Mayor Olivia Chow says she’s committed to the target of 285,000 homes over 10 years.

As of now, about 95% of people in Toronto live in privately owned housing and only 5% live in government housing.

In order to meet the building target, the government aims to build 65,000 rental homes and have private builders take care of the remaining 220,000 homes.

How much does it cost taxpayers to build 65,000 rental homes?

The mayor is asking for a billion dollars a year in grants, for the next 7 years, from the provincial and federal governments, that’s a total of $7 billion dollars.

Is that really going to materialize?

Well, the mayor says she’s very optimistic.

Let’s just assume this can be done.

It would only take care of 20% of the new home target.

From a big picture point of view, the government is spending a very sizable amount of money to take care of a small part of the problem.

In the end, we still need private builders to solve the majority of the problem because they will need to build the remaining 80%, that’s 220,000 homes in 10 years.

So Toronto developers would have to build roughly 22,000 units per year.

This year, we are already 14,000 units behind.

The very high interest rate is definitely the thing.

And it’s not only affecting the buyers.

It’s also a big problem for developers.

They are dealing with a spike in construction expenses.

Building costs have gone up 55% since the start of the pandemic because of material and labour shortages.

But developers can only push up prices so far.

If their pricing is too high, no one is going to buy.

If their pricing is too low and they can’t make any profit, then it doesn’t make any economic sense to build.

That’s exactly what happened this year.

We are already 14,000 units behind.

Developers had been expected to launch at least 27,000 units in the Toronto region this year, but as of the end of September, they had only launched about 13,000.

I don’t know how we are going to catch up.

We’ll have to wait for the interest rate to come down to spark more sales.

As of now, we are quite stuck.

Demand remains strong, but supply is actually dropping.

I will keep you posted on how things unfold, so make sure you subscribe now.


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