Toronto Has More Housing Than You ThoughtBy and
Household formation lagged home construction, census data show
City has seen one of biggest drops in share of young families
When it comes to Toronto’s runaway housing prices, the most important question remains the extent to which speculation is driving demand.
Ideally, fundamentals such as demographics and employment are at play, and the price gains reflect natural household growth getting ahead of supply. If that’s true, the market should eventually stabilize once new supply kicks in.
A situation where speculators are bidding up prices would be much more problematic.
Canada’s 2016 census, which the statistics agency is releasing piecemeal this year, is providing some insight into the debate. The results: supply may not be the big problem many people thought it was.
Between 2011 and 2016, the number of households in Toronto rose to 2.14 million, an addition of about 146,200, according to the census data, the latest round of which came out Wednesday. That compares to 175,825 new homes built over that period. In other words, supply of new houses exceeded real household demand by almost 30,000 over those five years.
That throws cold water on the argument -- voiced particularly by the industry -- that the city’s affordability crisis won’t be resolved unless the government introduces measures to help increase supply.
Some of the imbalance between supply and household formation over the past five years is a consequence of the construction slump during the last recession. Over the previous census period -- 2006 to 2011 -- completions totaled 160,195, compared with 188,450 new households. In other words, supply almost perfectly matched natural household demand over the past 10 years.
One segment of the Toronto market where lack of supply is definitely a problem is single-detached homes. These highly-coveted properties accounted for just 29 percent of new builds over the past five years, down from 40 percent over the 10 years prior. They’ve also been growing at a much slower pace than household formation. The number of single-detached homes in Toronto is up about 13 percent over the past decade, versus 19 percent in the number of households formed.
The city is simply running out of room to build on large properties, evident in census data that show its population density has surpassed 1,000 people per square kilometer for the first time ever, another factor that should continue supporting prices for detached homes.
- Teranet/National Bank Home Price Index (Monday, 8:30 a.m.)
- Bloomberg Nanos consumer confidence index (Monday, 10 a.m.)
- Foreign Minister Chrystia Freeland speaks to a Commons committee about Nafta negotiations (Monday, 10 a.m.)
- Canadian Real Estate Association existing home sales (Tuesday, 9 a.m.)
- International securities transactions (Wednesday, 8:30 a.m.)
- Factory sales (Thursday, 8:30 a.m.)
- Consumer price index (Friday, 8:30 a.m.)
If the supply imbalance does lead to a price correction in Toronto’s housing market, there may be a ready supply of buyers waiting in the wings.
Almost half of young adults in Toronto live with their parents, the highest ratio in Canada, according to last week’s census figures. Pent up demand from these so-called basement kids may quickly emerge to take up any pricing slack.
Diana Petramala, an economist at Toronto Dominion Bank, says the high proportion of young adults living with their parents is slowing the formation of new households.
After all, faced with the challenges of buying a home in Toronto, where the average price was running at about C$746,000 ($589,000) in July, younger adults are more likely to defer decisions on starting families and less likely to take on the burden of ownership.
“I think household formation looks low given population estimates and the age structure of the population,” Petramala said in an interview last week, estimating household formation would typically have been about 16,300 higher over the five years.
The age analysis, released in May, offers some insight into another impact of rising home prices in Toronto. The city was once the place young families went to start a life, but that’s no longer the case.
In 2001, more than 30 percent of Toronto’s population was in what can be described as the young family cohort (those aged between 0 and 9, plus those aged between 30 to 39). That was the highest share among the country’s largest urban centers, and compares to 28 percent in Montreal.
While the share of that cohort has since fallen across the country, Toronto has seen one of the largest drops. The census data show the young family cohort now accounts for 24.9 percent of Toronto’s population, placing it in the middle of the pack among major cities and half a percentage point below Montreal.
To date, Statistics Canada has released 2016 census data centered around household formation, age, sex and dwellings. Data on income, immigration and mobility is due in the coming months.