The volatile real estate market in Toronto experienced a brief reprieve from unrelenting price accumulation through the majority of the year 2022, however, the regional average cost of a home is once again on the rise.

To address this challenge and stimulate Toronto’s real estate market, Mayor John Tory pledged in his recent election to increase the availability of affordable housing in the City of Toronto by densifying existing neighbourhoods and raising building heights. This measure was acclaimed by the region’s real estate development community, most notably the province’s homebuilders’ groups, RESCON and BID, expressing particular support for the requirement to expand housing alternatives in the missing middle and to permit higher housing density on important highways and near transportation arteries.

AN AMBITIOUS PLAN

At the end of August, Mayor Tory presented a five-pillar approach with the intention of stimulating the much-needed development of new homes and improving the general affordability of housing for the people of Toronto. The mayor has been highly active in the region’s real estate development. – Under his leadership, the city authorized a total of 24,829 housing units in July 2022, including 2,060 affordable rental apartments, 2,413 special rental units, and 775 replacement rental units.

In a press release, Mayor Tory stated: “We’ve made strong progress over the past eight years to get housing built in Toronto, but to tackle increased affordability challenges brought on by a national housing shortage we need to build more homes, faster,”. “I’m proud to announce a five-point plan that builds on this progress by looking critically at where we can streamline and modernize processes at City Hall, and how we incentivize our homebuilding partners to increase our housing supply and drive affordability,” he continued.

Tory vows to enable choices for “missing middle housing,” which might include duplexes, townhouses, or modest apartment complexes. He also promises to allow “increased middle density” along key roadways and in places that are serviced by public transportation.

The plan also calls for the acceleration of the building approval process by establishing a new city division called “development and growth” and staffing it with the current workforce; assisting in the creation of more cooperative, supportive, and affordable housing by granting city land to non-profit organizations; and encouraging the construction of rental buildings by reducing the fees and charges associated with doing so. Tory also stated that he will approach the provincial government of Ontario to get permission for the city to implement a “use-it-or-lose-it” policy regarding property that has been approved for the building of homes but has not yet been built.

In clear, this is what the plan entails:

• Obtaining permission from the province to implement a “use it or lose it” policy for developers, with the goal of preventing them from delaying the construction of buildings on property that has been granted for development.
• Enabling for additional housing in the “missing middle,” which would include the recently authorized garden suites and homes in laneways, as well as exempting new complexes with four units or fewer from paying development charges.
• Establishing an office for the city’s development and expansion, which will facilitate the streamlining of the production of new homes by functioning as a central hub that will handle all aspects of the process of review and approval with the goal of accelerating approval timelines. The approval process for purpose-built rental properties will be one of the main focus areas.
• Enhancing incentives for the construction of housing units designed specifically for rental purposes, such as reductions in fees and development charges.
• Handing over a piece of property held by the city to non-profit builders in an effort to increase the number of housing alternatives that are cooperative and supportive.

Moreover, his campaign claims that developers would be compelled to begin construction on undeveloped land within a specified time frame, or risk higher taxes and lapsed zoning approvals.

A TROUBLED MARKET

The Toronto Regional Real Estate Board (TRREB) published its monthly statistics report for the month of July 2022. In the study, it was noted that both sales volumes and new listings were down when compared to the previous year, region wide. And although August showed signs of recovery, home sales were still down 34.2% from a year earlier. The outlook is not bright.

However, the situation is different when it comes to prices, which started to decline at the beginning of the year but are now showing indications of recovery.

According on TRREB, “Market conditions remained much more balanced in July 2022 compared to a year earlier. As buyers continued to benefit from more choice, the annual rate of price growth has moderated. ” The benchmark price for a newly constructed single-family home in Toronto rose by an outstanding 31% year-over-year to $1,843,595. The same holds true for condominiums, whose prices have increased from 4.3% to 11.9% annually.

Furthermore, rising borrowing costs are impacting purchase decisions and even existing homeowners. TRREB President Kevin Crigger urged “the federal government to ensure greater housing affordability for existing homeowners by eliminating the stress test when existing mortgages are transferred to a new lender, thereby permitting greater competition on the mortgage market.”

He added that “allowing for longer amortization periods on mortgage renewals would assist current homeowners in an inflationary environment where everyday costs have risen dramatically.”

THE BOTTOM LINE

In summary, new policies such as Mayor John Tory’s are necessary to boost the region’s real estate market, namely addressing the issue of housing affordability, streamlining construction, and bolstering the rental market. Accordingly, TRREB Chief Market Analyst Jason Mercer stressed that “with savings high and the unemployment rate still low, home buyers will eventually account for higher borrowing costs. When they do, we want to have an adequate pipeline of supply in place or market conditions will tighten up again.” While it might help, there are structural issues at play and the supply needs to massively increase to balance demand. In the meantime, we continue to watch the pricing of homes modulate.