If you’ve been in the market to buy a home or are even just on the hunt for a new Toronto rental, you will know first hand how pricey the real estate market has become. It’s been this way for a few years now with no signs of slowing down. So why is Toronto so expensive?

The Price You Pay for Opportunity

Let’s start up front with the the good stuff. How many of us have moved to Toronto from other cities or other provinces in search of more opportunity? That’s the reason I came here, in a previous life, I was making $35,000 in Montreal in the financial industry, 12 months later I was in Toronto making $70,000 in the same sector, with only a slightly higher cost of living. Best. Decision. Ever.

Toronto is the economic powerhouse of the country for all of the career opportunity it provides in it’s 3 major sectors: Finance, Technology, and Film. Along with being very culturally diverse, it has become a popular destination for global visitors to explore.

Over the years, many articles have reported Toronto as the fastest growing city in the U.S and Canada. The Tech sector alone has been growing quickly, earning the name Silicon Valley 2.0 and luring big business from global companies like Apple, Google, Microsoft, Amazon, and Netflix.

Toronto’s population is growing quickly for more than just the economic opportunity it offers. Toronto earns global recognition by continuously ranking at the top of Global Liveability lists such as Mercer’s Quality of Living Report, where Toronto ranked 2nd in North America and 16th the world-over, and The Economist’s Global Liveability Index where it’s landed 7th for the second straight year.

Did you know?

London, England’s, financial sector with it’s lucrative careers is 336,000 jobs strong, and the city’s population is 8.9 million. Toronto’s financial sector is 276,000 jobs strong, and the city’s population is 2.9 million. The ratio is 3.8% vs. 9.5%.

How Much Do You Value Convenience?

When you live in downtown Toronto, you have everything at your disposal. Doctors, Accountants, Lawyers, Boutique Stores, and mountains of services within a stone’s throw — not to mention China Town is always open. The convenience of grocery stores within walking distance no matter where you live, Urban living offers unparalleled convenience.

For this reason, when you live in Toronto you don’t need to own a car — unless your job requires it. You will pay a premium for the convenience of living downtown, much like you will pay a premium for living in close proximity to the subway. If you can’t walk or bike to where you need to go, the Transit System can get you there.

And while it suits some people just fine to opt for that house in the suburbs, the time and money they spend getting to and from work each day are the price they pay for that lifestyle. If you’re commuting to work each day, you’re roughly paying $400 per month on transit and if you’re driving you have gas, parking, and monthly car payments to consider. While suburbanites are stuck in traffic, the city-dwellers are already back at home with their kids. Not to mention the savings this amounts to on child care.

Insider Secret: So Why Is Housing So Expensive in Toronto?

The first and biggest reason is the case of supply and demand. The population in Toronto is increasing rapidly as word grows and stories of success and fortune are shared (much like New York 25 years ago). In a recent report by Immigration Canada, the target for Canada’s population is +410,000 every year… until we hit 55 million (taxpaying) residents. The ultimate goal is 100 million in 100 years. Ambitious and beyond the scope of our lifetime — but there it is.

Let’s say we get 45% of that influx into the GTA. Complicated formulas aside, this will require 50,000 new homes built per year. Our current pace is barely 30,000 — an industry dirty secret is there is not enough skilled labor to meet the demand of builders and planners.

Current residents are not going anywhere — so where will the 20,000 homes deficit come from?

Baby boomers are staying put, electing not to sell and thereby not adding to the supply, so the demand for single family homes in Toronto has increased sending prices higher. In turn, the condo market has become the affordable option for many first-time buyers, subsequently putting the demand on Toronto’s condo market. 

The average condo price in the GTA increased 10.8% year-over-year.

Insider Secret: Why Are New Toronto Condos So Expensive?

In the pre-construction condo market, once a benchmark price to build has been set it’s impossible for developers to sell their projects for less going forward. It’s irreversible and so each condo development will typically launch at a higher price point.

 If the price point is perceived as too high for buyers, the developer will simply wait to launch until they can attain the price they need to be profitable. And so the cycle goes as such: as developers hold back from building, the lack of new inventory forces buyers to turn to the resale market. As the resale market absorbs the demand for inventory, their prices will begin to increase and it’s at this point where pre-construction developers will choose to launch.

Why Is Toronto Rent So High?

Toronto’s vacancy rate is still very low, hovering around 1%. As more would-be buyers are priced out of the market, they are forced to live longer as renters. The repercussions of the Rental Fairness Act of 2017, which had intended to protect renters from dramatic rent increases, actually led to more developers building condos over purpose-built rentals. Thereby reducing supply, something the politicians did not understand implementing that policy.

 With fewer incentives for developers to build purpose-built rentals, the much needed supply of affordable housing on the horizon started to dwindle. The lack of new rental supply during this period caused the vacancy rate to drop and the rents to rise. If it weren’t for condo investors buying pre-construction condos as rental properties, there’d be even fewer rental units available.

Insider Secret: The Cost to Build Contributes to Why Toronto Housing Is So Expensive

The cost to build property in Ontario has gone up significantly over the last few years. Construction costs for new condominium buildings in the Toronto area, including labour, materials, and city levies, climbed an estimated 25% vs. two years ago. Can you guess what’s the builder’s biggest expense? Many would say concrete, or steel … but it’s actually labour — the cost of the skilled labour who can successfully execute the monumental task (including workman’s insurance) has jumped 34%. These costs increases trickle down to the developers, the buyers, and the renters.

Final Thoughts

 It’s true, it’s expensive to live in Toronto. However, it’s up to you to weigh the pros and cons you desire for your lifestyle. If you want to live near work and save time commuting, you may need to pay more to do so. This is what residents of New York, London, Paris, San Franscisco decided for themselves. In fact, the price per square foot of many of these cities was USD$1000 PSF fifteen years ago.

The city of Toronto has tremendous success to offer which is why it’s growing in popularity, in population, and in price. Let me finish with two questions. What do people value most? And where will Toronto be in 15 years…