Have you seen the headlines? A study released by Ryerson University’s Centre for Urban Research and Land Development has declared Toronto as the fastest growing city in North America. Yet, new home sales are down. What’s up with that?
We’ve already discussed the population growth in Toronto and how it’s a population centre in Canada. This week we’re going deeper into why as real estate investors or aspiring real estate investors this new headline and the growth of this city and its surrounding areas is good news.
We’re Number One
From July 2017 to July 2018, not only is Toronto first on the "population growth by city" (chart below) with a growth rate of 77,435, it had more than 3 times the growth rate of Phoenix, Arizona, which sits in second place at 25,288.
In fact, Toronto is growing more than the next 3 cities combined, which is causing the exponential growth that we’re experiencing in the Greater Toronto Area. Currently, the GTA area is second on the list shown below of “the 12 fastest-growing metro areas” at over 125,000, just behind Dallas-Fort Worth, standing at just below 132,000.
The Questions Everyone Is Asking
At this point everyone is thinking the same thing, “If we keep growing, what’s going to happen to the city? Where are these people coming from?" Let’s dig deeper into the statistics of where the growth is coming from as this is important to Toronto's continual and sustainable growth.
If we take a look at the Dallas area, their growth was mostly caused by births from the existing population and through national migration. Canada, as we well know, is an immigration-based country. Over 50% of the GTA was born outside of Canada. We are the most multicultural city in the world and the Canadian government's plans for immigration continue to increase.
In 2018, 310,000 immigrants moved to Canada and that number continues to grow today. By 2021, they’re looking to increase that number to 350,000. When we look at Toronto, they are forecasting that, by 2041, our population will have increased from 2.7 million to 3.9 million. The next question you may have is, “Where are all these people going to work?” The Greater Toronto Area is responsible for 20% of GDP for all of Canada. The majority of the economic output happens here which means we’re attracting companies to set up shop here as there is an increasing amount of people moving to Toronto looking for employment. The problem is, though we are the fastest growing city in North America, we also have the lowest vacancy rate. Currently, our vacancy rate is at 3.8% in the GTA and a staggeringly low 1.1% in the downtown core. A healthy market is usually around 9.5% vacancy. We are quite literally bursting at the seams in regards to office space which is why we are seeing significant commercial construction downtown.
What About New Home Sales?
The population is growing, therefore jobs are growing, so shouldn’t we expect new home sales to grow as well? Simply put, no, they are not.
Below is a chart of the year to date sales of low rise projects (in green) and high rise projects (in orange). Since we’re all about condo investments here, let’s focus more specifically on the sale of high rise projects.
In 2018, high rise sales overall were down by 38% from 2017 and 4% lower than the 10 year average. At the end of the day it’s all about supply and demand. We are not building enough homes for people immigrating to move into. Naturally, if I was a builder, I’d want to jump right in and fill that demand.
The Atlus Group, who provided the chart above, spoke to their development contacts and more than half of the developer respondents in each major region said that cost escalation has become one of their biggest challenges with trade and labour shortages. Developers are holding back on creating more projects because they know their replacement costs will be significantly higher than what the resale market is. They would have difficulty absorbing those projects into the market because they literally cannot build them for any less. On top of that, the process of getting a building approved has become a drawn out ordeal which, of course, adds to the building costs to buy one of these homes.
There Is Still Opportunity For Real Estate Investors
These charts might leave you feeling a bit uneasy, but whether you’re a current investor with a portfolio or an aspiring investor, there is still value in the market and opportunity for prices to go up based on the information above.
I’m here to help you with that! To book a consultation, please send me an email at firstname.lastname@example.org or you can give me a call/text me at (416) 996-5181.We’ll work together to make your real estate dreams come true in helping you build generational wealth and financial freedom.