Population growth isn't driving Toronto house prices. So what is? - Macleans.ca

Population growth isn’t driving Toronto house prices. So what is?

While Toronto house prices have soared, the latest census figures show population growth in the city has begun to slow

A construction crane stand in front of the CN tower in downtown Toronto on Saturday, February 4, 2012. The condo explosion is changing the shape and culture of Canada's cities. THE CANADIAN PRESS/Pawel Dwulit


Last summer, in the frankest terms possible, Bank of Canada Governor Stephen Poloz warned home buyers, homeowners, mortgage lenders and the real estate industry that nothing justified Toronto’s skyrocketing house prices. Nothing. Zip. Zilch. Nada.

Toronto didn’t get the message.

In its recent outlook for 2017, the Toronto Real Estate Board said it expects the average house price in the greater Toronto area to surge by another $100,000 this year to $825,000. That would be on top of a $120,000—or roughly 20 per cent—increase in 2016. In making its forecast, the board repeatedly credited one factor for driving higher prices in Toronto: population growth.

Well, earlier this week Canadians got their first look at the results of the 2016 census, when Statistics Canada released population and dwelling counts for the country. And while the overall trend saw stronger population growth in urban centres, Toronto’s showing was rather middling.

The population growth of Toronto’s census metropolitan area slowed considerably between the last two census periods. The city grew by 6.2 per cent over the 2011 to 2016 period, compared to 9.2 per cent between 2006 and 2011. In fact, it was the slowest census-to-census growth rate Toronto has experienced in at least 40 years.

There’s a caveat to mention here. Over time the boundaries of Toronto’s census metropolitan area (CMA) have expanded, and so some of the population increases in the past were partly a result of this expansion. However StatsCan also said in an email that since the 1990s boundary changes have been minimal.

Yet despite the city’s modest population growth—Toronto only managed to top the national average by 1.2 percentage points—house prices have surged. Here’s that same chart, but this time including real (inflation-adjusted) house price growth between census years. Granted, the Toronto CMA covers a larger area than is captured by the Toronto Real Estate Board’s statistics, but as CMHC has noted, staggering price gains have spilled out of Toronto into its environs.

Never has there been a five-year stretch when Toronto house prices soared as fast as they did between 2011 and 2016.

(Post update: Below is a different version of the same chart showing totals, rather than percentage changes, since some have pointed out on Twitter that a smaller percentage change on a larger population base could still be a larger increase than in the past. However as the chart shows, the Toronto CMA population grew by the smallest number of people of any census period in decades. The disconnect between house price gains and Toronto’s slower population growth appears even starker.)


So what’s driving the market?

Wild-eyed speculation, according to David Madani, an economist at Capital Economics and a noted housing bear. Madani released a report Friday saying that imbalances in the housing market are worsening, and could become a drag on the nation’s long-term growth. Investment in housing, which has supported the Canadian economy through recent tough patches, has reached and remains near record highs.

Residential investment Feb 11

However the peak may have come. Madani pointed to the steep decline in housing sales in Vancouver, which have fallen 44 per cent since February 2016, noting that no macroeconomic shocks explain the drop. Mortgage rates remain incredibly low, despite mortgage rules being tightened by Ottawa. Meanwhile, employment growth has been relatively strong in that city. He also argued that the foreign buyer tax, introduced last August, doesn’t fully explain the collapse in sales either. “We simply think the housing bubble has burst,” he wrote. “Housing bubbles are, of course, inherently unstable because they are largely driven by unpredictable investor mania.”

And that brings us back to Toronto’s housing market, which Madani believes is being driven by “increasingly riskier” lending practices; the average home loan has ballooned relative to household incomes, he said, while mortgage lending is shifting away from traditional banks to unregulated firms.

All of this should be a concern for Toronto, as well as the Canadian economy at large, he concludes. “The abrupt slowdown in Vancouver’s housing market should serve as a warning shot. As things stand now, the economy’s performance this year could hinge on Toronto’s overheated housing market.”


Population growth isn’t driving Toronto house prices. So what is?

  1. Rising housing prices = inflation. Inflation is caused by loose monetary policy, in other words, low interest rates. Since housing prices aren’t included in the CPI, the BoC considers inflation to be low, and interest rates remain low, and inflationary, as a result.

  2. The Bank of Canada is primarily responsible for the housing bubbles in Vancouver and Toronto with it nearly free money, which steals from savers and pension funds, to give to the banksters and speculators.

    That and the Bank of Canada uses phoney indicators for inflation when it comes to many things, including housing. It uses owner’s equivalent rent, rather than house prices. Understating inflation is another way governments and the Bank of Canada “steal” from Canadians to give to the 1% elites.

  3. One way of looking at pricing is that the ‘right’ price of a thing is what people are prepared to pay for it. In any case, trying to find an understanding of a complex issue based on a single factor is almost pointless. For one thing broad stats like population totals are poorly descriptive: this at least ignores any demographic shift – perhaps its the simple fact that overly expensive housing trending to multi-unit high rise merely selects away from family units with children; even though this article dwells on population it doesn’t trouble to look at average occupancy per housing unit nor the average income of home buyers. It also fails to look at how the rate of creation of new housing compares to the removal of existing housing plus the rate of conversion of housing units to rental stock. Also, the only stat considered is the price paid for property that is in demand not the value of all property; this is of course devoid of data on the price not paid for property not offered for sale or not marketable; after all, a market is a place that only concerns itself with what is on offer, who is in the market and what is in demand. There’s even the human foible of valuing a thing according to the price paid.

  4. This increasingly sounds like the US housing marketing situation – risky lending practices and mortgages, individuals investing in homes they cannot afford and a burgeoning population. With newer construction stretching in and across the GTA, here’s a bubble that will burst anytime now.

  5. I think the answer is pretty obvious: The Banks are giving away cheap money! And it is ridiculous not to expect people to want to spend it! Cheap money chasing after fewer and fewer listings (because who is going to move unless they have to) equals higher and higher prices!

  6. Population growth is not the factor that is causing Toronto housing pricing to increase, the rate of new home building has been balanced with the population growth in Toronto. The price growth is due to limitation of inventory, low interest rates, as well as demand from foreign and domestic buyers. Lack of supply means that there less options to offer, this causes competition to increase as well as the prices. Majority of first time buyers are motivated by either fear of losing an opportunity or eagerness to get into the market. Low interest rates will encourage consumers to spend rather than save, it makes the cost of borrowing cheaper, less monthly cost of mortgage repayments, and it also makes it more attracting to buy a house. This will cause a rise in housing prices. Foreign and domestic buyers are being captivated by the increase of the costs of the house. They expect prices to rise, and it causes bidding wars. Domestic buyers develop fear that the increase will continue, which forces them to seal the deal immediately from the fear of missing out. Fewer inventory, low interest rates, and demand from investors are factors that are fuelling the Toronto housing prices to grow uncontrollably.