Real Estate

Charting Toronto’s housing bubble Pt. 2: Houses vs Condos

Houses haven’t always been the better investment in every neighbourhood
Condominiums are seen under construction in Toronto, July 10, 2011. Canada’s condominium boom, which has filled the skylines of its biggest cities with cranes and prompted a warning from its central bank, may well avoid the type of crash that has hobbled the industry in the past. Picture taken July 10, 2011. REUTERS/Mark Blinch (CANADA - Tags: BUSINESS CITYSCAPE CONSTRUCTION)

A few weeks ago I mapped out what has been happening to home prices in the different neighbourhoods across Toronto since 1996. Readers pointed out the major limitation of that analysis, which is that the average home price doesn’t distinguish between different types of housing, such as condos or detached homes.

Anyone reading the real estate news these days will know that detached houses are becoming a rarity in the city and prices are soaring as a result. Meanwhile, condo prices haven’t risen nearly as fast thanks to the onslaught of new construction.

So what has been happening to prices of these two very different types of housing at a neighbourhood level?

First the condos (Click around on the map for more details about price changes):

Clearly some neighbourhoods have been very good for the condo buyer. (All figures in these maps been adjusted for inflation.) Granted, not every area of the city has seen an explosion in condos. Many of those areas that have seen condo prices more than double, like Riverdale, have relatively few condo developments, especially compared to downtown. By contrast, neighbourhoods, like Rosedale, the Bridle Path and the Junction have seen some pretty lackluster gains in condo prices, but are also home to comparatively few condos. Many of those neighbourhoods also had very few condos back in 1996.

Much of the recent condo boom is centred around the downtown. Neighbourhoods like C1 (which I’ve called Downtown West) has seen prices nearly double over the past 14 years, meaning downtown condos have largely been a good investment so far. Prices haven’t grown nearly as quickly in condo-heavy suburban areas like W6 in Etobicoke, which I’ve called Mimico, where prices are up just 36 per cent.  The same can be said for the condo boom along the subway line in North York, where prices have risen just 40 per cent.

Now for detached houses:

Here, the downtown-suburban divide is much clearer. Houses in the core have done much better than those in the suburbs. Houses in neighbourhoods like Cabbagetown (Downtown East on the map, or C8) Leaside (C11), the Annex and Yorkville (Yonge-St. Clair, C2) are up more than 200 per cent. Prices there have risen even faster in those areas than in more exclusive neighbourhoods like Forest Hill, Rosedale and the Bridle Path. Meanwhile, house prices have been rising much slower for neighbourhoods in north Scarborough and Etobicoke.

Maybe that’s not surprising given that some of the neighbourhoods that have seen the strongest growth are kind of trendy areas that inspire stories about bidding wars. But obviously buying a house isn’t guaranteed to be a great investment even in a city with a strong housing market, like Toronto.

Take this as an example: In 1996, the average house in Leaside went for $308,000 (or roughly $436,000 in today’s dollars). The average house in Rexdale (W10) was $178,000 (or $252,000 in 2014 dollars.) That’s a pretty big difference for someone trying to afford a house back in 1996. But, if a buyer had managed to stretch their budget enough to buy in Leaside instead of Rexdale, his home would be worth around $1.4 million today rather than $439,000 if he’d stuck with Rexdale.

Of course, Rexdale and Leaside are two very different neighbourhoods. But it underscores that the Toronto housing boom is not a citywide phenomenon and is largely driven by homes in central neighbourhoods close to amenities and transit.

Now let’s compare how house and condo prices performed in the same neighbourhood:

It would be easy to expect that a rising tide lifts all boats: when buyers flock to neighbourhoods for the amenities and the transit, prices of all types of housing should rise at roughly the same rate, even if condos cost much less than detached homes.

Clearly that isn’t the case in most parts of the city. In fact, it’s only really true in the Beaches (E2) and Islington (W8), the two neighbourhoods shaded in light blue. For instance, in the Beaches detached houses are up 158 per cent, while condos are up 152 per cent. In two neighbourhoods — Queensway (W7) and Riverdale (E1) condo prices are actually up slightly more than prices of detached homes.

Interestingly, if a buyer back in 1996 had been given the choice between buying a condo in the downtown (C8) and a suburban detached house in Scarborough (E9), the condo would have been the better investment.

However, in most neighbourhoods, it’s clear that houses have been the better investment for buyers who could afford one. That’s also true in the downtown, where condo prices have nearly doubled— but house prices have risen even more.

There will inevitably be criticisms of this analysis, given its limitations. Much of the condo development has happened only in recent years, which makes it difficult to do an apples-to-apples comparison of the condo market today and back in 1996.

Unfortunately the kind of data that would allow for a granular analysis of the Toronto housing market isn’t available to the general public.  But the sales data that is released monthly by the Toronto Real Estate Board is enough to paint a picture of a city where all houses — and condos — are not created equal.