As one of Canada’s hottest real estate markets, Toronto’s home sales continue to boom and prices continue to rise despite the considerable impact of the COVID-19 pandemic.
Toronto has had a housing affordability crisis for decades now. With the added taxes and fees and now rising prices, most younger millennials are coming to terms with the idea that perhaps they may be renting for longer or living at home with family longer than they had anticipated in an effort to save enough money to afford a decent downpayment on a starter home.
The CMHC defines housing as affordable when “it costs less than 30 per cent of a household’s before-tax income,” which includes rent or mortgage (principal and interest) payments, property taxes and other home bills.
The price of housing increases when demand from population growth outpaces supply. Toronto became the fastest-growing metropolitan area in North America in 2019, growing by 127,575 people in a single year — even though only 102,000 homes were added in the three years since 2016.
Read on to learn about what are the 3 forces driving Toronto’s real estate prices higher.
Buyers of houses and condos in Ontario pay Land Transfer Tax (LTT) when they purchase a property – Sellers never pay. Buyers in Toronto are especially unlucky – we also get to pay the Toronto Land Transfer Tax. This additional tax is applicable only in the city of Toronto.
The LTT in addition to other taxes and fees drive up the cost of housing. The average cost of a detached home in Toronto is currently $1.52 million. Land Transfer Taxes will add nearly $54,000 to the price to the price of a detached home in Toronto, per the Financial Post. Property taxes will cost another $9,138 this year and more next year.
If you’re planning on buying a house or condo in Toronto, make sure you’ve budgeted for land transfer tax!
Development charges are fees collected from developers at the time a building permit to help pay for the cost of infrastructure required to provide municipal services to new development, such as roads, transit, water and sewer infrastructure, community centres and fire and police facilities.
The Building Industry and Land Association found that some development charges in the Greater Toronto Area (GTA) had increased by up to 878% since 2004. That adds a cost of $164,500 to the average condo in new high-rise developments in Toronto.
Development charges and property taxes add a further $150,000 per transaction, along with thousands of dollars more annually, according to blogTO.
Another driver of elevated home prices is the baby boomer cohort, a generation that was fortunate enough to have been able to invest in Toronto homes back when prices were affordable compared to today. The boomers are highly unlikely to move out of their current homes to downsize, relocate or move into retirement homes earlier than absolutely necessary.
Data from Altus Group indicated that single-family homes, which account for a significant portion of available housing in Toronto, are still “the preferred living option” of 71% of homeowners in the 65-74 age range.
