Toronto's housing market on fire despite pandemic
Few countries have done as much to cater to the millennial generation’s desire for downtown living as Canada, where gleaming new apartment towers crowd city skylines and once-languishing neighborhoods have been reshaped by an influx of young people.
The country’s three largest metropolitan areas — Toronto, Montreal and Vancouver — built more apartment units per capita than almost every other large North American city over the past decade. But the COVID-19 pandemic and its attendant remote-work revolution now have urbanites leaving in record numbers, emptying condo towers and sending rents tumbling for thousands of mom-and-pop investors who took part in the boom.
The fallout may extend far beyond the third-wave coffee shops and craft breweries that sprouted up in these areas; with a record 9 per cent of the economy tied up in residential real estate, Canada can’t afford to let its densification play end. So its wily developers are shifting to the suburbs, betting young people unable to pay up for detached homes may embrace larger condos if they come with a bit of the boho fun they’ve gotten used to downtown. It’s a move that stands to transform both suburban towns as well as the cities left behind.
“The health of the housing sector is quite important to some of the bigger cities in Canada,” said Doug Porter, chief economist at the Bank of Montreal. “You get in a situation where, I don’t want to say it’s too big to fail, but we’re close to that. Any weakening in the residential market could threaten the regional economy in some of the bigger cities.”
The surging interest in suburban living is occurring in the U.S. too, but with average home prices 40 per cent higher in Canada, the affordability pressures that lead to densification are being felt faster and more intensely in the northern country. That means the changes coming to its suburbs may offer a glimpse of the future for America as well, just as it did during the urban boom.
From 2010 to 2019, Vancouver built the most apartment units per capita among large metropolitan areas in North America, according to data compiled by Bloomberg and online brokerage Redfin. Montreal and Toronto ranked third and fourth, respectively, with only the U.S. hipster haven of Austin, Texas, coming above them. All together, Canadians spent $91.2 billion (US$72 billion) constructing denser housing in the three metros, as measured by the value of their building permits.
Toronto’s Liberty Village neighborhood, just west of the downtown financial district, exemplifies the explosion in development. A turn-of-the-last century industrial area, its grand 19th century carpet factory was redeveloped into office space for hip media companies, an old toy factory became lofts, and hulking condo complexes have relentlessly multiplied along Liberty Street. But while the skyline is still dotted with construction cranes, strains are starting to show.
‘For Lease’ signs proliferate on shop fronts, the local bus stop features ads for real estate agents that specialize in selling condos, and in the condo buildings themselves rents have fallen almost 12 per cent to an average of about $2,000 a month, according to data from research firm Urbanation.
The plunge in rents is critical to the people who bought apartments with plans to flip them or rent them out. A third of Toronto and Vancouver’s condos, and a fifth of Montreal’s, aren’t inhabited by their owners, government data show, suggesting they’re investor-owned. Beyond millennials, many of the people who typically rent such properties, such as students and immigrants, also aren’t coming to cities because of the pandemic.
“Is this going to affect some people negatively? Absolutely yes,” said Simeon Papailias, a real estate broker who’s spent the last 12 years building a business, REC Canada, that specializes in linking prospective investors with new condo projects. In December, he closed on his own investment in a Liberty Village penthouse, and though he managed to find a tenant, the monthly rent came in about $800 lower than he would have expected before the pandemic.
“I do think the pandemic is going to leave its mark on the areas that were driven by youth,” he said. “We’ve seen a massive increase of millennials applying for mortgages and looking for a house.”
But the people who could wind up facing the greatest difficulty from millennials’ desire to live in larger homes may be the millennials themselves.
Vince Pontaletta, a 32-year-old real estate broker working in the suburbs of Vancouver -- Canada’s most expensive home market -- is seeing that first-hand. After a blistering year when bidding wars broke out on nearly every property, the average price for a home in the Fraser Valley where he works is now only about $50,000 shy of the $1 million average in Vancouver itself.
“If someone calls me right now and says I want to buy a house for under a million dollars, you know how hard that conversation is?” he said in a video interview from the house he bought three years ago in the Fraser Valley city of Langley. “I have to say, sorry, I don’t think that’s going to happen.”
With inventory so scarce, condos are one of the few areas of the market where buyers have some choice, Pontaletta said.
That was the experience of Caroline Comeau, a hospital administrator who wanted to buy a detached house with her partner outside of Montreal. After making offers on six properties and being outbid each time, she eventually purchased a two-bedroom condo in the suburb of Vaudreuil-Dorion.
“We wanted to have a first home where we could build a family in, but we quickly realized we couldn’t think about those kinds of properties, they were too expensive for us,” Comeau said. “It’s been a hit in the face that at 26 years old, we can’t get what we want, but we’re going to settle for what we like.”
Canadian developers’ response to these pressures can already be seen in the city of Mississauga, about a 40-minute drive from downtown Toronto. While much of the area is still strip malls, subdivisions and a smattering of tall buildings marooned in a sea of parking lots, a growing clutch of condo towers and townhouses just west of city hall show the city is starting to achieve something different: a walkable downtown.
Retail space populates the base of each building with corner stores, shawarma joints, physiotherapy offices and a patio to grab wings and beer. Rows of townhomes front a brick-lined pedestrian path. Residents can walk to the YMCA, the library and a local performing arts center.
Much of what’s in the area so far is the brainchild of Mitchell Cohen, who, as chief executive officer of Toronto-based developer Daniels Corp., is a veteran of the urban condo boom. Since acquiring this slice of Mississauga two decades ago with the freedom to build as high as he liked, he’s been steadily pursuing the vision of a denser suburb.
In what could be a pandemic-induced tipping point, 2020 was the first year that new condo sales in Toronto’s suburbs overtook those in the downtown, according to data from Urbanation. Seeing the shift in demand, Daniels took the opportunity to tweak plans for a similar townhouse and apartment-style development in nearby Brampton by adding even more density.
Showing up for a tour of the Mississauga project in what can only be described as downtown dad chic, with a tiny beany perched above his ears, tortoise-rimmed sunglasses, and a paisley scarf knotted about his neck, Cohen expressed confidence that the density moment has finally arrived, even though the frigid winter temperatures and a coronavirus lockdown made the developing neighborhood look practically empty that day.
“People would love to have that white picket fence and that two-car garage if they can afford it -- but they can’t,” he said. “People need homes they can afford. And people need opportunities to live, work, play and experience culture where they live, so that after moving to that home they can afford, they’re not getting in their car to go downtown.”