Toronto homes will remain unaffordable to many buyers even if a “worst-case scenario” recession materializes, according to a new report.

“After years of being priced out of the market, many prospective Toronto homebuyers now sense an opening with a recession looming,” economists at Desjardins said in a note published Tuesday.

“But even in the direst of economic scenarios, we don’t see affordability returning to Canada’s largest city anytime soon.”

Restoring affordable real estate in Toronto is a long-term process that will require coordination between all levels of government and the private sector to address, the report’s authors concluded. 

WORST CASE SCENARIO?

Some economists have warned that a recession is on the horizon for Canada and the world, while others are predicting a soft landing. The Desjardins economists ran scenarios of what a potential recession might look like, and how it would affect Toronto’s housing market.

According to the report, a worst-case scenario would be a “1990s-style Ontario recession” which would reduce home prices from current levels by around 16 per cent, or $185,000, before the end of the year. Under that scenario, the report said home prices in Toronto would drop by about 30 per cent, or $340,000, from July 2023 prices by the fourth quarter of 2025. 

“Even if that improbable outcome were to materialize within the next three years, it would only bring Toronto’s home price‑to‑per capita disposable income ratio back to still‑stretched, late‑2015 levels,” the report said. 

Another possible scenario outlined in the report shows a “more bullish” trajectory of home prices in Toronto. 

“Our most optimistic scenario for current homeowners sees persistently strong population growth and limited numbers of new listings lifting prices above the February 2022 peak by early 2025,” the report said. 

ECONOMIC AND SOCIAL COST

Even if an economic downturn were to spur a decline in housing prices, the report highlighted that it would come with a “massive economic and social cost.” 

The economists compared their best-case scenario and the one where a 1990s-style recession occurs. They found the downturn scenario would result in a loss of about half a million jobs and a $35-billion loss of employment income by the fourth quarter of 2025.

The economists said the findings highlight the importance of implementing “ambitious plans” to increase the housing supply, while noting that young people are increasingly leaving Ontario due to elevated housing costs. 

“Thus, despite near‑record population growth, Ontario risks eventually losing the entrepreneurship and economic dynamism that young people bring,” the report said.