I used to think the Toronto housing market was like bitcoin. One day the bubble is bound to burst, and everybody who bought at the top of the market will look like idiots.
But the last housing bust here was a generation ago. Now I'm convinced that Toronto and Vancouver are like San Francisco – permanently unaffordable for everyone but the upper-upper middle class, and the folks who live in social housing. Over the long run it's only going to get worse. The only way to change the fundamentals is to introduce a plague virus that will wipe out all the boomers. You can only hope.
Who did this? We did. I and my generation of oh-so-progressive NIMBYs, and the progressive politicians we elected, and the progressive bureaucrats we hired. "We have NIMBYs putting up fights and barriers to decent housing for millennials," says Murtaza Haider, a Ryerson University professor who is an expert in real estate. "We also have NIMTs (Not In My Term of Office) who are keen to legislate restrictions on household choices by limiting supply of new housing or forcing households into smaller condos or rental units."
Of course, we're only trying to save the neighbourhood. We never expected to reap million-dollar windfalls as we squeezed millennials out. "Land development constraints increase the profitability of investments for existing homeowners," Prof. Haider explains. The scarcity of land also increases the cost of home ownership for future generations.
It's popular to blame foreign buyers for soaring house prices. But in the GTA, sales to foreigners account for just a small fraction of the market. The real reasons for the squeeze are land constraints and demographics. And the demographics are working against millennials. According to Urbanation, a Toronto condominium market-research firm, the population in the up-sizing age bracket (35 to 44) actually decreased over the past decade. These are the folks who are looking for affordable family-friendly housing. Thanks to the millennials, that trend is now in reverse. Over the next decade that age bracket will swell by more than 200,000.
Governments like to look as if they're doing something to cool the markets. But it's all for show. A foreign buyers' tax slapped onto houses in Vancouver was immensely popular – but its effect on prices was slight, and fleeting. Tighter mortgage rules that take effect next year will dampen demand a bit. But creative borrowers will find ways to work around them. In other words, any dips in the market aren't going to last. "If you think [Toronto and Vancouver] are unaffordable now, just wait," Benjamin Tal, deputy chief economist at CIBC World Markets, told The Globe and Mail last month.
Both Mr. Tal and Prof. Haider agree that future demand is being seriously underestimated. Higher immigration quotas mean that a lot more newcomers will be flooding into the GTA. Foreign workers are also a big factor – as is the pent-up demand of millennials still trapped in their parents' basements. Meanwhile, Ontario's master plan to release new land for development is running as much as a decade behind schedule. Mr. Tal's latest housing report estimates that only 23 per cent of the land covered by the plan is even remotely ready for development.
As for that affordable family-friendly condo in the city – the one that young families are supposed to want to live in – forget it. Land in Toronto has become so costly that it simply doesn't pay to build bigger, cheaper, family-friendly units. Those new condo towers are crammed with shoebox-sized one-bedrooms – cubicles for urban worker bees. Family-sized units are just a fraction of the market, and they are almost as expensive as single-family houses.
Land-use restrictions and stratospheric housing prices smother the hopes of the next generation. They drive people out of cities – especially the creative class, the folks that cities are supposed to attract. They drive out businesses too. (It's hard to attract new workers if they can't afford the cost of housing.) They are profoundly anti-natalist. (Lots of people don't have as many kids as they want because housing costs so much.) They also have a giant economic impact. One widely cited U.S. study estimated that creeping regulations and land-use restrictions have cost the country $1.4-trillion in economic growth. The only remedy is easing up on land-use regulations – an unthinkable prospect in today's progressive cities.
There is another remedy, of course. The boomers could sell out and/or die off. "The question is the amount of the housing that will become available once (if) baby boomers scale down," Prof. Haider says. When we do, millennials will be the winners.
So far, though, we're not obliging. Sorry, kids.