This article was written by Richard Stewart, Vice President, Legal Counsel, Sales Representative, Chestnut Park Real Estate Limited, Brokerage for the Invest In Style Magazine Lifestyle Issue.

 

A Quantum Shift in Market Forces; Lifestyles; and Expectations – And There is No Turning Back the Clock

 

The real estate market of the Greater Toronto Area (“the GTA”) and surrounding communities have experienced a remarkable evolution over the last decade or so. It has metamorphosized from a fundamentally local one, dependent upon domestic, provincial and regional influences, to one that is much more integrated with, and influenced by global and cross-border forces including immigration and foreign investment. As Toronto in particular, is picked up on the international radar and takes its place as a true global metropolis, this has a profound and irrevocable impact upon the residents of the city, and collaterally upon the surrounding communities and recreational and rural markets.

 

 

While some of these forces have been on the horizon for some time, it is only within the last decade, and last few years, in particular, that international attention, investment and migration patterns have focused on the Greater Toronto Area market so intensely. A wide variety of factors can be attributed to this upsurge in attention, including Canada’s enviable position as a comparative oasis of stability and security in an otherwise increasingly unstable and unsettled world. Complementary fundamentals include reliable political and banking systems, world-class education and health care, and a strong and sustainable economy. And in the case of the GTA, its position as a strong and expanding business and employment centre, with critical mass and diversity, enhances its reach, influence and reputation on a global scale.

 

International interest in the GTA has manifested itself in a number of ways. Families seeking better opportunity or safe havens choose to relocate to the area and set up stakes for both residential and business purposes. This builds upon itself, further encouraging investment, and as the area grows and gains importance, investors increasingly perceive this market as fertile ground. The reservoir of potential buyers of real estate inevitably expands, adding further pressure to prices in a self-perpetuating cycle. This trend has repeated itself for most if not all of the world centres including London; New York; Hong Kong; Paris; and increasingly Sydney. This trajectory is the same for the GTA. 

 

Moreover, as prices go up, the perception of the potential for return on investment grows, and more investors are drawn into the market. This is further encouraged by the fact that financing is facilitated through a ready and reliable pool of renters throughout the GTA. This further stokes demand, thereby imposing greater strains on affordability for local residents.

 

This inevitably has an impact on consumer choice, and influences demand and supply as it relates to location and property types. First off, detached and semi-detached freehold properties in the urban core become increasingly expensive and out of reach for the average potential homeowner, as household income cannot keep up with the surge in property prices. Buyers, therefore, are shunted towards more affordable alternatives such as condominiums, or less central satellite locations. Families are forced to become more flexible and are increasingly accustomed to raising their children in higher density developments as strollers become a fixture in those neighbourhoods. Moreover, many newcomers to the GTA come from locations where the condominium lifestyle is already fully entrenched and the norm for most people. Demand in the condominium market thus intensifies, fueling the imbalance between supply and demand in that sector of the market, and thus forcing more people to consider other options still, including renting in the city and/or buying their primary real estate investment in surrounding communities, or in many cases the country, where they can take advantage of both lower price points as well as lifestyle benefits. Many of these trends, which saw millennials, as well as downsizers, consider moves to alternative locations are facilitated by technological advances and more flexible work and living arrangements. All of this of course simply creates a knock-on domino effect to the surrounding secondary communities and heretofore recreational and discretionary markets.   

 

 

Market watchers, the press and government all took note of the growing impact of foreign investment and migration to the area and the resultant imbalance between supply and demand and negative impact on affordability. Noted as well as the expanding impact on most if not all real estate markets in Southern Ontario and the Greater Golden Horseshoe, in particular. This prompted calls for action and intervention resulting in the introduction of the Fair Housing Plan which brought in a number of measures including a foreign speculator’s tax across the Greater Golden Horseshoe and expanded rent control. The result was an immediate pullback in the market which was already starting to be weighed down both by lofty prices and buyer fatigue. The resultant negative psychological reverberations, as well as successive rate increases and the imposition of broader stress testing for mortgage qualification as of the New Year, have all had dampening effects upon an otherwise unsustainably heady and overheated real estate market.

 

 

 

But despite government attempts to engineer the market and impose some sort of artificial status on conditions and nostalgic expectations of bygone days where everyone could aspire to have that iconic three bedroom square plan and two car garage, the inevitable influence of market forces, migration and demographic trends continue to shape and mould the components to which a dynamic community must evolve, and which is inescapable in any vibrant and thriving region. And those fundamentals are very much at play in the Greater Golden Horseshoe and surrounding areas.  Newcomers continue to stream into the area, new families are formed, and people still need to live somewhere. Moreover, investors simply are persuaded and choose to invest in this robust economic centre with close to full employment.

 

The result is that even after the imposition of government measures to staunch price gains and address challenges to affordability, average sale prices are once again on the move, rising consistently now for several consecutive months with no sign of stopping. But people are adjusting and embracing different lifestyle opportunities that reflect both the cost of real estate in a major urban centre and advantages of living more flexibly and creatively.

 

The result is that the composition of buyers traditionally associated with particular housing types, and geographic locations is increasingly fluid and draws from an ever broader and more diverse constituency, further contributing to a steadier and more sustainable market, attuned to, and integrated with broader international forces and influences.

 

Regardless of the specific circumstances and scenarios at play in different households, the irrefutable truth is that in a preferred location like Southern Ontario, and a burgeoning area like the Greater Golden Horseshoe which encompasses a dynamic metropolis like Toronto making its presence felt on the global stage, it is impossible to slam on the brakes to ensure that housing conditions and lifestyle remain static and unchanging.

 

 

 

The genie is out of the bottle and no amount of government intervention or top-down social engineering can put a cork on, and stop the relentless impact of market forces, progress and evolution. But such is the case with all major global cities. Hong Kong, for instance, has some of the most stringent and onerous speculation taxes for real estate in the world. Notwithstanding that, demand for real estate in that world centre is unquenchable by virtue of where and what it is. Property prices there continue to strain the imagination and are amongst the most expensive of any city, anywhere. Forces at play in the GTA and surrounding areas are no different. Buyers, and the population generally, inevitably adapt and learn to either take advantage of the collateral benefits of this evolution which include living in lower maintenance high density properties complementary of active urban lifestyles, or diversify their portfolio and go further afield to recreational or rural destinations and profit from lifestyle benefits, and conversely, adjust to cope with the concomitant challenges. In the case of the GTA, a tipping point has been reached, and the real estate market for both it and the surrounding communities have evolved to the next level and is forever transformed. There is no turning back.      

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