Can the Government Be Blamed for Toronto's High Housing Prices?

By now, many real estate professionals and enthusiasts have given us their two cents about the Perth Street property that received 32 offers and went for $208,725 over asking last week. It seems that we just can’t resist that "real estate gone wild" headline. Works every time. But why the huge offer over the asking price? Well, some real estate salespersons and watchers claim this Perth Street house was listed well under the market value. If the price was selected based on the sales of comparable homes in the neighbourhood, the difference between list price and the sale price may not have been so headline worthy. Still, there is no ignoring that 32 buyers have tried to buy this one house, and this lead to one solid fact: there are not enough houses for sale.

Part of this is seasonal. January does not usually bring a lot of new listings, but this low inventory of houses has been a chronic Toronto problem for quite awhile. So, the question becomes: Why are there so few houses available for sale in Toronto?

This is where I like to blame the government. Don't get me wrong. They're not all bad. They can take some credit for regulating the banks in a way the United States never did, avoiding a mortgage meltdown and a real estate crisis, and they have put in some policies that prevent people, who are not ready to buy property, from a costly mistake. Still, let's not get too smug in our Canadian ways because government policies often leads to the situation that Toronto is currently in with no houses to buy, but more buyers in a price range under one million. So, let's look how the buyers grew and the sellers shank in numbers due to government policies.

MORE BUYERS. Not too long ago, the Canadian government said the mortgage insurer, CHMC, would no longer insure properties over a million. It made sense. CHMC was taking on a lot of mortgage debt on behalf of Canadians and the government wanted to lighten their debt load. In Toronto, houses can easily exceed a million in many upper middle class neighbourhoods like Little Italy, Riverdale or High Park. Even if you think those neighbourhoods are too fancy for you, let me remind you that emerging neighbourhoods like Leslieville and the Junction can easily have homes reach the million dollar mark. And even then, you may be saying "I have no intention of buying a million dollar house. So, this doesn`t effect me." The truth is, this policy affects you too. 

Out of the buyers who want to buy a home worth a million dollars or more, some of them will not have the required 20% down to buy it. So, for those who cannot cover the 20%, they will be competing with everyone else who wants to buy a house under a million. At the end of the day, this makes the houses under a million more a lot more competitive.

LESS SELLERS. It's been a number of years now that the city of Toronto has begun asking for a land transfer tax when someone who lives in Toronto buys a property. Buyers used to only pay the Ontario land transfer tax until the city of Toronto needed more money. I understand that the city of Toronto needs a revenue source, but by creating a land transfer tax, the local government almost doubles what a buyer would pay in taxes if he or she bought a property. The municipal government has put a huge burden on those who want to sell their properties. Many first time buyers get a bit of a break on the land transfer tax. So, the burden is not as big for those buying for the first time around.

 If you sell, there's a good chance you'll purchase another property, whether it's a bigger place for your expanding needs or a smaller more manageable place. You'll still need the pay big dollars when you buy again. For example, a reasonable move-up house at $850,000 would mean $13,475 in Ontario Land Transfer Tax and $12,725 for Toronto Land Transfer Tax for a combined total of $26,200. That's a lot of money to hand over in addition to the cost of selling and moving and future renos. The result has been that people would rather stay put and not sell their home. Thus, we see the situations where there are less homes for sale.

I don't want to blame the government for everything, and I don't always disagree with some regulation of the real estate market. There are a lot of reasons why houses are becoming more and more expensive. They don't build many houses any more in Toronto. People want to live in the city again. The commute to the suburbs is too painful. I can go on. Still, whatever the reason you see, I'd say two things are clear to me. The government has created policies to cause house prices to rise, and this year, in most Toronto neighbourhoods, house prices will continue to rise because of limited listings hitting the market.

The Tipping Point: Are Cities Becoming Too Dense?

Do you remember the days when every one was concerned about suburban sprawl? From the 1960s up to the early 1990s, there was deep concern about poorly planned low density suburbs that sprawled away from the city requiring a whole lot of driving to be done. Many city suburbs were poorly planned, and they expanded out gobbling up farmland and natural habitats along the way. 

These days, you don't hear about sprawl very much. As as collective concern, it has vanished from our consciousness. Like holes in the ozone layer and the Cold War, you just don't hear about it any more. But why not?

Well, many cities, like Toronto, have changed their official plan to protect farmland and the natural habitats around the city, or they have developed plans to revitalize the downtown with the idea that this will lead to a healthier, more prosperous city.   In 2006, Toronto changed its official plan so that no one could build any new development in the greenbelt that surrounds the GTA. They encouraged an intensification policy to end sprawl and better use up land in the city limits building up instead of out, when it comes to new development. 

It's a good idea because it is important to have farmland nearby to support a large city, even though we do import a lot of our food. And it creates more of a tax base so we, as a city, can collect more money to invest back in the city. 

Like with suburban sprawl, some argue that poor planning can lead to vertical sprawl. They feel humans will be healthier and happier around nature which, in turn, will bring about a better connection to the world. Building a bunch of high rises will only make people feel alienated from their natural habitat. 

For the most part, more intensification in cities has been seen in a positive light. Urban gurus like American Vishaan Chakrabarti believes we are undergoing something he calls hyperdensity, where cities move from already dense places to very dense/complex cities like London. He defines hyperdensity as enough population to support subway lines. It's the way we are heading in many cities around the world where most of the migration/immigration has been taking place. 

 For Chakrabarti, hyperdensity will work better than the low density suburbs, and generally produces a happier and prosperous community that is more economically productive and sustainable. And he maybe on to something. In the U.S. 3% of America's land mass generates 85% of it's economic activity. In Toronto, 46% of Torontonians walk to work. Cities are no longer seen as decaying and crime-ridden shells, but as a desirable places to live.  

Still, like the worry of the suburban sprawl of the past, intensification requires great city planning, and I'm not sure the city of Toronto has kept up. If we are going to continue along the path to intensifying the city, we need to think of creating better transit, more parks and new schools along the way. 

And what about the suburbs? Are they do be ignored? The truth is, suburbs are still being built outside of the greenbelt. And I can certainly understand their appeal. There is still a desire to live in a place where your house is cheaper and bigger and you can have a yard, even if you need to take on the killer commute to the city. So, they are not going to disappear and stop appealing to people, but they won't be growing at the same rate they once were. In the old inner suburbs of Toronto, in places like Etobicoke, we are seeing a transformation from suburb to something between a suburb and a city. Just take a look on Queensway where you have trendy new condos like Cube down the street from Costco and Home Depot.  It's a mix of every thing suburbs and the city offers: high rise condos, sidewalk cafes, subways, streetcars mixed with bungalows on huge lots, box stores, highways, malls and car-friendly streets. Some may see it as paradise - the best of both worlds, where others may see it as confused. 

Whether you're a city slicker or a suburban mini-van driver, we are going to grow as a region from all indications. And we can no longer afford to sprawl out. We just don't have the resources to build the infrastructure for low density housing. So, intensification or hyperdensity, or whatever you would like to call it, is here to stay. But like suburban sprawl, growing vertical instead out horizontal requires the right kind of planning. 

Will You Save Money Buying a Home With a Sketchy Past?

Already 2014 is proving to be a stubborn year for buyers, particularly when it comes to houses. So, some buyers dare to be more creative when it comes to what they will buy. Sometimes buyers venture into a neighbourhood outside their original search parameters that is further away but less pricey. Other times, if buyers would prefer to find a property in a neighbourhood that is a bit beyond their means, they may turn to one of the "handyman delights" requiring a complete gut job, which can add up to a 100K plus renovation. If buyers don't have the renovation funds for such a purchase, they may seek out an affordable property that costs less because it has a certain reputation. Well, a bad reputation to be precise. A house that has a sketchy past can seem like a deal on the surface. But is it?

You should approach stigmatized properties with extreme caution because they can become more trouble than they are worth. There are risks in buying these properties. So make sure you research them properly and talk to neighbours and your real estate salesperson to find out what they know about the house.

One of the biggest reasons a house may be stigmatized has to do with death. It's inevitable. People die. We may not want to think about it when we are buying a home, but it happens in homes. A lot. The truth is, in many houses that are 80 to 100 years old, there's a good chance that someone may have died while living there. And most people will be understanding of this. It won't likely stigmatize a given property to any large degree. It's not the fact that death has happened, but how death has happened. If a resident of 60 years has lived to a ripe, old age and died peacefully in their bed, then you are very likely to find no stigma attached to the house. If there has been a messy murder in the home, then there is going to be some notoriety to follow that will linger for some time. If you're one of those people who would not flinch, and see only a deal on hearing such bloody news, you will likely find a deal while purchasing. Chances are, however, when you sell your house down the road, the stigma won't likely go away if the death was brutal or well known. By law, you must disclose any information about a home that would affect the sale of the house, like a violent death. So, there is really no way of keeping your home's stigma a secret when you are selling without some ramifications.

Another big deal, when it comes to stigmatized properties, has to do with drugs. These days, desirable neighbourhoods that still have some crackhouses kicking around, are not as big of a deal as they once were, provided you no longer sAlready 2014 is proving to be a stubborn year for buyers, particularly when it comes to houses. So, some buyers dare to be more creative when it comes to what they will buy. Sometimes buyers venture into a neighbourhood outside their original search parameters that is further away but less pricey. Other times, if buyers would prefer to find a property in a neighbourhood that is a bit beyond their means, they may turn to one of the "handyman delights" requiring a complete gut job, which can add up to a 100K plus renovation. If buyers don't have the renovation funds for such a purchase, they may seek out an affordable property that costs less because it has a certain reputation. Well, a bad reputation to be precise. A house that has a sketchy past can seem like a deal on the surface. But is it?

You should approach stigmatized properties with extreme caution because they can become more trouble than they are worth. There are risks in buying these properties. So make sure you research them properly and talk to neighbours and your real estate salesperson to find out what they know about the house.

One of the biggest reasons a house may be stigmatized has to do with death. It's inevitable. People die. We may not want to think about it when we are buying a home, but it happens in homes. A lot. The truth is, in many houses that are 80 to 100 years old, there's a good chance that someone may have died while living there. And most people will be understanding of this. It won't likely stigmatize a given property to any large degree. It's not the fact that death has happened, but how death has happened. If a resident of 60 years has lived to a ripe, old age and died peacefully in their bed, then you are very likely to find no stigma attached to the house. If there has been a messy murder in the home, then there is going to be some notoriety to follow that will linger for some time. If you're one of those people who would not flinch, and see only a deal on hearing such bloody news, you will likely find a deal while purchasing. Chances are, however, when you sell your house down the road, the stigma won't likely go away if the death was brutal or well known. By law, you must disclose any information about a home that would affect the sale of the house, like a violent death. So, there is really no way of keeping your home's stigma a secret when you are selling without some ramifications.

Another big deal, when it comes to stigmatized properties, has to do with drugs. These days, desirable neighbourhoods that still have some crackhouses kicking around, are not as big of a deal as they once were, provided you no longer sell drugs from the purchased house or have any of the original druggies renting from you. I am sometimes a little surprised at how well a crackhouse can sell in certain neighbourhoods. For the most part, the reputation attached to drugs usually does not have a long term effect on a given house. In most cases, the new people who move in renovate the house so thoroughly that there is no feel for its drug-selling past when they're done. Let's just hope the drug dealers get the memo that your house is no longer the place to pick up the drugs.

Of course, there is one big exception to this rule, and that's grow-ops. Flat out, I would stay away from these. A good home inspector should be able to determine if your home has been used as a grow-op before you buy it. It's not that pot is such a terrible thing, but the growing of it requires a lot of moisture which can create an incredible amount of damage to your home, especially when it comes to mould produced by growing cannabis. It may require extensive work to remove the mould. In some case, the damage is so pervasive, that tearing down your house and starting over may be your best option. 

Haunted houses are another one that scare buyers off and may lead to a lower price. I'm not a big believer in ghosts. Even if they did truly exist, I don't think ghosts would be as evil as they are often depicted. So, these stigmatized properties could be a good buy, if you don't believe in them at all. On the other hand, if ghosts are real, you may want to find out if you have something like Casper the ghost instead of Freddie Krueger hiding in your basement. And more importantly, even if you don't find any ghosts in your new house, others may still believe they are there, and if the rumours persist, then the stigma may effect the selling of your house in the years to come.

All in all, there are deals to be had with stigmatized properties, but proceed with caution! Do your research. You need to determine just how stigmatized the property has been in the neighbourhood. Ask the right questions: Will this stigma last? Will it cost you money to renovate and fix the stigma? Can you be comfortable among ghosts? If you pay less now, will it simply mean you just sell for less later? It's up to your level of squeamishness and your willingness to take chances. You may end up with one great deal or you may be making yourself the subject of the next Hollywood horror story - based on a true story!ell drugs from the purchased house or have any of the original druggies renting from you. I am sometimes a little surprised at how well a crackhouse can sell in certain neighbourhoods. For the most part, the reputation attached to drugs usually does not have a long term effect on a given house. In most cases, the new people who move in renovate the house so thoroughly that there is no feel for its drug-selling past when they're done. Let's just hope the drug dealers get the memo that your house is no longer the place to pick up the drugs.

Of course, there is one big exception to this rule, and that's grow-ops. Flat out, I would stay away from these. A good home inspector should be able to determine if your home has been used as a grow-op before you buy it. It's not that pot iscredible amount of damage to your home, especially when it comes to mold produced by growing cannabis. It may require extensive work to remove the mold. In some case, the damage is so pervasive, that tearing down your house and starting over may be your best option. 

Haunted houses are another one that scare buyers off and may lead to a lower price. I'm not a big believer in ghosts. Even if they did truly exist, I don't think ghosts would be as evil as they are often depicted. So, these stigmatized properties could be a good buy, if you don't believe in them at all. On the other hand, if ghosts are real, you may want to find out if you have something like Casper the ghost instead of Freddie Krueger hiding in your basement. And more importantly, even if you don't find any ghosts in your new house, others may still believe they are there, and if the rumours persist, then the stigma may effect the selling of your house in the years to come.

All in all, there are deals to be had with stigmatized properties, but proceed with caution! Do your research. You need to determine just how stigmatized the property has been in the neighbourhood. Ask the right questions: Will this stigma last? Will it cost you money to renovate and fix the stigma? Can you be comfortable among ghosts? If you pay less now, will it simply mean you just sell for less later? It's up to your level of squeamishness and your willingness to take chances. You may end up with one great deal or you may be making yourself the subject of the next Hollywood horror story - based on a true story!

Toronto Real Estate Predictions of 2014

As a kid I had an obsession about how the future was going to look in the year 2000, at which point I would be 30 years old. Young me saw myself as an old fart by that date, but life was going to be worry-free and dazzlingly different. There was a book at my primary school library that had a 3 month waiting list about what the future would look like in 10 years, then 20, then 30 years. It was intoxicating! According to my chosen literature, we should all be flying around in our Jetson-style cars. Work, as we know it, would all be done by robots while we sat around drinking Tab Cola, and we would be able to control the weather under our domed cities. As you can see, this book had less to do with realistic scientific advancements, and more to do with marketing books to the fantasy lives of 9 year old boys. I guess the big takeaway lesson here is to keep your predictions of the future a little more grounded in reality, and keep it to less than 30 years.

 Still,  I can't resist making a few of my own predictions for Toronto real estate in 2014. I don't believe we'll be flying around in our cars this year, but I do see some changes on the horizon.

So here is my thoughts on how 2014 will roll out in Toronto real estate:

1. PRICES WILL GO UP  Not everywhere. And not as much as in 2013.  Price appreciation will be neighbourhood specific, and the kind of property you buy will be key. Houses will rule supreme with continued bidding wars, especially in desirable and emerging neighbourhoods. Certain condos will also rise in price, but not by leaps and bounds. Some condos will sag in price or even level out. It's simple supply and demand. Very little supply of houses means more demand. Many more condos means less demand. The key with condos is to be in right neighbourhood and the right building.

2. IT'S THE YEAR OF RECKONING FOR NEW TORONTO CONDOS. The year the most Toronto condos were ever sold in pre-construction was 2011. Many of these are coming to market this year. There are closer to 20,000 units slated to be completed in 2014. So this will be the year to watch to see what happens with all of these condos. Can they be absorbed? I think so. And really, I find that new builds were too expensive compared to resale condos for many years now. So, it's about time that we are a bit more realistic about the price of new construction. Developers will continue to offer appealing incentives like free parking or lockers or a year of free maintenance fees to sweeten the deal without officially lowering the price of the condo while still lowering your purchasing costs. By 2016, the ample supply of units will begin to dwindle. So, those incentives won't stick around forever...

3. INVESTORS WILL LOOK TO GREENER PASTURES. When the financial crisis happened in 2008, it seemed that Canada was one of the very few countries that didn't have their real estate market crash. So, many folks from abroad who grew weary of the stock market and their own country's real estate market, came here to invest in real estate. Canada makes it relatively easy for foreign purchasers to invest in our country. So, foreign investment became a big deal in Canada. Nowadays, the deals are better in the U.S. cities where prices are starting to rebound after their huge slump. So, there will be far fewer investors and more buyers who actually live in the properties they purchase in 2014. This is a good thing. Though every condo has its fair share of owners who rent out their condo, it's good to have a healthy number of owners who live on the premises. They can participate on the condo board and be involved with the running of their building. It makes for a stronger board and well-maintained maintenance fees.

4. HOT HOODS OF 2014. In the east, the dismal portions of Leslieville's Gerrard will start to really take flight as businesses find the trendy Queen East sections too pricey and set up shop a few blocks away where the rents are much cheaper. Corktown will rise like a Phoenix with is excellent location, great urban planning and all the work for the Pan Am Games to be completed in the next year and a half. It's still a great place to invest and live. The Distillery will also benefit from all the PanAm Games preparations. In the West, the Junction and the Junction Triangle will continue to push up its cool factor even more as it moves from hippie outpost to hipster centre. In terms of downtown, the south core, in general, will become much more interesting than the north core of the city, as businesses and commercial demand shifts back from the suburbs with a stronger emphasis on the south city core. Cabbagetown's main street on Parliament will continue to improve particularly with the success of the Daniels condos that were once in the Regent Park area. With the continuation of this project, Cabbagetown will grow more solid as an established neighbourhood and Regent Park will shake its stigma after 50 years.

5. WHERE THE DEALS WILL BE. Emerging neighbourhoods will continue to be the best place for investment. In the west, I feel south Etobicoke is largely still undervalued, especially parts of Long Branch. Caledonia/Fairbanks and Weston are poised to be the next hot spots, but 2014 will only be the early stages of this. North of St, Clair in Oakwood-Vaughan, the success of Wychwood is starting to push into this neighbourhood with its massive houses. The east will have some deals in the Danforth Village, Woodbine-Lumsden and Crescentown, but, for the brave, the deals will be pushing into Scarborough. Pick your 'hood wisely here. Best Scarborough neighbourhoods border the old city of Toronto/East York or the lake, but you can find some great homes along the ravines or in areas like L'Amoreaux. Hamilton will continue to be your best investment out of the city with continuing price appreciations that made Toronto blush last year.

Okay, there you have it. My humble thoughts for the next year. Hopefully they will pan out a little better than the Future Predicting book of my youth.