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The GTA's Housing Affordability Crisis

There are countless articles about the housing affordability crisis in Canada. Within my profession, I see first hand the struggles that many aspiring home owners face when trying to purchase a home in the Greater Toronto Area (GTA). It's very apparent that owning a home is now considered a luxury across the GTA.

Recently, an article from Point2Homes was released that showcased the amount of 'luxury' homes' (those homes listed over $1 million) listed across Canada. It demonstrated Canadian cities, specifically in Ontario and British Columbia, where more than half the homes for sale are listed over $1 million.

Based on my own experience and recent data from sales across the GTA, many home listings are underpriced to generate interest. The million dollar price point is a critical price as once you cross that threshold, the required down payment increases to 20% (vs 5% for homes under $500,000 and 10% for the portion of the home price between $500,000 - $999,999). Just think, the minimum down payment for a home purchased at $999,999 is $75,000 and the minimum down payment for a home purchased at $1,000,0000 is $200,000. That's a $125,000 difference!

So how does this relate? Because the $1,000,000 threshold is so important for home buyers (especially first time home buyers who don't already have built up equity in a property), any home listed under $1,000,000 is a popular choice. As a result, many real estate agents will list homes for just under that $1 million threshold in order to generate as much interest as possible for the home. If more buyers make an offer on a home, there is a higher likelihood that this increased competition will increase the eventual sale price.

In February 2024, the amount of freehold homes that were listed under $1,000,000 but sold over $1,000,000 throughout the GTA came in at a median of 46% overall, which demonstrates that reporting on the amount of homes listed over a million dollars is not showcasing a full picture of the unaffordable realities faced by many home buyers across the GTA.

For example, let's say that there are 5 offers on a home priced at $999,000. 2 of the buyers making offer have a budget of $999,000 and the other 3 buyers have a budget beyond $1,000,000. Even knowing that the home 'should be' valued higher than the list price, some buyers want to give an offer a shot in hopes that a miracle will happen. If buyers aren't informed of the offer prices (many multiple offer situations in Ontario don't utilize an open offer process at this time), buyers are offering blindly without the knowledge of the other offer prices. As a result, all they know is the number of offers they are competing against and often, a higher number of offers can result in some buyers feeling the need to increase their offer price, which can result in a higher selling price.

Since my data access is limited to the GTA, I wanted to provide an overview of the ratio of freehold homes that sell over a million dollars in 15 cities. Based on the data collected (sales data from the Toronto Regional Real Estate Board), consider these facts:

  • The only city with less than 50% of homes sold in February 2024 under $1,000,000 is Ajax

  • 40% of these 15 GTA cities have 90% or more of their homes selling over $1,000,000

  • ALL of the GTA cities have an extreme disparity between what a home buyer can afford (based on median household income) and the median sale price for freehold homes - disparities ranging from $400,000 all the way up to over $1,000,000 for homes in Oakville

Is it very clear that purchasing a home in the GTA is a huge challenge - especially as a first-time homebuyer. As much as the different levels of government announce initiatives to increase the supply, it's very hard to believe that any increase in supply will put a dent in the disparity between sale prices and affordability.

While I don't want to end this article with doom and gloom, here are some ideas for how we can see improvements to affordability:

  • consider changing the minimum down payment requirements for homes priced over $1,000,000 (at least for first time homebuyers)

  • buyers should strongly consider co-ownership opportunities where more than one household owns a home - double the income means a better opportunity to purchase a home

  • create incentive programs to encourage co-ownership opportunities such as tax rebates for turning a single family home into a duplex or triplex

  • consider assistance from family - whether through the initial down payment or assistance in obtaining financing for a home. Many parents of first time home buyers have a lot of built-up equity in their home. Encouraging buyers and their family to look into this option can make the realities of home ownership a little more feasible

There is no easy way to resolve the housing affordability crisis in Canada but looking at the problem from different angles and finding ways to make adjustments to the traditional purchasing and lending methods can help. Creating more supply cannot be the only consideration, especially with aggressive immigration targets each year. We need to come up with a complete strategy and educate consumers as well as those related to the real estate industry (real estate agents, mortgage brokers, lenders, lawyers) to understand the list of options in order to better serve the next generation of home buyers.

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