Toronto’s bubble in the ’burbs

Central Toronto’s bars, restaurants and theatres may be temporarily closed, but the city is far from asleep. “It’s bustling with walkers and park-goers. There are more people outside than I ever remember in my life, skating, tobogganing, hiking,” observes local resident Richard Joy.

Joy, who is head of the Urban Land Institute Toronto, part of a global research body, lives near The Annex, a compact downtown neighbourhood featuring a grid of streets lined with Victorian houses “and well-used porches”, he says.

There are mature trees, subway stations, nice shops, schools and parks. In essence, it’s the kind of village-like, community-minded neighbourhood where young couples and families have always clamoured to live in Canada’s most populous city.

But with central Toronto — like so many other cities around the world — not feeling much like its normal self in the past year due to Covid-19 lockdowns, there has been an escape to the city’s fringes.

High house prices are an important factor. In February, the average property price surpassed C$1m (£576,000) for the first time. Even before the pandemic struck last March, “the Toronto market was on track for the hottest spring ever, with sales up by 45 per cent year-on-year [in February 2020],” says Romana King, content director for the Canadian property portal Zolo.

After a brief blip during the first lockdown, sales figures recovered strongly from June, with home sales up by 53 per cent in February 2021, compared with the same month in 2020, according to the Toronto Regional Real Estate Board (TRREB).

The other factor is the new work-from-home lifestyle imposed by the pandemic, leading to what is being called Toronto’s suburban “condo craze”. In 2020, there were more new condo sales in Toronto’s suburbs than downtown, according to market analyst Urbanation, as buyers looked for cheaper, roomier homes.

The key drivers behind this trend are millennials, “the current engine of the North American housing market”, says King at Zolo.

Price growth has been so extreme in the past year that the “B” word — bubble — is never far from experts’ lips, only this time it seems the concerns are focused more on the suburbs than the city centre. In a recent blog post, property data analyst John Pasalis, president of Realosophy Realty, described the bubble in the ’burbs as a textbook example of “irrational exuberance” in the market, and likened it to the situation in 2016-17. The average property price rose by 24 per cent in the year to April 2017, according to TRREB — and then fell by 20 per cent over the next eight months.

Pasalis calculates that in January 2021, the average sale prices in the Durham, Halton and York regions had grown by more than 30 per cent year on year.

“Demand for suburban real estate is definitely one of the big stories of the pandemic era, especially since a key barrier to suburban living — commute time — has been significantly reduced given the trend of working from home,” says Don Kottick, president and chief executive of Sotheby’s International Realty Canada.

New condominiums in Toronto’s suburbs have helped attract younger buyers, especially in suburbs with good transport links to the city, such as Oakville and Markham, says Kottick. But cheaper detached homes are also part of the draw. In Vaughan, about 16km north of the city, there were 227 detached house sales in February 2021 (median price C$1.525m, according to TRREB), compared with 129 condo apartment sales (median price C$570,000). 

Sales have also increased in many of the smaller towns and cities around Lake Ontario, says Kottick, including Guelph, Kitchener-Waterloo and Whitby.

In Whitby, Natalka Falcomer, vice-president at Chestnut Park brokerage, points to a four-bedroom, detached house for sale for C$999,000. A year ago, it would not have sold for more than C$900,000. “It’s had 72 viewings and will likely sell for well over a million,” she says. “Toronto has priced these people out of the market and a family-focused area like this brings them value they won’t find in the city core.”

Property prices have been growing so quickly in some suburbs that it is making parts of “Toronto proper” seem like good value in comparison, she says. She cites Mimico, a lively, waterfront neighbourhood west of downtown that’s popular with families and young professionals and seen as a well-located and well-priced alternative to the suburbs.

So far this year, the median sale price of a home in Mimico’s W06 area has been C$698,725, according to TRREB, compared with C$920,000 in Ajax and $935,000 in Whitby.

In the affluent “old money” area of Rosedale, in central Toronto, the median sale price so far this year has been C$1.4m, but detached mansions can cost upwards of C$10m.

Falcomer is concerned, though, that there is a growing number of investors in Toronto’s suburban markets looking to “flip” homes for a profit. “I’m worried that these speculators are pricing out other buyers — and once interest rates rise or demand for the suburbs changes, these ‘flippers’ are overleveraged and there isn’t the demand for them to sell or rent their properties,” she says.

Certainly, the lack of Toronto’s usual students, visitors and migrants during the pandemic has been cause for concern for condo-owners in the city, where a third of condos are owned by investors rather than owner-occupiers, according to Urbanation. As a result, rents in condo buildings have fallen by 12 per cent in the past year to an average of C$2,000 a month.

But rental demand may be able to bounce back. Amazon has committed to opening two large new offices in early 2022, creating 500 jobs in the city, and construction work forges ahead on a raft of new 80-plus-storey towers, including Foster + Partners’ The One in Yorkville, set to be Canada’s tallest building, with flats priced from C$2.67m.

There is also the Sky Tower at Pinnacle One Yonge, due to complete in 2024, where units start at about C$800,000. “No doubt some of this relates to the confidence of the return of immigration post-pandemic, which has always fuelled the Toronto market,” says Joy.

Canadian Imperial Bank of Commerce economists Benjamin Tal and Royce Mendes talk in a newly released paper about how the end of the pandemic, and of large-scale working from home, will see the vibrancy of cities — and demand for housing in them — return. Rocketing prices in Toronto’s suburbs, they say, risk reaching “resistance level”, where people decide it’s not worth moving to the city’s fringes.

For Toronto’s suburbs to thrive they need to embrace the European-style “15-minute city” concept, says Falcomer, where shops, offices and amenities are close to hand and spaces are used continuously.

“We need to make mini Torontos in the suburbs. People want to be able to walk to get their coffee, not jump in the car for everything,” she says. “Then we can stave off the whiplash of people leaving the city, then coming back again.”

Properties for sale

Family home, Moore Park, C$4.95m

A six-bedroom family home with five bathrooms and 3,980 sq ft of living space. The property has front and rear gardens and a wine cellar. The home is tenanted until June 2022, and is available through Sotheby’s International Realty.

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Penthouse, downtown, C$2.795m

A three-bedroom, three-bathroom penthouse apartment in the Fashion District. The property, which has more than 3,000 sq ft of interior living space, has a roof terrace with views of the Toronto skyline. Available through Christie’s International Real Estate.

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Family home, Armour Heights, C$15m

A large family home with five bedrooms, six bathrooms and 12,365 sq ft of living space. The property, which sits on a 1.72-acre plot, has a gym, tennis court and outdoor pool, and is located about 10km from central Toronto. The house is for sale with Sotheby’s International Realty.

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