First, the delusional: this report on a presentation by Mark Renzoni, president of CBRE, the global real estate brokerage. Renzoni believes that Toronto's real estate prices are not out of line with those in other "world cities" such as London, New York and Hong Kong. Stop right there! I spent almost all of my working life in Toronto and London, and have visited New York and Hong Kong many times over the years. Torontonians, especially in the media, lap up comparisons between their city and those other metropolises, but the truth is, there is no real substance to them. Toronto is significantly smaller than all three of those supposed comparators on a population basis and it's very much less important economically. It's by far the biggest fish in the smallish Canadian pond, and it's reasonably significant within North America, but globally? Nope.
From that dubious start, Renzoni goes on to describe a fantasy version of what he imagines Toronto to be like: "There's great jobs, there's a sense of optimism, there's confidence in the job market and interest rates are low". Really? Can he be talking about the city that's the child poverty capital of Canada, the city where well-paid stable jobs are being continuously swapped out for lower-paying contract "gigs"? He then goes on to pooh-pooh the idea that foreign money is driving the market: in his view, it's all just supply-and-demand, Canadians seeing housing as a way to build wealth while keeping a roof over their heads.
In this, he's in full agreement with the Toronto Real Estate Board (TREB), which published its annual market review at the end of January. Sensitive to the widespread belief that foreign buyers were pushing local prices into the stratosphere, the Board commissioned a survey that purported to show that only 4.9 percent of home sales in the Toronto area in 2016 involved foreign purchasers. (Page 13 of the linked report, if you are sufficiently curious). To put it mildly this survey, which contradicts all recent experience and anecdotal evidence, was greeted with significant skepticism. It was seen mainly as an attempt by the TREB to forestall any steps by Toronto-area governments to implement the type of market-cooling steps initiated (with considerable success) in British Columbia last year.
The fact is that TREB's member companies, as well as multinationals like CBRE, are making out like bandits as Toronto real estate prices soar, and they're desperate to avoid having anyone derail the gravy train. What better way to forestall that than to assure everyone that the manifestly overextended market is just reflecting the honest attempts of hard-working Canadian families to better themselves by plunging headlong into real estate? When I was in the bond business, we used to call that "talking your book".
Now, the despairing: this article by Jennifer Wells, one of the Star's more experienced business reporters. Ms Wells is driving at a bigger theme -- the failure of governments to arrest the declining fortunes of the "middle class", but let's focus on her views on real estate:
"I was 28 when my then-boyfriend and I purchased a home. In Toronto. We entered into that transaction with my brother and his girlfriend. By my rough math our combined early career incomes — gross — exceeded the total house price by 20 per cent. The year was 1983. I do not recall those days as being especially penny pinching. We renovated the basement.
I now look at hard-working thirtysomethings who today pull down a salary equivalent to what I pulled down then. So: wage stagnation. And a house isn’t $115,000. Home ownership has been pushed out of reach, at least in the GTA. Co-ownership has become a dinner party talking point.
On-call shift work, precarious employment, depleting health care benefits from those employers who still offer them. Pensions? We know which way that trend has gone, with the ceaseless erosion of defined benefit pension plays in favour of RRSP-type defined contribution plans, which suck."
That rings a whole lot more true than the Pollyanna views of CBRE and TREB. While every passing week seems to bring the announcement of another massive condo development in downtown Toronto, the supply of new single-family homes continues to dwindle, and prices continue to soar -- up more than 25 percent in the last year alone. It may all be driven by supply and demand, but it's surely not healthy, and it's hard to see how it ends well.
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