Toronto has more homes to meet demand, despite rising prices

When it comes to Toronto’s runaway housing prices, the most important question remains the extent to which speculation is driving demand.

Ideally, fundamentals such as demographics and employment are at play, and the price gains reflect natural household growth getting ahead of supply. If that’s true, the market should eventually stabilise once new supply kicks in.

A situation where speculators are bidding up prices would be much more problematic.

Canada’s 2016 census, which the statistics agency is releasing piecemeal this year, is providing some insight into the debate. The results: supply may not be the big problem many people thought it was.

Between 2011 and 2016, the number of households in Toronto rose to 2.14 million, an addition of about 146,200, according to the census data, the latest round of which came out last week.

That compares to 175,825 new homes built over that period. In other words, supply of new houses exceeded real household demand by almost 30,000 over those five years.

That throws cold water on the argument – voiced particularly by the industry – that the city’s affordability crisis won’t be resolved unless the government introduces measures to help increase supply.

Some of the imbalance between supply and household formation over the past five years is a consequence of the construction slump during the last recession.

Over the previous census period – 2006 to 2011 – completions totaled 160,195, compared with 188,450 new households. In other words, supply almost perfectly matched natural household demand over the past 10 years.

One segment of the Toronto market where lack of supply is definitely a problem is single-detached homes. These highly-coveted properties accounted for just 29 per cent of new builds over the past five years, down from 40 per cent over the 10 years prior.

They’ve also been growing at a much slower pace than household formation. The number of single-detached homes in Toronto is up about 13 per cent over the past decade, versus 19 per cent in the number of households formed.

The city is simply running out of room to build on large properties, evident in census data that show its population density has surpassed 1,000 people per square kilometre for the first time ever, another factor that should continue supporting prices for detached homes.