What's Going To Outperform In The Toronto Real Estate Market Over The Next 5 Years?
Toronto real estate probably going to be slower for the first bit of 2023; we might see more price drops in weaker markets, and even the most stable markets won’t see prices shoot up because higher interest rates are holding steady.
But trends and policy direction are showing us lots of positive growth potential in the low-rise market for at least the next 5 years. Keep reading to learn more!
Toronto Renter vs. End User Trends
From the latest 2021 census, we see that 48% of the Toronto population is now a renter, which is up 1% from 2016. Now, this doesn’t seem like a big jump, but is the renter pool actually going up? Well, it’s clearer when we stack the 416 against the GTA, and you can see here that when we include the suburbs, there are a lot more renters in the 416.
But if we compare Toronto to more global cities, like Chicago, New York, or Los Angeles, it’s pretty obvious that there’s more room for renters to grow. Chicago has 55% of the population as renters, and both New York and LA have 63% of the population as renters. The reality is that as we grow into a bigger city, prices will become less affordable, resulting in a greater number of renters.
Here are more numbers to hammer it home. Home prices have been going up much faster, at 10% per year from 2005 to 2022, which makes rent growth look slow even when it’s very high at 6.6%.
There’s going to be more renters, and these people are probably going to have lower income than homeowners and so would need more help with affordable housing. This is why Toronto’s “affordable housing” mandates will most likely be focused on rentals moving forward.
Toronto Housing Trends
Right now, around 7.6% of Canada‘s population lives in Toronto, and we expect more to come because Canada’s immigration targets are around 500,000 people per year until 2025. So this is why Toronto is now targeting the creation of 285,000 new housing units over the next 10 years.
But it won’t be just anywhere because Toronto’s housing density is actually pretty uneven.
Over the past 10 years or so, we’ve seen growth in Toronto’s housing supply, but it’s more so in the condo market. And so downtown is definitely seeing higher population growth and higher density compared to other parts of Toronto where houses are.
In fact, single-family homes take up a lot more land but only make up 35% of housing units in Toronto right now, and in many areas, it’s also seeing a declining population because there’s a growing number of empty nesters and homeowners with second homes.
This is why our city is looking to allow single-family homes to be converted into multiplexes and keep this as a goal for 10 years, and they plan on having this up and running as early as March 2024.
What Will Outperform In the Next 5 To 10 Years?
So here’s where we might be in the long run. Because of population growth, the economy and overall housing market in Toronto have been very strong and are probably going to stay strong. But because of the increasing city focus on growing the low-rise market, this is why we anticipate an outperformance.
It started with allowing secondary suites, then laneway suites, and then garden suites. Next, they’re likely going to allow for rooming houses and multiplexes, and this is going to revive the investment-grade house market in Toronto.
Here’s what else we expect: When we see more renters, that means more investor-landlords in the real estate space in Toronto. And that can make real estate prices more predictable because investors tend to make decisions with numbers, and price growth may start to track rent growth more closely.
Take a look at this. If you have a condo that sees modest rent and expense growth at 3% per year, then that would translate to 3% appreciation per year in the condo if investors are needing a similar cap rate.
The game changer would be where you can get a significant rent bump, and that’s where we need to look at government policy. If a house can be converted into a multiplex, then rents will go up, and prices can go up more quickly here too.
How We Can Help
To sum it all up, here’s something to keep in mind. Good rental income and appreciation growth come from strong economic performance plus improvements in government policies and plans.
If you can find something that checks all of these boxes, then you’re likely to have a great investment, and that’s what we see in Toronto’s low-rise market right now.
And if you’re new to this and you want to learn more about how to get started with real estate investing in Toronto, just reach out!
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We’d be happy to learn more about your situation and help you find the best investment opportunities for you.