Douglas Todd: A tale of two costly housing markets: Toronto and Vancouver

OPINION: The ratio of housing prices to local earnings in Greater Toronto is a grim eight to one. But it’s a dire 12 to one in Metro Vancouver.

Metro Vancouver and Greater Toronto have the dubious distinction of having the most pricey housing in Canada, with the West Coast city winning the unaffordability prize.

Yet while Toronto real estate is stabilizing after its speculation-driven bubble burst more than two years ago, Vancouver’s real-estate deflation has occurred more recently and continues more gradually, according to specialists.

The forces that catapulted both real-estate markets into the stratosphere are stronger in Metro Vancouver than in Toronto, says John Pasalis, a prominent Toronto-based analyst. Vancouver has been buffeted by relatively more foreign capital, more property speculation, more laundered money, and more wealthy immigrants.

The ratio of housing prices to local earnings in Greater Toronto is a grim eight to one. But it’s a dire 12 to one in Metro Vancouver. The once-standard ratio that marked housing considered “affordable” used to be about four to one.

Pasalis, the founder of Realosophy Realty Inc., welcomes the way markets are cooling in Toronto and Vancouver. But he thinks the “utopian” ratio of four to one is not going to return anytime soon to Canada’s two biggest gateway cities for migrants.

Only a few years ago, housing prices in Toronto and Vancouver were jumping by almost one-fifth each year. It is no longer, however, an auspicious time for offshore or domestic investors to speculate in either city. “The flippers,” Pasalis says, “are definitely getting a little bit squeezed now.”

He believes regulations Ontario and B.C. have brought in to calm the housing markets need to stay in place if there is to be hope for people who work and live in the cities to be able to afford buying houses, duplexes or condominiums.

“I think both Toronto and Vancouver housing markets are really fuelled and driven by immigrants. But I think Vancouver has more non-resident purchasers and just a lot of foreign capital. In Vancouver, you have a lot more residents who are getting their money from overseas.”

Metro Vancouver is significantly more expensive, in addition, because it’s especially attractive to people in East Asia.

“I think partly it is Vancouver’s proximity to China. And Vancouver’s climate is a factor,” he said. “There is also a lot of not-clean money coming into Vancouver. Those factors have been bigger in Vancouver than Toronto.”

More than $7 billion in dirty money was laundered in B.C. in 2018, hiking the cost of buying a home by about five per cent, according to a Thursday announcement by B.C.’s expert panel on money laundering in real estate.

Provincial Minister of Finance Carole James said: “Our housing market should be used for housing people, not for laundering the proceeds of crime. The amount of money being laundered in B.C. and through real estate is much more than anyone predicted.”

Statistics Canada figures also back up Pasalis’ proposition that a wave of immigrant buyers have had a stronger impact on Metro Vancouver than Toronto, despite almost half of the population of both cities being born outside the country. Metro Vancouver had a net growth of 40,000 new migrants in 2018.

Demographic analysts Guy Gellatly and Rene Morissette found detached houses bought by recent immigrants to Metro Vancouver are, on average, valued $824,000 higher than homes owned by people born in Canada.

The typical price of a detached Metro Vancouver home purchased by a new immigrant was $2.3 million in 2017, compared to $1.5 million for a Canadian-born person.

The gap is not as large in Greater Toronto, where the average price of a detached home of a recent immigrant is $892,000, contrasted with $849,000 for the home of a native-born owner.

The value of a Metro Vancouver detached home fell by roughly 11 per cent in April compared to a year earlier, with condos dropping six per cent.

But that is not as sharp as the 18-per-cent market plunge Torontonians experienced in just a few months in 2017, when Pasalis said “the market turned on a dime.” Much of the reason for the sudden drop, he believes, was fear among Toronto buyers of a B.C.-style foreign-buyers tax.

Despite lower prices in Toronto and Vancouver compared to recent years, Pasalis said homes are still unaffordable to most locals. So, he says it is not yet time to get rid of foreign buyers taxes in Ontario and B.C.

Nor, he said, should the B.C. government end its new speculation and vacancy tax, which was partly designed to target “satellite” families who buy homes with income made outside the country.

It also should stick with its plan to create a registry of the true “beneficial” owners of real estate in the province, he said, in part to catch money launderers and tax avoiders.

“You don’t really want policies that are going to fuel demand. I means it’s just going to push prices up further,” said Pasalis, countering some in the real-estate industry who emphasize that the answer to affordability is to reduce regulation and simply build more housing.

Greater Toronto is entering a period of housing market stability, even if prices are still high (about the same as those in Victoria). And a “balanced” market is best, Pasalis said.

“You don’t want a market where prices are going up 10 per cent a year. A balanced market is not over-inflated. You want prices that are somewhat affordable, without homebuyers having to take on a mountain of debt.”

Even though some players in the real-estate industry want to hike demand so prices will start to rise again, Pasalis suggests they are in the minority. If so, it’s satisfying that most in the development industry also prefer a calm market.