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The Cause of the Growing Price Gap Between Toronto Homes and Condos

A number of documents and reports related to the real estate market in Toronto and in other major metropolises across Canada, has raised the attention of many market analysts. The first of many highly publicized revelations was discussed in a previous article, related to the average resale price of a detached home in Toronto reaching the $1 million mark (figures gathered and published by the Toronto Real Estate Board). Now, the focus appears to have shifted to another metrics, that being, the gap between the average sale price of a condominium, versus that of a single-family home.

Spoiler alert, the gap is widening.

Tamsin McMahon of The Globe and Mail tracks the discrepancy in prices between detached homes in condos from the end of 2014 in Canada’s major housing markets: Toronto, Calgary, Vancouver and Montreal.

In December, 2014, the average price gap between a condo and a single-family house in the resale market for all four cities hit $320,000, according to Brookfield RPS. The discrepancy is starkest in Vancouver, where the average resale house price has shot up 120% since 2005 to $1.1 million, while condo prices have risen by 50%. The difference in price between low- and high-rise homes stood at a record high of $251,337 in 2014, said a strategic review of the Greater Toronto Area’s (GTA) new home market, according to a review conducted by RealNet Canada and the Building Industry and Land Development Association (BILD). For the purposes of low-rise homes include townhouses and detached properties, while high-rises include lofts and condominiums. The sale of low-rise home sales increased by 46% from 2013 to 17,745 units, with high-rises increasing by 40% to 21,991 homes sold in total.

The average price of a low-rise home in Toronto reached $705,813 in 2014, up 8% from the year before, while the average price of a high-rise unit rose just 4% to $454,476. The gap between condos and houses grew 16% in December compared to a year earlier, hitting a record of more than $251,000. (Low-rise homes consist of houses, including detached and semi-detached houses, townhomes and link homes, while high-rises encompass all condos and lofts.)

Tamsin calls the cause of the gap “predictable,” citing a severe decline in the supply of new listings for urban houses for several years (backed by Shaun Hildebrand). This has been driven partly by a lack of newly built homes in urban centres and also by the fact that existing homeowners have been hesitant to sell in case there’s nothing to buy. Couple this with an unprecedented number of new condo developments, in a politically mandated push to increase population density in major downtown cores across the country.

McMahon adds:

“The growing price divide comes as developers have been under pressure to shrink the size of new condo units to keep costs down, while an insatiable appetite for houses, coupled with a shortage of supply, has driven up the cost of low-rise development.”