High-income buyers are a driving force behind Toronto’s booming housing market, fuelling demand for an extremely limited supply of properties in desirable areas, says one real estate broker.
According to Paul Maranger, a senior vice-president at Sotheby's International Realty, this year has seen a surge in activity in the luxury real estate market in Toronto, as buyers increasingly chase a “Manhattan type of lifestyle.”
“Toronto at the luxury level is not looking for value. They’re looking for convenience,” he said on Thursday. “Many of our clients who work in the financial district, they’re working incredible hours at the office, and they are willing to pay a substantial premium to not have to do any extra work.”
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Maranger was one of several real-estate experts made available to reporters on a conference call to discuss the BMO Spring Housing Report.
When it comes to the changing tastes of the wealthy, Maranger says the desire to walk to restaurants and the theatre is putting added pressure on properties in the city centre, and particularly single-family homes, which have become increasingly rare in Toronto due to a lack of available space.
Compared to the same period last year, Maranger says sales of “luxury” single-family homes ($2 million or more) in Toronto have so far increased by more than one-third, from 95 to 128.
Demand has been particularly strong along the subway lines, says Maranger, who cited the recent sale of a home in the Summerhill neighbourhood for more than $300,000 over the asking price as evidence of this trend.
“For a city the size of Toronto, we are grossly under-serviced from a subway perspective,” he said. “What we’ll see as a result of that, and what we’re seeing now, is a disproportionate demand, particularly along the Yonge subway corridor. Buyers are willing to pay a substantial premium to be on that line, and certainly on the [Bloor-Danforth] line.”
This increase in activity at the upper-end is rippling through the real-estate market, he says, pushing up prices of single-family dwellings across the city.
“There certainly is a Domino effect in the marketplace,” he said, noting that demand for detached homes just under the luxury level has grown feverish, with bidding wars and multiple offers becoming increasingly common.
“To get into the marketplace now [...] the entry level price point is about half a million dollars, which is a substantial amount of money,” he added.
This observation adds weight to warnings of some observers, who have argued that growing income inequality may be ratcheting up house prices on the whole, and pricing low and middle-income earners out of the city centre.
Demand for single-family homes at the high-end combined with what Maranger describes as the tightest market he has seen in 15 years, has contributed to a boom in condo developments.
The recent increase in condo construction -- and dampening demand in the formerly white hot Vancouver market -- have prompted some to question the fundamentals of the Toronto market. But Maranger predicts activity at the high end of the market will remain strong.
“We have an incredibly strong base of high-income households who work predominantly in the financial district, and in financial law, education and health care,” he said. “From a mid-to long-term perspective, Toronto is going to hold itself in very good stead in the luxury market.”
The percentage of homes sold above $1 million has doubled in the past two years. In the first nine months of 2011, fully one in five homes sold on the Vancouver market went for more than $1 million. That's up from 10.1 per cent in 2009.
Like in Vancouver, the percentage of million-dollar homes sold in Toronto has doubled in the past two years. But in Toronto, one in 20 homes sold for over $1 million in the first nine months of this year, compared to one in five in Vancouver.
The number of million-dollar homes sold in Calgary has exploded in the past six years. The numbers saw a dip during the financial crisis of 2008, but have returned to their upward course.