Toronto's Housing Conundrum: The 80-20 Rule Reversed
Welcome to our blog post, where we delve into Toronto's housing situation and the implications of a controversial housing plan proposed by the new mayor. With a dash of personality, we'll break down the numbers, explore the impact of investors on the housing market, and shed light on the potential consequences of the 80-20 rule being implemented incorrectly.
The Supply and Demand Challenge: At first glance, the new mayor's plan to provide 25,000 rental units over eight years may seem like a step in the right direction to meet the growing population's needs. However, the reality is that this represents only 20 percent of the necessary housing supply. With Toronto experiencing an influx of roughly 28,000 people from 2022 to 2023, we need approximately 14,000 extra units each year to accommodate newcomers.
Investors' Role in the Housing Market: Toronto has heavily relied on investors to contribute to the rental housing market, with 59 percent of units completed in the past five years owned by them. The influx of investments has been crucial in providing rental supply, but now, with high-interest rates and fewer pre-construction sales, developers need help starting new projects.
The Cost and Funding Challenge: With the cost to construct a rental building estimated at $350 per square foot, and an average unit size of 500 square feet, the total cost for the proposed 25,000 units amounts to a whopping 4.4 billion dollars. Even when spread over eight years, this requires annual funding of 547 million dollars. Toronto is already facing a 1.5 billion-dollar deficit, and federal financial support has yet to be rejected. This leaves the burden on taxpayers, leading to potential tax increases, including luxury tax, vacant home tax, land transfer tax, and property tax.
The 80-20 Rule Reversed: The new mayor's focus on addressing only 20 percent of the housing needs could have unintended consequences. While the plan may make housing affordable for the lucky 20 percent, it leaves the remaining 80 percent struggling to find suitable accommodation. Discouraging investors from participating in the housing market can reduce supply, driving up prices for everyone else. This, in essence, flips the 80-20 rule on its head, with the majority bearing the brunt of the consequences.
The Impending Crisis: The potential housing scarcity could lead to skyrocketing prices, making homeownership even more unattainable for many. Inviting investors back into the market will become necessary, but there might be time to mitigate the impacts of reduced supply and high prices. Toronto may face a situation similar to New York City, with soaring property costs and a housing affordability crisis.
Conclusion: Toronto's housing challenges require a comprehensive and balanced approach considering short-term and long-term solutions. While the new mayor's plan may provide some relief for 20 percent of the population, the overall impact on the housing market, affordability, and quality of life for the majority needs careful consideration. Finding ways to attract investments, promote development, and address the housing demand is crucial while ensuring a fair and sustainable future for all residents.
What do you think about Toronto's housing situation? As a property owner, how do you see the market evolving? Share your opinions in the comments below! And remember, holding on to your property might be wise as Toronto moves toward an uncertain housing future. Thank you for reading!