Posted on
October 2, 2024
by
Sam Chaim
Scarcity in Toronto expected to play a significant role in future values as single detached homes become housing’s new unicorn. Renovation and infill Improvements to single-family housing stock during the pandemic accelerated housing values and the trend continues to transform cities. Billions spent in infill and renovation over the pandemic years raised the overall value of residential housing stock and continues to support higher pricing on single-family homes despite downward market pressure in the country’s most expensive.
RE/MAX examined the evolution of housing stock and trends impacting values in one of Canada’s largest real estate markets in recent years. RE/MAX found on-going renewal and revitalization efforts have had a substantial impact on housing supply and affordability, particularly in urban core areas.
Between 2019 and 2023, the national increase in renovation spending, including additions, alterations, upgrades and equipment, approached an estimated $300 billion, an eight-per-cent increase over the previous five-year period. Yet, the value of residential building permits issued for single-family dwellings fell in the Toronto CMAs during the same period. Why?
During the period that renovation spending skyrocketed, the value of residential building permits issued for single-family dwellings in the Toronto fell almost 24 per cent.
Between January 1, 2019 and December 31, 2023, the figure sat at just over $27 billion, according to Statistics Canada, compared to the previous five-year period, when more than $33.7 billion worth of residential building permits were issued in the single-family category. This trajectory is expected to continue in the coming years. In contrast, the value of residential building permits in the multi-family housing category climbed 60 per cent over the 2014-2018 period.
Revitalization remains one of the most underestimated factors behind escalating housing values.
The landscape is changing as a staggering amount of money is funneled into renovation while infill is redefining neighbourhoods, particularly in areas where the value of existing structures has not kept pace with increasing land values. Case in point are wartime bungalows and smaller two-storey homes that continue to be primary targets, making way for custom builds that transform working-class neighbourhoods into up-and-coming hot pockets.
Meanwhile, the Toronto CMA saw the greatest decline in vacant land properties from 2019 to 2021 (-6,680). This is significant since vacant land is closely tied to residential building construction.
(Source: Gentrification, Urban Interventions and Equity (GENUINE): A map-base gentrification tool for Canadian Metropolitan Areas: C.I Firth, B. Thierry, D. Fuller, M. Winters and Y. Kestens; May 19, 2021) (Figure illustrates the evolution of the Toronto CMA due to gentrification from 2006 to 2016.)
Given close to 30 per cent of the GTA’s existing housing stock was constructed in 1960 or before, according to data from Statistics Canada, the renovation and infill trend is not surprising. The cost to rehabilitate older, outdated homes with unpredictable issues can quickly consume and exceed budgets. The push to make the best use of scarce land has homeowners and builders striving to maximize square footage or increase density on individual building lots in traditional urban neighbourhoods.
New builds are ongoing in residential neighbourhoods throughout Toronto, despite the cost of construction in today’s high-interest rate environment. Entire neighbourhoods, especially in midtown Toronto, have been entirely transformed, while the evolution of Parkdale, Trinity-Bellwoods, College Steet West, East York, Riverdale, Leslieville and St. Clair West is just beginning.
The average price of detached homes is rising. +35% in the Greater Toronto Area between, rising from $1,052,081 in December 2019 to $1,418,323 in December 2023.
With rising affluence and one of the largest transfers of inter-generational wealth now occurring, demand in the luxury segment is further propping up the renovation/infill phenomenon.
According to the World’s Wealthiest Cities Report by international wealth migration firm Henley & Partners and global data intelligence company New World Wealth, Toronto now ranks as the 13th wealthiest city globally for the number of high-net worth individuals, and their impact on the market is visible. Renovations and infill continue in Toronto’s most established areas at a rapid pace, with older, executive homes carrying generous lot sizes and substantial price tags being gutted to the studs or demolished entirely.
“Robust renovation and infill activity and the resulting lift in detached values has inevitably impacted the urban housing ladder,” notes Alexander. “For years now, we’ve heard about the disappearing or ‘missing middle.’ Due to rising detached values, that ‘middle’ is now more likely to be a linked home, a townhouse or a condo unit. Amid population growth and urbanization, the shift in Canada’s housing mix has been a natural and progressive evolution – in much the same way that, decades ago, the hallmark of middle-class North America stopped being the stereotypical modest home with a white picket fence.”
Lifestyle trends as well as economic and social realities have influenced the housing sector to date.
For instance, price growth itself has escalated carrying costs, prompting the rise of and need for multi-generational housing. A growing number of property owners are investing in renovations that accommodate family or create suites that can provide a secondary income stream to offset the cost of home ownership.
Properties with basement apartments and in-law suites are increasing in demand and often sell at a premium. According to the 2021 Census, there were nearly 442,000 multigenerational households in Canada. These only account for 2.9 per cent of all private households, but are now home to 2.4 million people, or 6.4 per cent of the total population. Multi-generational households have increased in numbers by 50 per cent since 2001 – much higher than the 30-per-cent increase in households overall.
“The detached housing supply in urban centres is in the midst of a monumental metamorphosis that will unquestionably impact housing inventory and composition for further generations of real estate consumers,” explains Alexander.
Longer lifespan and better health are also allowing homeowners the option of aging in place, putting greater pressure on housing supply and disrupting the traditional property ladder. Conventional home-buying patterns have shifted as a result, with the stay-put trend catching on with homeowners of all ages, bolstering the “renovate versus relocate” trend. Others might simply wait longer to make the next move. Either way, the gridlock in the home-buying cycle causes knock-off effects that limit inventory and contribute to higher prices.
“Municipal governments are partially to blame for the decision to stay put, given the land transfer taxes applicable in both Toronto and Vancouver,” says Alexander. “The tax has effectively eroded equity gains that, in the past, homeowners directed toward moving up, down or laterally. It simply costs too much to make multiple moves. The result is that the rungs on the property ladder are fewer and moving farther apart.”
For their part, homebuyers are adjusting to the changing landscape in Canada’s urban real estate markets.
Variables such as population growth, affordability, supply, intensification, as well as social and economic factors will continue to shape the housing sector, the housing mix, and home-buying trends in the decades ahead.
“Those in a position to make their moves now may be better positioned than those in 2025, as prices currently remain close to year-ago levels in the Toronto CMA and modestly higher in the Vancouver CMA,” says Alexander.
“Pent-up demand is expected to increase pressure on the housing market in the year ahead as buyers move off the sidelines amid a more favourable interest rate environment that will set the stage for sales and price growth. In the same vein, better rates will also support renewed renovation and construction activity, as the evolution of city neighbourhoods remains a work in progress. Solid fundamentals support the case for home ownership as a long-term hold. As Mark Twain once said, ‘Buy land. They aren’t making it anymore.’”
Regional Highlights
In the Toronto area, changes to work schedules and the remote phenomenon in the post-pandemic era have breathed new life into downtown neighbourhoods. A significant influx of young buyers is moving into communities and homes once inhabited by parents and grandparents. Renovation and infill continues unabated as a result, in neighbourhoods such as Parkdale, Trinity-Bellwoods and College Street West, where immigrants originally settled and raised families at the turn of the century.
Instead of selling their homes, newcomers kept their properties and moved north, east and west of the city where houses and lot sizes were bigger and more conducive to large families, while renting out their existing homes. Younger generations are now moving back into those properties, some converting them into multi-unit dwellings and living in one of the apartments to support a mortgage, while others are taking homes that had been converted to multi-family and reversing the trend. Once completed, these properties look nothing like the homes of their parents or grandparents, boasting modern construction of steel and glass, minimalistic interiors and edgy landscaping. Walkability is the primary driver in busy downtown neighbourhoods, with the grocer, the butcher, unique shops, restaurants and cafes, as well as children’s programs all within walking distance.
This trend is also visible in areas such as East York, Riverdale and Leslieville, particularly where there are strips of semi-detached, townhomes and row housing. This is now commonplace in Toronto’s oldest neighbourhoods as gentrification spills over into areas bordering hot pockets. St. Clair West between Bathurst and Dufferin has also come alive as young, established families move into new and renovated infill properties, stimulating commercial real estate growth in terms of new shops and restaurants.
The trend builds on what has been occurring in many midtown Toronto neighbourhoods for decades, along throughways such as Avenue Road and Yonge Street. Very few bungalows remain in these enclaves, where buyers typically look to maximize square footage on generous lot sizes. The evolution of housing stock in these communities, which began in the 1980s, is almost ready for a second revival.
The result is older, established neighbourhoods with newly constructed, custom-built homes that easily rival anything built in subdivisions currently underway. Renovation and infill activity is raising the average price of homes one property at a time, impacting values of surrounding real estate, changing the physical landscape as well as the mix of the housing supply and homebuyers in the city.
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