Why Is Toronto Housing So Expensive?

Toronto, a major Canadian city, has experienced a significant increase in housing costs, making it one of the most expensive urban centers for real estate. This presents challenges for individuals and families seeking to reside within its boundaries. Understanding the underlying factors involves examining various pressures that influence both the demand for and the supply of housing. This analysis sheds light on the complex interplay of economic, geographic, and policy-related elements shaping Toronto’s housing landscape.

Driving Factors of Demand

Toronto’s substantial population growth contributes significantly to the escalating demand for housing. As Canada’s most populous city, its census metropolitan area exceeds 7.1 million people. This rapid expansion is primarily fueled by high rates of international immigration, with Toronto serving as a primary destination for newcomers. For example, between July 2022 and July 2023, the city added 268,911 residents, showcasing a surge in population growth.

The city’s robust and diversified economy acts as a magnet for both international and inter-provincial migration. Toronto is a global financial hub and the second-largest financial center in North America, hosting the headquarters of Canada’s five largest banks. Its economy is strong across various sectors, including technology, finance, and healthcare, offering numerous high-paying job opportunities. This economic strength attracts a skilled workforce, driving more people to relocate to the region in pursuit of career advancement.

Toronto’s appeal also stems from its quality of life and amenities. The city is recognized as one of the most multicultural and cosmopolitan urban centers globally, offering access to education, healthcare, and diverse cultural institutions. This vibrant environment makes it an attractive place to live for many. These attributes collectively increase the desirability of living in Toronto, intensifying competition for available housing units.

Constraints on Supply Growth

Toronto’s geographic setting imposes limitations on urban expansion, contributing to housing supply challenges. To the south, Lake Ontario borders the city, preventing development. To the north, east, and west, the protected Greenbelt area restricts further sprawl. This natural and regulatory boundary significantly constrains the amount of new land available for residential construction.

Within the existing city limits, developable land is scarce, leading to intense competition among developers. The limited availability of suitable plots drives up land prices, making it more challenging and expensive to initiate new housing projects. This scarcity pushes developers towards higher-density projects on smaller parcels, but even these opportunities are limited.

The municipal planning and permitting processes in Toronto introduce delays for new construction projects. Obtaining a building permit involves a review process that varies in duration. The entire process, from initial zoning applications to final building permits, can extend for many months or even years, adding to the time it takes for new homes to reach the market. These lengthy approval timelines and bureaucratic hurdles slow the rate at which new housing units can be added, exacerbating the supply shortage.

Regulatory and Policy Influences

Specific government regulations and policies influence the cost and availability of housing in Toronto. A substantial portion of the city’s residential land is designated primarily for single-family homes through restrictive zoning bylaws. This zoning limits density, preventing the construction of more diverse housing types like mid-rise apartments or townhouses that could accommodate more residents. The emphasis on low-density housing forms restricts the efficient use of urban land and contributes to the housing supply deficit.

Municipalities levy development charges and levies on new construction projects. These charges fund infrastructure required for new developments, such as roads, transit, and water services. Examples include parkland dedication fees. These charges can be substantial, raising costs for a single or semi-detached home by tens of thousands of dollars.

These development charges and levies are ultimately passed on to the homebuyer, increasing the final purchase price of newly constructed homes. Development charges can add between $43,000 to $90,000 to the cost of each new home. Additionally, policies like heritage preservation rules can add complexity and cost to renovation or redevelopment projects. These regulations, while serving important purposes, can inadvertently limit the speed and affordability of housing development, contributing to the overall high cost of housing in the city.

Rising Development and Construction Costs

The direct financial expenses incurred by developers during construction impact the final sale price of housing units in Toronto. Due to the limited availability of suitable land and high demand, the cost of acquiring land for development is high. This acquisition cost represents a substantial portion of the total project budget, directly influencing the eventual price of homes.

Material costs also play a role in overall construction expenses. Increases in the prices of essential construction materials, such as lumber, steel, and concrete, directly raise project budgets. For example, lumber prices increased significantly, and overall construction costs in Toronto surged by over 40% in recent years. These rising material costs are passed on to the consumer in the final price of the home.

The cost of skilled labor in Toronto’s construction industry also contributes to the high expense of building. Wages and benefits for construction workers in a major urban center are generally higher, and potential labor shortages can further drive up these costs. This directly impacts the developer’s outlay for each project.

Financing costs, particularly interest rates on capital borrowed for large-scale development projects, add another layer of expense. With higher interest rates, the cost of securing and carrying loans for construction increases, which developers incorporate into the sale price of homes. These accumulated development and construction costs collectively contribute to the elevated prices observed in Toronto’s housing market.