What’s the word I’m looking for here, folks?
We’re running out of…..real estate agents?
Ha! Not on your life.
But we are running out of something, and that one thing is probably the number-one reason why I think our market, despite all hopes and prayers, will continue to rise. And debate all you want (we probably will…), but it has to be one of the biggest considerations when assessing the future of the Toronto real estate market.
Here’s a story you’ve probably heard before.
In fact, I think I’ve told it on TRB in the last little while, or maybe that was in an email to a client. Either way – it’s nostalgic, and it ties into today’s topic.
I’ve alluded to my very difficult and disadvantaged upbringing in the past, and one of the travesties we had to endure as children was going to ski in Park City, Utah once or twice per year.
Park City, Utah is a historic town, with its roots deep in the mining industry.
Of course, it also happens to have some of the most spectacular mountains anywhere in North America, so somewhere between mining for coal and mining for silver, one or two people had the bright idea to open a ski resort, and the rest is history.
My father went to ski there in the late 1970’s, and it was, back then, a very quaint little town.
Along with a few friends, my father purchased a small house in “Park Meadows,” which was a residential area of Park City, so that their families could ski in the winters.
We first went to Park City in 1988. It truly was a very quaint little town, with an historic little “Main Street” that even had a trolley! My mother made us run up and down Main Street (it’s a massive hill) on that trolley one night in the dead of winter, and while my father thought it was punishment, I think she just really enjoyed the damn ride! I digress…
As more and more people began to flock to Park City, since “word got out” about the skiing, obviously things began to change.
In 1995, the Olympic Winter Games were awarded to Salt Lake City, which basically meant that Park City was getting the games, since all the skiing would be held there.
By the time 2002 rolled around, Park City had completely transformed.
The t-shirt shops and pizza pubs on Main Street were replaced with jewelry stores and places flogging time-shares.
The base of Park City Ski Resort was completely unrecognizable, as there was a gargantuan six or eight story condominium built in place of where a one-storey shack once stood.
The real estate prices absolutely skyrocketed, and development ran rampant.
I last skied in Park City in 2004.
My father then bought a house in Victor, Idaho (as many of you know from reading this blog), which is……..wait for it……”a quaint little town.”
In the summer of 2011, I went with my now-wife on a road trip from Idaho, and I wanted to show her Park City where I spent a lot of time in my childhood.
I hardly recognized the place.
Driving into the city, the highways were lined with massive houses, where nothing once stood.
Picture hay-bales, and tumbleweeds. Rock-faces, and sagebrush.
That’s all that was there when I was a kid.
And now there were multi-million-dollar houses.
This was, of course, 2011 – after the real estate crash in the United States.
Despite the presence of all of these gorgeous homes, I also noticed the presence of a heck of a lot of “FOR SALE” signs.
The market in Park City was depressed. I can’t recall, or seem to find online, any dependable statistics on how much house prices decreased, but I would assume the decline was substantial.
And as my wife and I drove through this sub-division of four or five-year-old houses, we basically came to the “end” of the road.
But not the end of the road, like here in a Toronto neigbhourhood, where maybe you run into a court or a crescent.
I mean the end of the road, and the end of the neighbourhood.
The neighbourhood was a perfect square; laid out in a grid.
And do you know what was located on the other side of the “end” of the road; on the other side of this perfect square?
Thousands and thousands of acres of vacant land.
That’s the “word” I wanted you to come up with at the onset, and you might have.
You might have also figured out where I was going with that story.
And while I mention, “Toronto has run out of land” in a blog post every so often, I’m not sure if we’ve given the notion it’s full due, with a full post.
There are a lot of factors affecting the long term pricing of real estate.
Obviously interest rates will top many of your lists, as will the health of the local economy and the job market, and population growth.
But save for Detroit, whose population has dropped from 1,850,000 in 1950 to 701,000 in 2013, most large cities in North America only see their populations go up.
I may have just written a full blog post last week about how people are moving out of Toronto and into Mississauga, Oakville, Brampton, and the like. But the net migration into Toronto is still increasing.
And whereas in some markets, when demand increases, you simply see a corresponding increase in supply, we simply can’t build more freehold houses in Toronto, and condo developers are lamenting out in the open about how hard it is to find building sites.
I mentioned that my father bought a house in Victor, Idaho after Park City turned into yet another Aspen.
Victor, Idaho, as well as neighbouring Driggs, experienced their own speculation-driven real estate boom.
The house that my father bought, was listed for $799,000.
It didn’t sell, and was dropped in price to $699,000.
Then after 18 months on the market, my father bought it for $375,000.
The problem with the market out there in Victor, Idaho, is that just as with Park City, Utah, there is land everywhere!
Say what you want about speculation from both foreign and domestic investors here in Toronto, but we don’t have anymore land on which to build.
In real estate booms in Florida, or Phoenix, or any other North American city that’s seen spectacular hills and valleys, you can always find available supply as one of the root causes of a decline.
One of the golf courses I play in Victor, Idaho always has plots of land up for sale.
In 2009, when I first went to Victor, I noticed that two identical plots of land – both 1/8th of an acre, were for sale, but at very different prices.
Property A: $400,000
Property B: $28,000
These two plots were identical.
I asked a real estate agent down there why the two plots were so drastically different in price, and he said, “One is owned by an investor who paid $400,000, and is going down with the ship. He refuses to take less than he paid. The other is owned by the bank, who are looking to sell it at current fair market value.”
That’s one-eighth of an acre.
Do you know how many millions of acres of vacant land are in the Teton Valley?
Granted, this one happens to be on a golf course. But then how many thousands of 1/8-acre parcels are out there?
Both of these towns – Park City and Victor, saw prices massively increase when times were good, and saw prices plummet when times were bad.
You can argue that the Toronto real estate market, under various circumstances, could see a price drop. I don’t want to seem like that much of a real estate cheerleader, as if to say, “Our market is shooting for the moon, and never coming down.”
But one thing you can’t argue with is that there will be approximately a 0.00% increase in the existence of freehold dwellings in the central core of Toronto.
We don’t have one million acres of vacant land sitting next to Leaside, or Leslieville, or Lawrence Park, unlike the “Red Stone Estates” in Park City, Utah.
For the life of me, I can’t find the article online. But I recall seeing an interview with a prominent condo developer (was it Barry Fenton of Lanterra?) where he said that they can’t get their hands on any more land on which to build new condos.
Developers these days are no longer targeting those empty parking lots about which people say, “That will be a condo one day.” Those days are gone.
Developers these days are targeting 15-20 storey office buildings at major intersections, looking to turn around and build 50-60 storey condos.
Supply and demand, folks.
The true “supply” might be what is available for sale on the open market. But the number of freehold houses in Toronto isn’t changing…