How The Rules of Supply and Demand Impact Home Prices in the GTHA in 2023
In many ways, the real estate market is much like traditional commerce – constantly being influenced by the law of supply and demand. The shifting demands for real estate and housing can be felt across the country, especially in the Greater Toronto and Hamilton Area.
The GTHA (Greater Toronto and Hamilton Area) is home to the largest percentage of Canadians in the entire country and as a result, the gap between supply and demand for housing is constantly growing. This puts a serious amount of pressure on the existing housing supply and developers who are trying to construct new homes in order to meet the demand.
So how exactly has the law of supply and demand impacted housing prices in the GTHA and beyond?
Let’s take a look.
How Does Supply and Demand Impact Purchase Prices?
Unlike with consumer products, supply and demand works a bit differently in the world of real estate.
While in the case of traditional consumer goods, the reason a product is in demand rarely impacts its price or value, strictly the overall demand, real estate is impacted greatly by the reasons certain properties wind up experiencing higher levels of demand.
While the main driving force in terms of demand is certainly population, make sure you take the time to assess the motivations of that population.
For example, if a neighbourhood is met with a high demand for property rentals, that may not necessarily boost the overall purchase price of the properties in that area by a significant amount. However, if that demand is fueled by new jobs, businesses and developments coming into the neighbourhood, prices are likely to increase as new buyers and investors come into the picture and start competing to own these properties.
Certain properties often experience greater demand due to their low prices, so raising the purchase price on these properties may drive the demand away. A strong example of this is a distressed property. These properties are in-demand because they need work and as a result are often cheaper to buy, if the prices on these properties were to raise alongside their demand, many of the buyers would opt out to pursue cheaper options or to buy better properties at the new price point.
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How Many People Live in the Greater Toronto and Hamilton Area?
It shouldn’t come as a surprise that Toronto has the highest population in all of Canada, however, once you combine it with the surrounding cities and towns that make up the GTHA, that number skyrockets. As of the 2021 census, the population of the Greater Toronto and Hamilton area is estimated to be almost 7.3 million people – that is approximately 19.7 per cent of the countries population or just below one out of every five Canadians living in the region. Of that population approximately 2.8 million of the residents live in the city of Toronto.
These high population numbers already contribute to a strong internal demand on real estate within the region. However, the demand for properties in the region is also fueled by external pressure. Due to the reputation the area holds for consistently high property values, Toronto and the surrounding cities see great demand from out-of-town investors, only increasing the pressure on the housing market.
These factors come together to create a market known for bidding wars and high purchase prices on any real estate investment.
Understanding Population Growth
While the GTHA is already known for its massive population, it is important to acknowledge the rate that this population in the region grew by an estimated 327,261 people between the 2016 and 2021 censuses. Those are all full-time residents who need a place to live.
Meanwhile the rate of construction has not been able to keep up with the demand for new housing. This has resulted in an increase in demand for homeowners and investors to build additional dwelling units on their property in order to help boost the housing supply and demand situation. At the same time, many Canadians have opted to start living with roommates in order to afford a place to live and prevent friends and family members from winding up homeless.
How Can The Housing Supply and Demand Problem Be Solved?
The impacts of the increased demand for real estate in the GTHA (and the rest of Canada) has revealed an underlying problem, there are simply not enough houses and residential units in the country to satisfy the current demand. So the question stands – How do we solve the housing supply and demand issue?
The main solution to the housing supply and demand issue is to incentivize and lower the barriers for real estate developers and construction companies to build new homes. Whether that is through tax benefits and incentives, shifting funding towards these developments, or working to lower the cost of materials in order to build these homes is up to the politicians to decide.
Another solution may be to incentivise sellers to let go of vacant properties they are holding onto so that these units can be updated and brought back onto the market.
Regardless of which solutions are prioritized, it is clear that something needs to be done in order to combat the housing supply shortage in the GTHA and across Canada so that we can continue to support our growing population.
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Until Next Time,
Happy Investing
Erwin
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