Toronto real estate buyers are tiptoeing through the tulips of history

There’s no agreement on whether Toronto is in a bubble, yet one economist compared the so-called Great Toronto Housing Bubble — if that’s what it is — to the 17th-century Tulip Mania.

The truth is that no one, least of all the experts, has a clue about how to deal with Toronto’s runaway housing market. There’s no agreement even on whether the city is in a bubble, let alone one that could burst at any moment.

Proposals range from imposing a vacancy tax and/or a foreign buyer’s tax to relaxing greenbelt requirements to increasing the supply of new houses and/or implementing rent controls.

Some argue that the only way to meet demand is to increase supply; others counter that demand has nothing to do with need and that increasing supply will only contribute to that bubble everyone fears.

One economist compared the Great Toronto Housing Bubble — if that’s what it is — to the 17th-century Tulip Mania. “Do you think that the best response to the Dutch Tulip Bubble in 1637 was to cultivate more land and grow more tulips?” BMO economist Douglas Porter asked in a report last week.

Bubbles, of course, are irrational and, therefore, largely immune to public policy of the sort preferred by governments and academics. They rise and collapse of their own accord, wiping out wealth as quickly as they created it.

But tulips are one thing, housing quite another. Though Baby Boomers have grown rich on Toronto’s overheated housing market, their millennial spawn can’t afford to live in the city let alone buy a home. According to the Toronto Real Estate Board, the value of a detached house in the Greater Toronto Area grew by an astonishing 33.2 per cent over the same time in 2016.

That, coupled with historically low interest rates, have pushed demand to unprecedented levels. If a house doesn’t go for more than the asking price, the sale is considered a failure. And as inflated as real estate costs may seem, the prevailing attitude is that they will only go up.

History, of course, should be our guide, but there’s no underestimating the human proclivity to forget. One need only look back to the late 1980s when an earlier Toronto housing bubble burst, leaving many property-owners with homes worth less than the mortgages they had taken out to buy them. It took the market 13 years to make up for the crash of ’89. “To crack the housing market in Toronto’s core you now have to be wealthy,” the CBC reported at the time. For a family of four, that meant a minimum annual income of $67,000.

We look back at the numbers and smile. Except for interest rates, which reached a staggering 23 per cent, we now think of the ’80s as a Golden Age for Toronto, which some were then calling the “Golden City.” Still, many out-of-towners who found work in Toronto decided not to move here because of housing costs. People were “disgusted” and “outraged” by the prospect of paying more than $200,000 for a three-bedroom detached house in the downtown core. Perhaps that’s where the Boomers’ sense of entitlement comes from; they feel they have earned the big payouts from today’s market.

Still, from today’s perspective, the problems of the ’80s seem almost benign in comparison. And despite the concerns, people kept moving to Toronto and buying houses. A bubble, though, is a manifestation of panic. The fear is that no matter how expensive real estate may be today, it will only be more expensive tomorrow. Unlike the ’80s, however, interest rates are at their lowest ever. But that also causes political leaders to lose sleep. Many fear there simply isn’t enough elasticity in the economy to allow homebuyers to cope with even small interest rate increases, let alone like those of the late ’80s.

Little wonder federal finance minister Bill Morneau has asked for a meeting with his opposite number from Ontario, Charles Sousa, and Toronto mayor John Tory. His desire to tamp down a market that looks more and more like a bubble before it damages the larger Canadian economy is understandable.

But none of the measures available to the trio — vacancy taxes, foreign buyer taxes, rent controls, encouraging out-of-control suburban growth — is itself an answer. Worse still, they risk doing more harm than good. Do we really want to discourage off-shore investment, slow the pace of rental construction and allow more sprawl to degrade the already blighted GTA?

Keep in mind, also, that the number of people on Toronto Community Housing’s waiting list for affordable accommodation stands at just under 100,000.

Some argue the city should respond by changing zoning regulations to allow greater densities in Toronto’s low-density but sacrosanct residential neighbourhoods. That would unleash a NIMBY backlash of serious nastiness. Don’t forget, this is a city where a six-storey condo on a major artery is greeted with a screaming mob of angry locals.

If misery loves company, Toronto can take consolation in the fact that cities from London and Paris to New York, Vancouver and Los Angeles are all experiencing similar housing crises.

The rush to the city, underway for more than a decade, will only grow stronger. As of 2006, for the first time in human history, more than half the world’s population lived in cities. Inability to deal with this global surge has led to an unprecedented rise of slums, favelas as seen commonly in low-income urban areas in Brazil, and other forms of squalid and usually illegal communities.

Toronto’s future doesn’t look as bleak as that, but however intractable these problems may be, they will only get worse. For a city, it seems, the more it succeeds, the more it fails.

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