Real Estate

Toronto is a city where even the ‘rich’ can’t afford an average-priced house

  • Last Updated:
  • Mar 21st, 2017 10:39 am
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Deal Fanatic
Jun 7, 2005
7237 posts
365 upvotes

Toronto is a city where even the ‘rich’ can’t afford an average-priced house

http://globalnews.ca/news/3313407/toron ... ome-price/
Toronto housing prices are hotter than anybody could have predicted. It’s spreading to the suburbs, and now market experts are worried a correction is around the corner. Mike Drolet reports.

You know a city’s real estate market is beyond the reach of its residents when even some of the highest earners can’t afford to buy an average-priced house there.

That’s the situation facing Toronto, where benchmark home prices climbed by just under 24 per cent year-over-year last month.

And that trend has helped to put a house of almost any kind outside the grasp of people who earn just about enough money to rank in the top one per cent of earners, said a draft of a BMO report that was set to be released on Friday.

In the report, BMO chief economist Douglas Porter used the example of a high-earning couple to show just how much the city’s housing market needs “serious” government intervention.

The couple in question, which Porter called Dudley and Darlene Doright, spent years piling away enough income to save for a down payment of $100,000.

The pair had just had a baby, but since the higher-earning spouse had an annual income of $225,000, the other was expected to stay home.
This income is enough to mean that the couple would be paying a marginal tax rate of 53.53 per cent — and that’s enough to consider them “rich,” Porter said.

“Given that the Dorights are almost 1%-ers and that they have saved heavily, surely they can afford a decent place to live in Toronto?” Porter asked.

“Not so much, as it turns out.”

The maximum home price this couple could afford would be $987,289, Porter said.

That’s not enough to afford an average detached home in Toronto’s 416 area code, where the price runs to $1.57 million.

It’s also not enough to buy an average-priced detached home in the Greater Toronto Area’s (GTA) 905 area code, where the price is $1.11 million.

Even a semi-detached Toronto home, at an average price of $1.08 million, would be out of reach, Porter noted.

The couple could afford a semi-detached home in the 905 region, where the average price is $700,000.


But even there, prices for this type of home went up by 33 per cent in the past year. There aren’t very many of these kinds of houses in the area, either.

“Even people who nearly qualify for the top one per cent of all incomes and will be paying over 53 per cent in personal marginal tax rates … are at best able to afford a semi-detached home on the fringes of Toronto, or maybe a low-end detached home verging on teardown status,” Porter said.

“Now just imagine the predicament a more typical couple of more modest means faces in the current market environment.”
This example provides proof that serious intervention is needed in the Toronto housing market, he said.

And so far, actions by the federal government haven’t been enough to cool prices down there.

Last year, the Liberals introduced new mortgage rules that required a “stress test” for homebuyers to ensure they could afford to service their mortgages if interest rates went up.

“Clearly something a bit more targeted and atypical is needed at this point,” Porter said.

He raised the example of B.C.’s 15 per cent property transfer tax on foreign homebuyers in Metro Vancouver, which was introduced in August 2016.

The tax was enough to cool prices there without crashing the market, he said.

It’s not the first time that Porter has vouched for the tax over the federal government’s mortgage rules.

He offered similar commentary in January, with a graph showing what happened to home prices in Vancouver compared to other cities.

Porter is also far from the first to note that the Liberals’ mortgage rules aren’t having their intended effects in Toronto, as far as slowing home price growth.

The lack of price cooling in Toronto’s real estate market suggests that wealthy investors, foreign and domestic, are driving up home values there, Simon Fraser University professor Josh Gordon told Global News this week.

While many blast the idea of a foreign buyers’ tax, “each argument against it simply doesn’t hold up to even casual inspection,” Porter said in his report.

“It will be incredibly tough to attract talented folks like the Dorights if they will struggle to buy a home and yet still pay taxes of over 50 per cent,” he said.
63 replies
Deal Fanatic
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Apr 9, 2006
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GT-EH
Rubbish... Toronto is still not @ Vancouver levels. ;)
I just like to collect things! ¯\_(ツ)_/¯
Behold, true glory. #PCMasterRace!
Deal Fanatic
Dec 11, 2008
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I stopped reading when a couple making 1% - or $225k+ per year had to spend years to save up $100k.

We make about $200k and save $60k+ net a year.
Member
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Jan 5, 2003
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A couple making 225k in Toronto is not rich. It's laughable that a "chief economist" would say they are 1%ers when they are clearly not.

It does show how bad our tax system is that any of their income would enter the top tax bracket. Although with RRSP and other deductions that wouldn't be true either.

Clearly this couple need to save more and not purchase the "average house" like most first time house buyers.
Sr. Member
Jan 14, 2009
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Vancouver, BC
speedyforme wrote:
Mar 17th, 2017 2:12 pm
I stopped reading when a couple making 1% - or $225k+ per year had to spend years to save up $100k.

We make about $200k and save $60k+ net a year.
Not as a couple. Just the higher earner. The other one decided to take it easy and stay home, a luxury not afforded by our parents' generation. This is your typical Canadian though, spolied and entitled. The world is much more competitive now and they are having trouble adjusting. Life is not a safe space.
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Dec 27, 2009
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zakarydoks wrote:
Mar 17th, 2017 2:45 pm
Not as a couple. Just the higher earner. The other one decided to take it easy and stay home, a luxury not afforded by our parents' generation. This is your typical Canadian though, spolied and entitled. The world is much more competitive now and they are having trouble adjusting. Life is not a safe space.
I don't know about your parents generation, but when I grew up my mom stayed at home (as did many of my friends' moms). My mom never got a job until she was about 40 (and that wasn't because she needed a job, she just wanted to work).

And most stay-at-home parents would not agree with your assessment that they are "taking it easy".
Deal Addict
Mar 12, 2008
1564 posts
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Toronto
For those who were curious

To be considered in the top one per cent in 2013, a tax-filer would need to have total income of $222,000.

To be included in the top five per cent, the income cutoff was $115,700, while to be in the top 10 per cent required an income of $89,200.

Soooooo if 225k is not rich... who the f is then??
Deal Addict
Mar 15, 2005
4929 posts
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I don't know why so many people are still measuring income to list price.

Very few probably have a mortgage of 1.5M or higher. Most likely this hypothetical couple making 225+ bought a house 5-10 years ago for 400K that is now worth 900K, with an outstanding mortgage of 200K for a total of 700K in equity, that they will roll into their new 1.5M home, giving them a mortgage of 800K, which is pretty affordable at their income levels.
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May 31, 2007
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zakarydoks wrote:
Mar 17th, 2017 2:45 pm
Not as a couple. Just the higher earner. The other one decided to take it easy and stay home, a luxury not afforded by our parents' generation. This is your typical Canadian though, spolied and entitled. The world is much more competitive now and they are having trouble adjusting. Life is not a safe space.
+1. I think our world has changed much and problem is mellenials are expecting they get everything like their parents did. One income (with loyal employers, easy entry to middle/upper class jobs), mom stays home, raise 2 kids, two cars + a house.

Not happening like that now.
Sr. Member
Jan 14, 2009
782 posts
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Vancouver, BC
Chickinvic wrote:
Mar 17th, 2017 3:25 pm
I don't know about your parents generation, but when I grew up my mom stayed at home (as did many of my friends' moms). My mom never got a job until she was about 40 (and that wasn't because she needed a job, she just wanted to work).

And most stay-at-home parents would not agree with your assessment that they are "taking it easy".
I grew up in Vancouver during the 1990s. It's taking it easy when the people I knew performed all their home duties and managed to work. They probably didn't need to but those who did either retired early or saved a lot of assets to benefit their children.

I will repeat, we live in a more competitive world now. I'm certain that what worked before will not work in the future. Canadians are the most well fed crybabies in the world. Always scapegoating but never evaluate themselves critically.
Member
Sep 19, 2012
365 posts
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Calgary
Ziggy007 wrote:
Mar 17th, 2017 4:04 pm
I don't know why so many people are still measuring income to list price ... Very few probably have a mortgage of 1.5M or higher.
I agree, probably very few have that sort of mortgage. You can only buy a detached house if you have $700k+ in equity? Isn't this a huge problem? How many people, outside of GTA/GVA upsizers, have that sort of cash on hand? Once the upsizers have used up all their equity, who's going to step into the void that those upsizers created when they left?
Sr. Member
Jan 14, 2009
782 posts
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Vancouver, BC
ahlaker wrote:
Mar 17th, 2017 4:54 pm
I agree, probably very few have that sort of mortgage. You can only buy a detached house if you have $700k+ in equity? Isn't this a huge problem? How many people, outside of GTA/GVA upsizers, have that sort of cash on hand? Once the upsizers have used up all their equity, who's going to step into the void that those upsizers created when they left?
Why does it matter? From what I've seen, people in their 20s, 30s, downsizers, immigrants, and investors are buying condos. Canadians have to get used to living in condos if they want an urban lifestyle. Look around the world. Life is not a safe space.
Deal Addict
May 31, 2007
4022 posts
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I made this new class ranking for Toronto and Vancouver by networth (I posted this in another thread)

Poverty class (poverty)
Poor class $0 net worth or negligible
Working class (aka working poor, old middle class) 0-1million net worth
Upper class 1-3 million networth
Wealthy class ( 3-5 million net worth )
Rich Class 5-10 million+ net worth
Deal Addict
May 31, 2007
4022 posts
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I ask myself what is it like hitting a 1M net worth milestone , thought it was a very respectable achievement, but still cant buy an "average" detach in Toronto. (1.5m)
Something is out of whack. A very noticeable shift has occurred between rich and poor.
Member
Sep 19, 2012
365 posts
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Calgary
zakarydoks wrote:
Mar 17th, 2017 5:04 pm
Why does it matter?
It seems bizarre that a rich person making $300k, with $500k in cash, can "only" afford a "median" house in inner-city Toronto. But that's just me. If that's not strange to you, then we can agree to disagree.

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