The GTA is fast becoming the New York of the north and even if house prices cool over the next few years, relief will be “modest,” at best, for beleaguered homebuyers, says TD Economics in a report released Monday.

The GTA is facing “growing structural challenges” that are pushing both renting and home ownership increasingly out of reach of even high-income residents, it warns. Top among them are government regulations and taxation.

The Ontario government’s “laudable” push to higher density housing has gone too far, driving unprecedented construction of tiny condos “typically tailored for shorter-term living,” while seeing the supply of more affordable, family-friendly townhouses and single-family homes plummet across the GTA.

This dramatic shift in the housing market is “contributing to poor housing choice and reducing mobility of residents,” TD notes, urging the need for a regional approach to housing problems, as is now happening with transit.

“Housing affordability has decreased in the GTA to the point where we’re not far behind New York,” said TD economist Diana Petramala, co-author of the report.

In Manhattan and its surrounding suburbs, it now takes 6.1 times the average income to buy a house, down from 7.9 times the income it cost in 2006 before the housing market collapse.

The more than decade-long GTA housing boom now has us outpacing New York, requiring 6.5 times the average income to buy a house here, up from 4.8 times the average income in 2006, Petramala said in a telephone interview.

“The stakes are high surrounding the fortunes of the Greater Toronto Area housing market,” adds the report. “A healthy housing system is critical to a region’s economic fortunes. And with the GTA key to Canada’s economic engine, the success or failure of housing in this region carries significant national importance.”

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Even renters are struggling, with monthly lease costs eating up almost half of household income for wage earners in the bottom 40 per cent, “and the share of those in core housing need remains unacceptably high,” TD notes.

At the same time, higher land costs, development charges, the HST and “restrictive government regulations,” such as the lack of proper zoning for higher density housing in many parts of the region, have added to costs and stretched build times to as much as seven years.

The report largely echoes what the GTA development industry has been warning provincial and regional politicians for years — that the intensification policies of the province’s 2005 Places to Growth legislation come at a cost, and it’s largely being borne by homeowners.

“This has been 10 years in the making,” says George Carras, president of RealNet Canada, which provides sales and other new home and condo research to the Building Industry and Land Development Association (BILD), the umbrella group for GTA homebuilders.

“The report has shone a light on the changing complexities in the approvals process that has brought with them increased costs and delays.”

The price gap between lowrise homes and highrise condos hit another new high in 2014, says Carras, and now stands at $251,337. Even in areas like Vaughan, a new detached home can cost about $1 million and the alternative, semis and townhomes, are also climbing out of reach.

The price of townhouse land, for instance, climbed 22 per cent in 2014 alone, notes Carras, to an unprecedented $1.9 million per acre.

The TD report only confirms the worrisome spikes in new home costs that RealNet is seeing, said Carras. The average cost of a new home across the GTA hit a new record in 2014, it reported Tuesday, up 8 per cent from 2013 to $705,813.

The average new condo price also hit a new high, up 4 per cent over 2013 to an index price of $454,476.

Local governments, including Toronto’s real estate arm, Build Toronto, have been too slow in freeing up surplus land that could be used to build more affordable housing, says TD Economics.

And it may be time to consider an “idle land tax,” for land owners who are leaving lands undeveloped, hoping values will climb further.

BILD maintains the much bigger issue is the need to simplify approvals and provide more municipal infrastructure, like roads and sewers, that will allow projects to get off the ground.

The province declined to comment on the TD report, other than to note that a public review of Places to Grow and greenbelt policies is expected to start sometime next month. It will include public meetings across the province, aimed at ensuring continued protection of prime agricultural lands but also planning decisions that support “healthy living and shorter commute times.”

More GTA residents are expected to be pushed into renting, both because of costs and aging demographics, TD says.

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TD predicts that house prices could start flatlining this year after gains averaging 6 to 8 per cent the last few years. But demand remains so strong for single-family homes that it could be 2021 until enough seniors and aging homeowners opt to cash out and move into smaller houses, condos or rentals, and boost the supply of houses for sale, says Petramala.

Challenging housing affordability, as well as a transportation system that is “struggling,” requires more of a regional approach and new government tax and incentive programs to get developers and the non-profit sector actually building the type of housing that demographics warrant, says TD.

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The report adds that rising home costs “have been instrumental in driving up average debt-loads in the region, leaving households vulnerable to any unanticipated negative economic shock.”

Purpose-built rental has accounted for just 4 per cent of new construction the last decade, yet demand has risen dramatically, notes TD.

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“Helping these individuals most in need will require government subsidies,” says Derek Burleton, deputy chief economist at TD Economics.

Why the climb?

Key reasons behind increased housing demand and prohibitively higher prices, according to TD Economics:

$409,000

Amount of combined mortgage and consumer loan debt carried by the average GTA household thanks to rising house prices and lure of low interest rates, according to consumer credit reporting agency Equifax.

5

Average percentage a year that mortgage carrying costs have climbed in the last three to four years, just because of rising house prices.

$1,700

Average monthly rent in the GTA of investor-owned condos largely geared to middle-income earners.

$18,000

Average development charges now levied on a new condo in the City of Toronto, which has increased fees more than 100 per cent. The 905 regions charge even more, citing the costs of new infrastructure.

$28,000

Development charges for a single-family home in the 416.

$140,000

Annual income needed to finance a single-family home in the GTA, which TD says now costs about $740,000.

Susan Pigg