I do not know what will happen to Toronto housing prices. I do think, though, that if you look at five of the big things happening in Canada’s economy at large — namely, automation, digitalization, Baby Boomers nearing their 60s or 70s, rapidly rising home prices in some major cities, and the fall in fossil fuel and other commodity prices — all suggest that Toronto land values are likely to rise more slowly than other assets in the coming years.

1. Automation

— Many people are drawn to Toronto because of its strong employment market, so if automation causes employment rates or real wages to rise relatively slowly, some people may decide to move to other places where housing prices are more affordable

— If automation causes transportation to become more convenient because of self-driving vehicles, people may also find it easier than ever before to live further away from downtown Toronto

—The process of constructing homes or buildings might itself increasingly be carried out by machines, which might reduce the time and money involved in construction

— If automation makes it easier to live in areas that have challenging geographies — for example, if autonomous vehicles make it easier to live in Snowbelt cities like Owen Sound, which gets three times more snow per year than Toronto on average — it could cause home values of those lands to rise more quickly than those of established cities like Toronto

Great Lake Snowbelts Great Lake Cities

2.Digitalization — The Internet might allow people to “e-commute” to work in some circumstances, thus making it easier to live outside of major employment centres like Toronto — The Internet might put downward pressure on real estate in general by, in effect, using cyberspace as a substitute for real space. For example, if more people shop online, then there may be less of a demand for retail real estate, as more goods are taken direct from warehouses to consumers

— The Internet might lead some jobs to be outsourced to other countries with cheaper labour, which in turn could cause wages or employment rates in Canada to rise relatively slowly, causing employment to become less of a determinant in people’s housing preferences, and home affordability to become more of a determinant instead

— The Internet could make it easier than ever before for new immigrants to Canada to live outside of major immigrant clusters like Toronto

— The Internet might make it easier to live in geographically rugged areas like the Lake Huron Snowbelt, for example by allowing people to e-commute or buy their groceries online in the wake of a snowstorm

3. Demographics

—Canada’s demographic profile is quite different today than it was a decade or two ago. Not only is its biggest cohort, the Baby Boomers, made up of individuals who are now nearing or have already reached their 60s, but also there are now no longer very many Canadians younger than the ages of 15-20

—Baby Boomers may now be somewhat more likely to sell, and less likely to carry out a major renovation, of their homes than they were a decade ago

—Fewer children means that parents don’t need as large houses. It also means there may be fewer jobs available in day-care, child-care, or education. And it means that, in the decade or so ahead, there may be fewer first-time home buyers or home-renters entering the market

—While there are fewer kids and fewer people in their 40s than there were a decade ago, there are still plenty of people between the ages of 20-70; in other words, there is still a lot of competition for jobs and wages. Areas of Canada with fewer people in the labour force, and with more elderly people who need doctors or nurses, could do better at attracting immigrants or new residents

—Many bilingual, bicultural second- or third-generation immigrants have recently or will soon come of age. These populations can more easily move to areas of outside immigrant clusters like Toronto than could their first-generation parents or grandparents. In doing so, they create new, smaller clusters which can in turn attract new first-generation immigrants. This has already occured to some extent with white immigrant groups that have been in Canada for several generations. When, for example, Soviet Jews came to Canada a few decades ago, they largely skipped the typical immigrant stage of moving to downtown Toronto (as European Jews had done after WW2) and instead linked up with second-generation and third-generation Jews who were living uptown or in Vaughn.

—A caveat here would be if Canada was to allow an immense increase in immigration, well above the 0.59 percent net annual migration (which is already high by global standards) it allows today. If that were to happen, then Canadian real estate prices could be expected to continue rising rapidly

4. Gravity

— Given the extent to which cities like Vancouver and Toronto have seen their real estate markets increase, many people are being priced out, or are on the verge of being priced out, of those markets. This may make it less likely that these markets will continue increasing as rapidly as others going forward

— A graph from this week’s Economist magazine has Canada’s housing markets among the most overpriced when viewed in comparison to rent costs or income levels:



5. Commodities

After a decade or so of very high energy and other commodity prices, in 2014 prices crashed, and they remain low today. If (a big if, admittedly) they do not rise back up, inexpensive commodity prices should put downward pressure on Canadian home prices in two ways:

— First, by weakening the Canadian economy in general, as the Canadian economy is an enormous commodity exporter. Toronto, as the commercial capital of the country, may not be immune to this

— Second, by making suburban sprawl cheaper. Nearly every aspect of suburban living is much more energy-intensive and commodity-intensive than is urban living

There is, not surprisingly, a historical correlation between commodity prices and Canadian real estate prices. When commodity prices reached their modern-day lows during the mid-1990’s, Canadian home prices declined by roughly 5% in spite of strong growth occurring in the general economy at the time. When, on the other hand, commodity prices reached their modern-day highs between 1979 – 1983 and between 2007 – 2014, Canadian home prices went up by roughly 10% and 35%, respectively, in spite of the fact that the country’s two most severe postwar recessions took place during the years 1982 and 2008-2009

On the Other Hand…

Of course, that I could be entirely wrong about all this. The counter-theory to the one I have put forth is one that you might call “the Manhattan project”: namely, that Canada is bound to develop a city that is at least somewhat comparable to New York City at some point, and that city is likeliest to be Toronto. Today, the City of Toronto’s population density is 4,150 per square km; Manhattan’s is approximately 27,000, Brooklyn’s 14,200. The Greater Toronto Area’s total population, at 6.4 million, is only around a quarter the size of the New York Metropolitan Area’s. Viewed in that comparative manner — and Torontonians do have a reputation for seeing their city as a New York-in-waiting — Toronto has plenty of room to continue growing. (Though, on yet another hand, Canada’s population is only around a tenth of the US’s…). Indeed, as was mentioned above, a big wild card for the future of Canadian real estate is the future of Canadian immigration. There are 7.5 billion people in the world, but only 36 million in Canada. If we are willing to accept immigrants with open arms — far beyond the numbers we presently allow — the population of Canada could soar, and its home values too.