Brandon Donnelly — Daily insights for city builders. Published since 2013 by Toronto-based real estate developer Brandon Donnelly. — Page 522

Today's post is perhaps a good follow-up to yesterday's post about housing supply in Ontario . Below are a few charts taken from a recent article by Wendell Cox looking at net domestic migration across the US. The takeaway here is that the shift from larger cities to smaller cities seems to be accelerating, following a trend that started before COVID.

The data in these charts is organized according to population and by Core Based Statistical Areas (CBSAs). At the bottom are America's two megacities: New York and Los Angeles. Both have metro areas that exceed 10 million people. As you can, these two city regions have been losing the most people, both in terms of total humans and on a percentage basis. The goldilocks sweet spot seems to be cities in the 500k to 1 million range.

But the most telling figure is probably this one here:

This chart adds up all major metropolitan areas with a population greater than 1 million, and then shows net migration over the last decade. Here you can see when this trend started (around 2016) and how it has been accelerating. In this case, it does appear that COVID added some fuel to the fire. But the question remains: Why is this longer-term trend even happening?

Is it a short-term phenomenon? Is it because once a city reaches a certain size it simply becomes more annoying to live in it and people would prefer to live elsewhere? Or is it more about overall affordability? That is, if we could figure out how to deliver more affordable housing in our cities, could we stymie the bleeding toward smaller and more affordable ones?

I don't know the answers to the questions. But they have been widely debated and I still think they're interesting ones. If all things were equal (or closer to equal), how and where would most people choose to live? Put differently, how much of this is some sort of natural market outcome and how much of it is a direct result of our actions (or inactions)?

Here are a few Ontario / Toronto housing supply charts taken from this recent blog post by Mike Moffat (an assistant professor at Ivey Business School):

So what do these tell us?

Well, 2015 was a banner year for the supply of new apartments/condominiums in the City of Toronto. And supply, in general, has been ticking upward for apartments across the province.

But if you're in the market for a new single-detached, semi-detached, or row house, supply is on the decline in the Toronto CMA. You're likely going to have to go further out for that.

This, of course, makes sense. The Toronto CMA has been built out. Most of the new growth is now going to need to take place through intensification, which usually means apartments and condominiums.

Though obvious, I think all of this is an important reminder. Because the more difficult and the more expensive we make it to build in our already built-up areas, the more we are encouraging sprawl in "Ontario outside of Toronto CMA."

At the same time, we are also making it more financially challenging for families to remain in the city. We can talk all we want about 3-bedroom suites and ways to make them more accommodating to children, but that doesn't mean much if people can't afford them.

If you've been following the Toronto housing market and/or following any panicky resale agents/brokers on Twitter, you'll know that things have shifted over the last few months. Here's what broker (and my friend) Christopher Bibby had to say about the market in his most recent newsletter :

As anticipated, April has ended up being one of the defining months of the 2022 real estate market. With the recent fragility we are seeing, it is clear that the market peaked in February. In fact, the Toronto Real Estate Board, in its most recent Market Watch, claims that month-over-month prices could be down by 2.6%—which is very likely. TREB also indicated that the overall number of year-over-year transactions in March was down by approximately 30%. I deferred the release of this newsletter because weekend activity positively altered some of my previous commentary. The key takeaway, however, is that sentiment has shifted in our marketplace.

But let me paraphrase the conclusion of Bibby's newsletter with two words: who cares? If you think that Toronto (or some other city) will remain an important global city by 2025, 2030, or even 2040, you really shouldn't be fussed by what the market is doing over the span of a few months.

Moreover, I can tell you that my least favorite time to go out and buy real estate is when everyone else is submitting silly offers and clamoring to buy whatever they can find.