High housing prices also hurt existing homeowners, says TD economist

The median price of a detached home in Metro Vancouver is now triple the price of a condo—similar to the price gap between an entry-level and move-up home

“Buyer’s gridlock” means Vancouver and Toronto homeowners get stuck in entry-level housing

High housing prices in Vancouver and Toronto are not only affecting entry-level buyers, according to TD Bank Group chief economist Beata Caranci. Existing homeowners are finding it difficult to trade up into better housing, a situation Caranci calls “buyer’s gridlock.”

Caranci likens the normal pattern of home ownership to the game of Monopoly, in which players start off purchasing lower-priced property like Baltic or Connecticut Avenue with an eye to eventually moving onto Marvin Gardens or Pennsylvania Avenue. In Vancouver and Toronto, however, the widening price gap between an entry-level home or condo makes buying a larger home unaffordable: in Vancouver, the cost of a detached home is triple the price of a condo. She adds that many homeowners respond by staying in place and renovating, which increases the value of the existing residence and further reduces supply at the lower end of the market. As homeowners stay in place, fewer starter homes come on the market, and of those that do, fewer are below the median price.

It would likely take a nationwide economic recession to reduce prices, and even then, based on the 2008-2009 recession, narrowing of the price gap would be limited. Caranci says the limited affordability is due to land constraints, policy, investor interest and population growth, which in Vancouver and Toronto is about double that of the rest of Canada. Ultimately, says Caranci, Toronto and Vancouver are becoming like many international cities, where land constraints and population growth force residents out into suburbs and up into condominiums.

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