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Toronto’s housing market is the most overvalued in the world

UBS report claims Toronto’s real estate market is still in bubble territory

Toronto’s housing market remains the most overvalued among 20 global cities — including the likes of London, Singapore, Hong Kong and Paris — putting it at great risk of a housing bubble, according to a report by UBS Group AG released today.

The report shows that real housing prices in Toronto rose by 50 percent over the last five years, an increase that UBS economists peg as “unsustainable”, simply because it heightens the probability of a massive correction (or crash) in the housing market.


“An overly loose monetary policy for too long, in addition to buoyant foreign demand, unmoored Toronto’s housing market from economic fundamentals, putting it in bubble risk territory,” said the report.

Indeed, in the first half of 2017, Toronto home prices were at a dangerously high level. Between January and April, prices shot up 25 to 30 percent from that same time period a year before, driving the provincial government to intervene in the housing market by slapping a 15 percent tax on foreign buyers of Toronto homes. That seemed to do the trick — by August 2017, home prices had dropped a good 20 percent, erasing some of the gains of early 2017.

Some experts believe the UBS report exaggerates Toronto’s housing bubble risk, failing to account for government intervention in the market. “The market was definitely overvalued in late 2016 and early 2017, and that was because of a sharp increase in speculative activities and flipping — that took prices to the sky. The government put housing policies in place, and we’re now seeing a soft price correction that will last for some time,” said Benjamin Tal, Deputy Chief Economist at CIBC World Markets.

In fact, Tal argues that prior to 2016, home prices in Toronto were increasing at a rate that correlated to the economic fundamentals of the city — rising incomes, declining unemployment and population growth.

“Comparing cities in an imprecise exercise, because you don’t have good, specific information and you don’t factor in income levels and wealth levels,” Tal told VICE Money.


Toronto relative to other global cities

Data from the UBS report shows that prices of homes in Toronto have doubled in 13 years (i.e. a 100 percent increase), while income has only grown by less than 10 percent. In London, by contrast, housing prices are only 15 percent higher than a decade ago, but income is in fact 10 percent lower than it was in 2007.

In terms of affordability however, high-skilled Torontonians fare much better than their counterparts in Hong Kong, London and Paris, which remain the cities with the least affordable options for housing.

In Toronto, UBS data claims that a skilled service worker will have to work just seven years to be able to afford to buy a 650 square foot dwelling. In Hong Kong, it’s 20 years; London, 16 years; and Paris, 14 years.

The report uses the average annual incomes of high-skilled workers in those cities — those who are employed as bankers, lawyers programmers and engineers, for instance. Somewhat surprisingly the report concludes that due to relatively high incomes, purchasing an apartment is feasible for residents of San Francisco and most European cities besides Paris and London.

Housing is most affordable in Chicago, where it takes just three years of employment to buy a 650 square foot apartment.

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