Scarcity in Canada's most expensive markets expected to play a significant role in future values as single-detached homes become housing's new unicorn

Renovation and infill Improvements to single-family housing stock during the pandemic accelerated housing values and the trend continues to transform cities

TORONTO, Sept. 24, 2024 /CNW/ -- Billions spent in infill and renovation over the pandemic years raised the overall value of residential housing stock and continues to support higher pricing on single-family homes despite downward market pressure in the country's most expensive markets — Toronto and Vancouver, according to RE/MAX Canada.

The 2024 RE/MAX Canada Changing Landscapes Report examined the evolution of housing stock and trends impacting values in Canada's two largest real estate markets in recent years. RE/MAX found on-going renewal and revitalization efforts have had a substantial impact on housing supply and affordability, particularly in urban core areas. In fact, between 2019 and 2023, the national increase in renovation spending, including additions, alterations, upgrades and equipment, approached an estimated $300 billion, an eight-per-cent increase over the previous five-year period, with improvements in Toronto and Vancouver leading the way, according to Total Residential Renovation Expenditures data compiled by IBISWorld-Canada and based on Statistics Canada data.

During the same period, however, the value of residential building permits issued for single-family dwellings in the Toronto and Vancouver Census Metropolitan Areas (CMAs) between January 1, 2019 and December 31, 2023 sat at just over $27 billion, according to Statistics Canada. This is down almost 24 per cent from the previous five-year period, when more than $33.7 billion worth of residential building permits were issued in the single-family category. This trajectory is expected to continue in the coming years. In contrast, the value of residential building permits in the multi-family housing category climbed 60 per cent over the 2014-2018 period.

"With all available tracts of land in the city committed to high-density construction, the single-detached home is quickly becoming a unicorn," says RE/MAX Canada President Christopher Alexander. "Existing homeowners who can't find what they want in the market, will buy an older home in an area of their choice and renovate or build their vision. We expect this trend will strengthen in the years to come and serve to drive price growth in single-detached housing even further. There are a variety of variables at play, but renovation and revitalization is having significant implications for housing supply and affordability."

Revitalization remains one of the most underestimated factors behind escalating housing values. The landscape is changing as a staggering amount of money is funneled into renovation while infill is redefining neighbourhoods, particularly in areas where the value of existing structures has not kept pace with increasing land values. Case in point are wartime bungalows and smaller two-storey homes that continue to be primary targets, making way for custom builds that transform working-class neighbourhoods into up-and-coming hot pockets.

In addition to prompting the physical change of neighbourhoods and housing, gentrification of neighbourhoods alters the landscape and the demographic/economic composition of urban centres. A study of this activity in Canadian CMAs found that in Vancouver, single-detached houses are getting bigger and condominium apartments are getting smaller. The densification trend has resulted in a decrease of single-detached homes. Despite the decline, newer single-detached houses have been getting larger in the Vancouver CMA, where homes boasted approximately 3,600 sq. ft. of living space—the highest of all CMAs examined, reflecting the impact of new construction/infill.

Meanwhile, the Toronto CMA saw the greatest decline in vacant land properties from 2019 to 2021 (-6,680). This is significant since vacant land is closely tied to residential building construction. (Source: Gentrification, Urban Interventions and Equity (GENUINE): A map-base gentrification tool for Canadian Metropolitan Areas: C.I Firth, B. Thierry, D. Fuller, M. Winters and Y. Kestens; May 19, 2021)

Given close to 30 per cent of the GTA's existing housing stock and an estimated 20 per cent of Vancouver's was constructed in 1960 or before, according to data from Statistics Canada, the renovation and infill trend is not surprising. The cost to rehabilitate older, outdated homes with unpredictable issues can quickly consume and exceed budgets. The push to make the best use of scarce land has homeowners and builders striving to maximize square footage or increase density on individual building lots in traditional urban neighbourhoods. 

New builds are ongoing in residential neighbourhoods throughout Toronto and Vancouver, despite the cost of construction in today's high-interest rate environment. Entire neighbourhoods, especially in midtown Toronto, have been entirely transformed, while the evolution of Parkdale, Trinity-Bellwoods, College Steet West, East York, Riverdale, Leslieville and St. Clair West is just beginning. The average price of a detached home has climbed by almost 35 per cent in the Greater Toronto Area between December 2019 and December 2023, rising from $1,052,081 to $1,418,323, while the benchmark value of a detached home in Metro Vancouver has risen 37.9 per cent, from $1,423,500 in December 2019 to $1,964,400 in December 2023.

With rising affluence and one of the largest transfers of inter-generational wealth now occurring, demand in the luxury segment is further propping up the renovation/infill phenomenon. According to the World's Wealthiest Cities Report by international wealth migration firm Henley & Partners and global data intelligence company New World Wealth, Toronto now ranks as the 13^th wealthiest city globally for the number of high-net worth individuals, and their impact on the market is visible. Renovations and infill continue in Toronto's and Vancouver's most established areas at a rapid pace, with older, executive homes carrying generous lot sizes and substantial price tags being gutted to the studs or demolished entirely.

"Robust renovation and infill activity and the resulting lift in detached values has inevitably impacted the urban housing ladder," notes Alexander. "For years now, we've heard about the disappearing or 'missing middle.' Due to rising detached values, that 'middle' is now more likely to be a linked home, a townhouse or a condo unit. Amid population growth and urbanization, the shift in Canada's housing mix has been a natural and progressive evolution – in much the same way that, decades ago, the hallmark of middle-class North America stopped being the stereotypical modest home with a white picket fence."

RE/MAX also found lifestyle trends as well as economic and social realities have influenced the housing sector to date. For instance, price growth itself has escalated carrying costs, prompting the rise of and need for multi-generational housing. A growing number of property owners are investing in renovations that accommodate family or create suites that can provide a secondary income stream to offset the cost of home ownership. Properties with basement apartments and in-law suites are increasing in demand and often sell at a premium. According to the 2021 Census, there were nearly 442,000 multigenerational households in Canada. These only account for 2.9 per cent of all private households, but are now home to 2.4 million people, or 6.4 per cent of the total population. Multi-generational households have increased in numbers by 50 per cent since 2001 – much higher than the 30-per-cent increase in households overall. 

"The detached housing supply in urban centres is in the midst of a monumental metamorphosis that will unquestionably impact housing inventory and composition for further generations of real estate consumers," explains Alexander. 

Longer lifespan and better health are also allowing homeowners the option of aging in place, putting greater pressure on housing supply and disrupting the traditional property ladder. Conventional home-buying patterns have shifted as a result, with the stay-put trend catching on with homeowners of all ages, bolstering the "renovate versus relocate" trend. Others might simply wait longer to make the next move. Either way, the gridlock in the home-buying cycle causes knock-off effects that limit inventory and contribute to higher prices. 

"Municipal governments are partially to blame for the decision to stay put, given the land transfer taxes applicable in both Toronto and Vancouver," says Alexander. "The tax has effectively eroded equity gains that, in the past, homeowners directed toward moving up, down or laterally. It simply costs too much to make multiple moves. The result is that the rungs on the property ladder are fewer and moving farther apart."

For their part, homebuyers are adjusting to the changing landscape in Canada's urban real estate markets. Variables such as population growth, affordability, supply, intensification, as well as social and economic factors will continue to shape the housing sector, the housing mix, and home-buying trends in the decades ahead.

"Those in a position to make their moves now may be better positioned than those in 2025, as prices currently remain close to year-ago levels in the Toronto CMA and modestly higher in the Vancouver CMA," says Alexander. "Pent-up demand is expected to increase pressure on the housing market in the year ahead as buyers move off the sidelines amid a more favourable interest rate environment that will set the stage for sales and price growth. In the same vein, better rates will also support renewed renovation and construction activity, as the evolution of city neighbourhoods remains a work in progress. Solid fundamentals support the case for home ownership as a long-term hold. As Mark Twain once said, 'Buy land. They aren't making it anymore.'"

Regional Highlights

Toronto

Changes to work schedules and the remote phenomenon in the post-pandemic era have breathed new life into Toronto's downtown neighbourhoods. A significant influx of young buyers is moving into communities and homes once inhabited by parents and grandparents. Renovation and infill activity continues unabated as a result, in neighbourhoods such as Parkdale, Trinity-Bellwoods and College Street West, where immigrants originally settled and raised families at the turn of the century.

Instead of selling their homes, newcomers kept their properties and moved north, east and west of the city where houses and lot sizes were bigger and more conducive to large families, while renting out their existing homes. Younger generations are now moving back into those properties, some converting them into multi-unit dwellings and living in one of the apartments to support a mortgage, while others are taking homes that had been converted to multi-family and reversing the trend. Once completed, these properties look nothing like the homes of their parents or grandparents, boasting modern construction of steel and glass, minimalistic interiors and edgy landscaping. Walkability is the primary driver in busy downtown neighbourhoods, with the grocer, the butcher, unique shops, restaurants and cafes, as well as children's programs all within walking distance.

This trend is also visible in areas such as East York, Riverdale and Leslieville, particularly where there are strips of semi-detached, townhomes and row housing. This is now commonplace in Toronto's oldest neighbourhoods as gentrification spills over into areas bordering hot pockets. St. Clair West between Bathurst and Dufferin has also come alive as young, established families move into new and renovated infill properties, stimulating commercial real estate growth in terms of new shops and restaurants.

The trend builds on what has been occurring in many midtown Toronto neighbourhoods for decades, along throughways such as Avenue Road and Yonge Street. Very few bungalows remain in these enclaves, where buyers typically look to maximize square footage on generous lot sizes. The evolution of housing stock in these communities, which began in the 1980s, is almost ready for a second revival.

The result is older, established neighbourhoods with newly constructed, custom-built homes that easily rival anything built in subdivisions currently underway. Renovation and infill activity is raising the average price of homes one property at a time, impacting values of surrounding real estate, changing the physical landscape as well as the mix of the housing supply and homebuyers in the city.

Vancouver

Renovation, rehabilitation and infill continue unabated in Vancouver proper, with new buyers and existing homeowners embarking on renovation projects and builders looking to increase densification. The trend has been particularly evident in neighbourhoods in East Vancouver including Grandview, Renfrew, Napier and Hastings-Sunrise, where laneway homes and coach houses have proliferated. The market is seeing more duplex, triplex and sixplex projects coming on stream, as builders move to fill the missing middle.

Red tape and restrictions are making it difficult to subdivide larger lots, given current zoning in many neighbourhoods, despite the move toward highest and best usage for properties. The typical 33-ft. lot, however, has experienced increased development with front and back duplexes over the past four or five years, a trend that is expected to continue. Detached homes typically known as 'Vancouver Specials' that were popular in the 1960s have also been replaced by homes that can accommodate more than one family. This is especially true of homes that are being sold for land value only, meaning the home itself has met its life expectancy.

Vancouver is rapidly changing and existing detached homes are seeing upward pressure on pricing, particularly when renovated to today's standards. Many potential sellers are choosing to age in place, rather than move to a smaller home or condominium. Rapid transit is sparking new demand for areas outside the core.

Interestingly, the City of Vancouver is seeking to retain character homes, typically those built before 1940 that represent the original aesthetic of core neighbourhoods. Those who opt in have the opportunity to: add additional floor area to the existing home; to convert the home into multiple units known as a multiple conversion dwelling; build an infill – a smaller, detached home typically located in the rear yard where the garage would normally go; or rent or strata-title dwelling units in the infill or multiple-conversion dwelling. Despite the intent, the policy has not been enough to deter the loss of character homes and new policy options are being investigated. Currently, the city is exploring how to balance preservation with the need to increase density in existing neighbourhoods, with a focus—and some controversy—on the permitted Floor Space Ratio (FSR), with many noting it must be higher to accommodate future housing needs.

Much like the changing landscape itself, the policy framework that guides the evolution of the City of Vancouver is still taking shape, with growing pains evident in Canada's largest markets. One thing, however, is certain: maximizing square footage and density on existing lots will continue to be a growing trend.

About the RE/MAX Network 

As one of the leading global real estate franchisors, RE/MAX, LLC is a subsidiary of RE/MAX Holdings (NYSE: RMAX) with more than 140,000 agents in almost 9,000 offices with a presence in more than 110 countries and territories. RE/MAX Canada refers to RE/MAX of Western Canada (1998), LLC and RE/MAX Ontario-Atlantic Canada, Inc., and RE/MAX Promotions, Inc., each of which are affiliates of RE/MAX, LLC. Nobody in the world sells more real estate than RE/MAX, as measured by residential transaction sides. 

RE/MAX was founded in 1973 by Dave and Gail Liniger, with an innovative, entrepreneurial culture affording its agents and franchisees the flexibility to operate their businesses with great independence. RE/MAX agents have lived, worked and served in their local communities for decades, raising millions of dollars every year for Children's Miracle Network Hospitals^® and other charities. To learn more about RE/MAX, to search home listings or find an agent in your community, please visit remax.ca. For the latest news from RE/MAX Canada, please visit blog.remax.ca. 

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SOURCE RE/MAX Canada

Danielle Scott, APEX PR: [email protected], 416-909-5185; Lydia McNutt, RE/MAX Canada: [email protected], 416-797-0473