Monday, 24 October 2022

The House-Condo Price Differential: Northern Ontario Exceptionalism Strikes Again!

 

Population growth in northern Ontario has been weak over the last few decades as a result of youth out-migration as well as little immigration into the region – even though immigration has accounted for over three quarters of Ontario’s population growth in recent years.  The result has been an aging population and while Ontario  had a population share aged 65 and over of 18 percent in 2021, the province’s North was closer to 22 percent.  A more elderly population is usually seen as a source of rising demand for services like health and a cost driver for government.  At the municipal level, seniors are also a source of local income stabilization given that they still inject some purchasing power into the local economy and of course continue to pay property taxes. 

 

Yet, in the case of northern Ontario, the earlier waves of youth out-migration may eventually spawn a new wave of out-migration rooted in seniors following their children.  People in the 50 to 65 age range may be looking ahead and thinking about where and when they will retire and facing a choice between remaining in the north in retirement or relocating closer to children.  Weighing in on decisions to stay or go are the need to downsize accommodation and as the years advance staying in the north is certainly made easier by selling your house and moving into a condo or apartment.  What is intriguing in the case of condos in northern Ontario is how much higher priced they are relative to single-detached houses.

 

Figure 1 plots the median price of a single detached one in 2022 against the median price of an apartment style condo in twelve Ontario urban areas including Thunder Bay and Greater Sudbury.  The median single-detached housing price data for all twelve cities is from Canadian Real Estate Association web site while the median condo prices are from the same place with the exception of Thunder Bay and Sudbury which required creating a separate estimate based on what is currently available on Mitula or Realtor.ca.  Needless to say, that is not the ideal approach, but it will have to suffice given data limitations.  Figure 1 plots the urban areas from highest to lowest single detached median housing price and those prices range from a high of $1.425 million for Oakville to a low of $315,000 for Thunder Bay.  What is more interesting is the accompanying median condo prices which show a lot less variation than those for houses.

 


 

 

The range in median prices for single detached houses in these twelve cities is $1.11 million but for condos it ranges from a high of $648,500 in Greater Toronto to a low of $329,900 in Thunder Bay – a still consequential but much smaller range of $318,600.  Why is this important?  Well take a look at Figure 2.  In Oakville, if you decide to sell your $1.425 million-dollar median valued home and buy a median valued condo at $640,000 you generate a nice cash surplus $785,000 dollars that you can use to finance your retirement or assist your children in buying their home.  If you are in Thunder Bay, doing the same thing will require you to come up with nearly another $15,000 to complete the purchase of the condo. This is of course based on the median prices and in my observations over the last year taking a look at condos in Thunder Bay, very often the difference was more effectively in the $50,000 to $100,000 range depending on the unit.  At nearly $135,000, the gap is even more pronounced in Sudbury though the caution is that this is more likely a function of the much smaller sample size in terms of the Sudbury data currently available.  One would expect the gap to be more similar to that for Thunder Bay.

 


 

 

So here is the thing.  The population in northern Ontario is aging and, in many cases, there will be some consideration of relocating to where children and grandchildren have gone.  Selling your house in Thunder Bay or Sudbury and buying another house in southern Ontario is prohibitive given the vast difference in housing prices.  However, the spread for condos is a lot smaller and the fact is you are going to have to cough up quite a bit of extra money to stay put in a condo in Thunder Bay or Sudbury anyway making a move easier to swallow.  Given the higher cost of a condo relative to a single detached home in Thunder Bay or Sudbury, one cannot help but wonder if the strategy in condo building to date in these communities is simply designed to part widows and widowers from their money when they sell their houses?  Condos in other cities generally have a broader mix of residents based on demographics whereas when one tours a condo in Thunder Bay for example it is not hard to feel that you are visiting a long-term care home rather than a condo.  Even more interesting is the high proportion of condos in Thunder Bay that have little indoor or underground parking - not the best incentive if you are trying to minimize the impact of harsh winters in your Golden Years.

 

While the young are often the focus of policy initiative and consumer marketing, it remains that wealth and income rise with age and the loss of purchasing power of relatively young seniors – those in the 50 to 65 age range – will not help local economies in the north.  Northern Ontario will need to up its game in both the design and pricing of future condo developments if it wants to forestall the next potential wave of out-migration.