Townhouses might be the best way to get into Toronto’s housing market right now

In Toronto’s hot housing market, the townhouse is the invisible sibling.

They’re easily forgotten when considering a property. After all, condos are seen as the the affordable starter option. Single detached homes, meanwhile, are seen as the ideal end-of-the line for families to raise their children in.

But there are a lot of good cases to be made for townhouses says David Binns, team leader and sales representative of The Binns Group, part of Keller Williams Advantage Realty Inc.

In fact, Binn believes townhouses are the best investment of any housing type in Toronto right now.

Here's why.

A rare breed

One of the reasons to opt for a townhouse is rarity. In Toronto, nearly 40% of the housing stock is made up of single-detached homes, while 30% is high-rise housing. Less than 10% of existing stock is made up of townhouses — and that’s not changing anytime soon, says Binns.

“There’s minimal inventory available,” he says. “And in Toronto, they’re not really building anymore.”

Part of that, of course, is space utilization. Developers today want to get the most profit out of the existing lots in Toronto — and doing that that means building vertical. Outside of Toronto, townhouses are more common, but in the city proper, you’re unlikely to ever have a situation where a flood of new townhouses suddenly hits the market.

“There’s just not a lot of them,” says Binns.

Moving on up

Scarcity is one part of the equation. Binns says townhouses make an excellent investment because they’re a natural stepping stone between condos and single-detached homes. And with the price of the latter being out of reach for many homebuyers — in April, the average price for a single-detached home in Toronto hit $1.6 million — townhouses offer a happy middle.

“The natural progression for many is that someone moves into Toronto. They rent, they meet a partner, then they either rent a bigger place or buy a condo,” says Binns. “Eventually they say, ‘O.K. I want to be with you for a long time.’ They want to buy a house together. Unless they’re willing to move to the suburbs, it’s an expensive proposition. And so the townhouse presents an attractive option.”

Getting a better deal

Another advantage for townhouses is that right now, they actually sell for a cheaper rate per square foot than condos do. So while you may pay less for a smaller condo, you’re actually going to be shelling out more for an equivalent-sized condo unit.

Meanwhile, townhouses have seen their prices rise at a rate similar to single-detached homes. Binns does much of his business in downtown Toronto, particularly the King West and Queen West neighbourhoods, where the just so happens to be a larger-than-average concentration of townhouses.

He says recently, his team sold a townhouse for $1 million. Just 24 months ago, the same property had been bought for $628,000. There were no renovations done.

Normalizing market

Of course, anyone thinking about buying right now should be aware of the fact that Toronto’s market is undergoing a shift. In late April, the Ontario government announced a series of new housing rules that include taxing foreign buyers and implementing new rent controls.

Since then, sales have slowed down and listings have soared. It’s clear owners are eager to sell to take advantage of the past year’s price gains, while buyers are getting skittish about what they see as a market in flux.

Binns has a few thoughts on what's going on. He thinks the recent signs of cooling are a positive development, and the first step to what he sees as a healthier housing market for the city.

“The market’s going to stabilize and normalize to normal supply and demand conditions, where properties aren’t going to be getting 20 offers. That’s unhealthy,” he says.

Binns expects prices from here on out will see 8-12% annual increases (compared with the gains seen in March and April, when prices in the city for all home types rose more than 30%).

Of course, he predicts the biggest price gains will come from townhouses.

“My prediction in townhomes is they’re going to be a highly profitable asset class,” he says.