When a Place to Live Became an Investment
In the 1960s, a Portuguese family who had recently arrived in Toronto settled in Hillcrest Village, a quiet neighborhood just west of the city’s bustling downtown. The father, working a steady job in one of the city’s many manufacturing plants, and the mother, perhaps sewing in a factory or cleaning houses, could afford to buy a modest home on their combined wages. Back then, a house was simply a place to live, a refuge for raising children and building a life in a new country. For newcomers like them, homeownership wasn’t about wealth-building or speculation—it was about stability, community, and opportunity. Fast forward to today, and for that family, new to Canada and starting their first jobs, buying a home feels like a distant dream. The city’s housing market has transformed into one of the most expensive in the world, driven by decades of financialization, speculation, and skyrocketing demand. This shift hasn’t just left aspiring homeowners behind; it’s also rippled through the rental market, creating deep inequalities in housing access and affordability.
In the decades following World War II, Canadian housing policy reflected a national commitment to stability and prosperity. Homeownership was promoted as a cornerstone of community building and economic recovery, supported by initiatives like the National Housing Act of 1944. In cities like Toronto, working families—often recent immigrants—could afford modest homes in emerging suburban neighborhoods such as East York, West Hill, Bayview Village and Mimico, even on a single income. Housing prices remained stable, aligned with wage growth, and homes were primarily viewed as places to live, not as financial assets. The post-war housing boom, driven by accessible mortgages and affordable construction, allowed millions to achieve homeownership, forming the foundation of the Canadian middle class.
By the 1980s however, the dynamics of homeownership began to shift in response to broader economic and policy changes. Reforms led to financial deregulation, which expanded access to credit and facilitated higher levels of borrowing. The Canada Mortgage and Housing Corporation (CMHC) pivoted from its original focus on affordable housing to insuring mortgage debt, enabling riskier lending practices. Toronto, as a rapidly growing global city, became increasingly attractive to foreign investors seeking safe and appreciating assets. Housing was no longer seen merely as a dwelling but as an investment vehicle; a cultural shift reinforced by public policies like tax exemptions on primary residence capital gains. Real estate began to serve dual roles: a source of shelter and a key driver of wealth accumulation.
While housing prices increased during the period of 1965 to the early 2000’s (although it is worth noting that during the first part of the 1990’s, housing prices declined), it was not until 2005 that housing prices started to dramatically shift upwards. Historically low interest rates over a sustained period made investment in houses more attractive while returns on fixed-income investments like bonds and savings accounts were far less attractive. As seen in the graph below, Toronto housing has increasingly been perceived as a low-risk, high-return investment, outperforming traditionally safer assets like bonds while avoiding the volatility of stocks. While stocks have historically provided the highest returns, their short-term fluctuations and economic sensitivity make them riskier. Bonds, once considered the safest investment, have faced challenges from inflation and interest rate fluctuations, reducing their appeal. In contrast, housing in large metropolitan areas has been increasingly viewed as a stable wealth-building asset, particularly in cities like Toronto, where prices have rapidly risen.
The current home buyer (or investor) is unlikely to remember the 1990s real estate crash, or if they do, it is considered an anomaly. In short, buyers and investors increasingly perceived housing as a secure investment that offered both stability and superior long-term returns when compared to bonds or even stocks. A cursory review of housing advertisements spanning from the early 2000’s to current times demonstrates an increased focus on housing as an investment. The proliferation of marketing content and advertising strategies are aimed at real estate investors. From the early 2000’s on, residential ads began to commonly emphasize terms like “investment property,” “ROI,” and “rental yields,” underscoring the financial advantages of housing as an investment.
Toronto has one of the lowest property tax rates in North America while imposing some of the highest development charges for housing. This combination drives up home prices, creating an environment that benefits existing homeowners while making it harder for new buyers to enter the market. Toronto’s tax rates have been comparatively low for over 40 years, contributing to higher housing costs as local and foreign investors prefer cities with lower holding costs, fueling speculation and reducing the supply of homes for end-users, ultimately pushing prices higher.
Meanwhile, a study by Altus Group Economics found that Toronto’s development charges are among the highest in North America, particularly for low-rise housing. Government-imposed charges in Toronto are, on average, three times higher per unit than in most U.S. metropolitan areas and about 1.75 times higher than in other Canadian cities. These elevated development fees increase the overall cost of housing, as developers pass these costs on to consumers. In effect, the city’s policies—whether intentional or not—disproportionately favour existing homeowners by keeping their tax burdens low while shifting the cost of growth on to future residents.
The concept of housing as an investment, combined with historically low interest rates, Toronto’s population growth (one of the fastest growing cities in North America), and restrictive zoning policies created significant pressure on Toronto’s housing supply, fueling an unprecedented surge in home prices. Between 2000 and 2023, average home prices in the city increased by over 300%, fundamentally altering the accessibility of homeownership.
The redefinition of housing as an investment has had significant spillover effects on Toronto’s rental market. Skyrocketing home prices pushed more residents into the rental market, driving average rents for a one-bedroom apartment to over $2,500 per month by 2023. This convergence of factors created a cascading effect: tenants faced higher rents, displacement through “renovictions,” and increasing housing insecurity. Purpose-built rental developments, which once played a crucial role in providing stable, affordable housing, stagnated as developers focused on more lucrative condominium projects.
And why not? Ontario’s rent control measures, first introduced in 1975, were well intentioned and designed to protect tenants from rapid rent increases as inflation hovered above 10% and with a peak of 20% in 1981. The 1986 Residential Rent Regulation Act further tightened restrictions, limiting how much landlords could charge even for new tenants. By 1992, the provincial government introduced vacancy control, preventing landlords from adjusting rents to market levels after tenants moved out. While these policies provided stability for renters, they had an unintended consequence—discouraging the development of new purpose-built rental housing. With capped rent increases and restricted profitability, developers and investors shifted their focus away from long-term rental buildings in favor of more lucrative condo developments, significantly reducing the supply of new rental units.
As purpose-built rental construction declined, landlords and investors sought alternative ways to maximize returns. Many turned to short-term rentals, which were not subject to rent control regulations, leading to a surge in Airbnb and Vrbo listings. By 2019, over 20,000 housing units in Toronto were operating as short-term rentals, further tightening the already constrained rental market. While rent control has helped protect existing tenants, it has also made it much harder for newcomers to find housing. With limited rental supply and landlords preferring to keep long-term units off the market or convert them into short-term stays, new renters face fewer options, higher competition, and steep rental prices in unregulated units. The result is a housing system where long-term tenants benefit from stability, but newcomers struggle to secure a place to live, further deepening Toronto’s affordability crisis.
The consequences of housing as an investment first are profound. Wealth inequality has widened, with long-time homeowners and investors benefiting disproportionately from rising property values while younger generations and renters struggle to gain a foothold in the housing market. The city’s reliance on real estate growth and development fees as an economic driver has heightened vulnerability to market corrections, creating risks for broader economic stability. Socially, the housing crisis has deepened inequities, delayed life milestones such as starting families, and fragmented communities as long-term residents are displaced.
It is likely that only a catastrophic economic event will change the perception that housing is a low-risk and high reward investment. Yet such an event would send shockwaves through the economy, wiping out homeowner and generational wealth, triggering foreclosures, and leaving many in negative equity. Banks, heavily exposed to mortgages, could tighten lending, while job losses in construction and real estate would surge. Governments, reliant on property tax, development and land transfer revenues, might face spending cuts or tax hikes. While housing affordability would improve, the pain of the cure dramatically outweighs the benefit. With so much of Ontario’s economy, financial system, pension funds and personal wealth tied to housing, the market may be too big to fail, forcing policymakers to step in to prevent a full-blown collapse, even as they struggle to make housing more affordable.
Restoring housing as a foundation for community and not merely wealth accumulation—will require serious thought and policy interventions. In the next installment of Toronto at Home: Building on Shifting Ground, we will explore how Toronto’s housing market evolved from providing for both residents and newcomers to falling short of meeting the city’s growing needs, and how neighborhoods have shaped—and been shaped by—this shift.
