Number of jobs impact on housing costs

The very first article we posted focused on Toronto’s strong economy and the number of high paying jobs needed to support the housing market. This article discusses past trends and shows the relationship between the total number of jobs in the city of Toronto and the cost of housing.

In the charts below, the first image shows total employment in the city, while the second graph, which has been previously shared, maps out average home price growth in Toronto.

Job creation

https://www.toronto.ca/legdocs/mmis/2017/pg/bgrd/backgroundfile-99543.pdf

trend line

(https://www.livabl.com/2017/01/history-of-toronto-real-estate-peaks-and-crashes.html

The visual from the two charts above would quickly suggest the relationship is highly correlated.  If there’s good job growth in the city the price of housing will go up, and if there’s job loss, the cost of housing will follow.  This is not to say the relationship is absolute, however, it is fair to hypothesize from the diagrams that a positive correlation must exist.

In the period from 1983 to 1990 when the total number of jobs reached its then peak, the number of jobs in the city increased by over 20%.  During that same period, the average price of housing doubled.  Through the recession of the early 90s the city lost roughly 15% of its jobs, while the cost of housing dropped by nearly 40%.  Most recently, we have seen the current surge since the 2008/9 recession increase housing prices by 70% despite the city only increasing the total number of jobs by slightly over 10%.  To a lesser extent, even the modest job loss following the dot.com bubble paused the growth in house prices in Toronto for the first couple of years in the 2000s.

These trends indicate that the housing sector may be significantly impacted by the overall strength of Toronto’s job market.  Any shift up or down with the number of jobs in the city has been joined in parallel with even larger swings in the housing market.  What we do not see from these figures is consistency in the level of impact good or bad job numbers have on housing costs.  A 20% increase in jobs in the 80s caused house prices to double, while the recent 10% increase bumped house prices up 70%.  This would suggest that strong job numbers increase buyer confidence, but as we saw in the 90s, weak numbers can also drive prices in the opposite direction.

The impact total job numbers have on the housing market is relevant now with August jobs data showing Ontario losing 80,100 positions.  It is important to never simply look at one month alone to make any definitive conclusions; however, the August report does put added pressure on the fall months to produce a stable labour market.  With the housing market historically so interconnected to status of the job market, the upcoming monthly job reports could be used as the canary in the coal mine for housing.

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