Bank of Canada Hikes Rates

Bank of Canada Hikes Rates

The Bank of Canada to increased rates at its decision meeting on Wednesday, July 11th. The central bank increased its key rate to 1.5 per cent from 1.25 per cent.

bank of canada picture

The forces that favored an increase in the cost of money outweighed those that supported continued loose money policies. The Canadian economy remains in very good shape. Inflation hasn’t reared its ugly head, household consumption is neither increasing recklessly nor falling precipitously. Growth and unemployment figures are very positive. Lack of price growth dynamism in the real estate markets, trade issues with the United States, and high levels of private and public debt are the key structural problems. Weighed against one another, the balance skews toward a rate hike.

Central Banks Around The World Are Adamant.

Central banks have begun and will continue a long term policy plan of ever higher rates, and more scrutiny on international banks and financial institutions. The Bank of Canada is no different. The key facts that most worry senior officials, politicians, and Central Bankers are the enormous levels of household and government debt, particularly mortgage debt. A generation of historically unprecedented record low interest rates has blown up large debt bubbles which elites are now desperate to deflate as carefully as possible.

Rates Hike To Negatively Impact Consumers

The likely hike will no doubt have a negative impact on consumers and on the real estate market. Banks are likely to raise their mortgage rates in response. The debt to disposable income ratio in Canada has hit a record of almost 175%, much higher than in the United States before the start of the Great Recession. A rate hike will be of no help to those looking for high prices for their real estate holdings. Debt to income ratios for the poorest Canadians are especially high. The lowest quintile of earners average a debt ratio of almost 350%. While higher rates will come at a cost, many believe they are absolutely necessary, and few doubt they are avoidable.



Rental Housing, We Need It

toronto skyline

The rental vacancy rate in Toronto is at a record low of 1.1%. In other words, there are few, if any, vacant rental units available in the rapidly growing city. Prices for a bachelor apartment now exceed $1,500 and condo rent is also rapidly increasing to reach $2,000 in many cases. The lack of affordable rental housing, once plentiful, consistently built, and widely appreciated in Toronto, is crunching and distorting the real estate market. From the 1950s to the early 1980s, rental apartments were consistently and routinely built. Much of the existing rental stock was built in the 1960s.

Why Building More Rental Housing Is A Good Idea

There are many financial disincentives to building rental housing. Permits are hard to come by, government intervention has interfered in building plans; mandating certain number of affordable units, and it is easier and more profitable in the short term to rapidly sell newly built condo units. Rent control measures recently introduced by the outgoing Liberal government in Ontario will make disincentives to build rental housing greater as it adds red tape to removing troublesome, potentially costly tenants. The new PC government will maintain these rent control measures, but also have the opportunity to introduce measures to spur new rental housing development.

Are We Paying Too Much To Rent?

Tenant organizations and groups have released polls showing that over half of Toronto rental tenants are reporting that they feel that they pay too much in rent. More affordable rental housing will help young millennials, student, and families save for an eventual condo and house purchase. It will also take some pressure off the condo market, under huge pressure to meet demand which is showing no signs of abating. Most housing experts believe that a heathy rental vacancy rate should be from 3-4%, four times present levels.

top ten median rent across canada

Ali Hanif June 20, 2018 No Comments

What A New Conservative Government of Ontario Means For Real Estate

What A New Conservative Government of Ontario Means For Real Estate

doug ford

Doug Ford Hands Liberal Party It’s Worst Loss In Years

Doug Ford’s Progressive Conservative Party won a decisive majority government last week, winning 76 out of 124 seats in the Legislature and ending 15 years of Liberal rule. Kathleen Wynne’s governing party lost 48 seats and official party status in the Legislature. It was the worst loss for a governing party in Ontario history and the first time the Liberals ever lost official party status. The last time the Government of Ontario changed was in 2003, Doug Ford’s win is the fifth time this has happened since the end of WW2. With the election over, the challenge of governing will now fall to Premier Ford and those close to him. This blog will analyze the effects of a PC majority government on real estate.

Market, Not Public Forces, Will Prevail

The PCs did not release a fully costed platform with significant detail but consistently voiced a preference to letting the free market sort out housing shortages and real estate matters. Unlike the Liberals and the NDP, the PCs did not show much interest in investing considerable public money into building affordable housing units.

The PC platform states that a PC government will maintain the rent control provisions the Liberal government has introduced. The PCs also mention stimulating the market to increase the supply of affordable housing across the GTA. The Greenbelt is also to be preserved in its entirety.

The PCs are likely to reduce regulation and red tape, simplify permitting for housing construction for developers, and promote both urban densification and suburban sprawl. Taxes on business and developers and trades will fall. Developers and construction companies have generally amicable relations with the PCs and Liberal parties. Former Ontario PC leader Tim Hudak is now the President and CEO of the OREA, the Ontario Real Estate Association.

Throughout the campaign, Doug Ford voiced his desire to scrap the foreign buyer tax and not to introduce a broad Speculation Tax the NDP outlined in their agenda. The new Premier and Government will face many challenges, but the demand for housing and high prices will likely see them introduce a comprehensive agenda to spur market forces.

Ontario Election Predictions And Real Estate Implications

Ontario Election Predictions And Real Estate Implications

Housing Is One Of The Biggest Issues In The Upcoming Ontario Elections 

With the middle class increasingly squeezed out of the housing market, government intervention will be increasingly called for and more and more political capital will be tied up in ‘resolving’ real estate issues. Whichever party wins Ontario’s 2018 election and forms government will grapple with growing discontent and increasing expectations from an electorate focused on housing issues. On the one hand, there are equity affluent baby boomers content with the status quo, and millennials and generation Xers struggling with low supply, high costs, and stringent demands desiring systemic change. Here’s Tembo’s analysis on how party’s would handle real estate if they win.

PC Candidate Doug Ford

PC Candiate, Doug Ford

PC: A PC government under Doug Ford would likely focus on supply side reforms, incentivizing and encouraging developers to build more housing. Permitting and regulatory processes would likely be streamlined, more land would be freed up for development, and financial incentives and corporate welfare to housing builders would not be out of the question. Funding for affordable housing is not expressly cited as a priority for the PCs and never has been. The PCs philosophically believe that affordable housing is not a prudent use of resources and that the market can solve the supply and price problems.

NDP Candidate Andrea horwath

NDP Candidate, Andrea Horwath

NDP: The NDP have released a platform which heavily focuses on investing in affordable housing. Close collaboration with Justin Trudeau’s Liberals on meeting a national affordable housing plan’s targets would likely be sought out. The NDP would also take a greater hand in mandating certain types of development, increasing tenant rights, and spurring densification. This would have certain short-term benefits but would also irk developers who would likely hold back on investment and see profits decreased. The last NDP government under Bob Rae built affordable housing spaces across the province, in rural and urban communities.

Liberals Candidate, Kathleen Wynn

Liberals Candidate, Kathleen Wynn

Liberals: A centrist approach would continue, with the government occasionally increasing involvement significantly and intervening (foreign buyers tax), with nods to the private sector and developers in balance. As the Liberal party and NDP are largely competing for the same pool of voters, the long term implications of a re-elected Liberal government would see an approach to real estate that would lean to more government intervention over the long term.

What Is The Greenbelt And How Does It Affect You

Ontario PC Party Leader Doug Ford was recently caught in the headlines in Ontario’s heated election campaign after a video was released showing him discussing Ontario’s Greenbelt. Ford said that he wanted to open up large tracts of the Greenbelt to additional housing development to increase the supply of homes and reduce their sky-high prices. Ford mentioned discussing the plan with developers and that he would still keep the Greenbelt largely intact. The video sparked a heated debate and saw Ford take heavy criticism which prompted him to eventually retract his position and clarify that the Greenbelt would remain as is.


What Is The Ontario Greenbelt And Why Is It’s Significance?

The Greenbelt is an area of over 7,000 square kilometers of protected land that is essentially closed off from development and construction that surrounds the GTA. It is 11 times the size of the City of Toronto and contains woodland, agricultural space, important wetlands, and open green space. The Greenbelt was established by the present Ontario Liberal government in 2005, fulfilling a 2003 election campaign commitment. The Greenbelt was created to protect vulnerable and ecologically important spaces and to set a clear limit on the extent of urban and suburban sprawl and construction. Large construction companies and developers and their lobbyists accept the Greenbelt and it is generally seen as a popular, positive, and strategically important legislative accomplishment.

Ontario Greenbelt photo

Is Protecting The Greenbelt The Reason For High Price Of Homes In The Greater Toronto Area?

The Greenbelt, in limiting construction and development, is sometimes blamed by groups and certain politicians as a factor in the high price of real estate. Tembo Financial is eager to dispel these minority concerns and to provide more objective background information:

  • The legislation which created the Greenbelt was pragmatic. It set aside large tracts of land adjacent to the Greenbelt and closer to urban and suburban areas for construction.
  • Experts have stressed that very small amounts of land that was set aside for development has actually been used. The Greenbelt does not need to modified or changed.
  • Most developers accept these facts and do not want to antagonize environmental groups or voters by encroaching on protected spaces. Doug Ford’s proposal had little broad public support.
  • Only 4% of Canadian land is arable (can be farmed). While we are the second largest country in the world, some of the best quality farmland in the country is in southern Ontario and protected by the Greenbelt.

Ontario Election 2018: Inside the NDP Platform

With the Ontario election less than 2 months away, the details are beginning to stream out of the political system. The third party New Democrats recently revealed a fully costed, comprehensive platform on what an NDP government would do with a mandate from the people. This Tembo blog will outline the platform and what it has to say on real estate and home ownership.

ontario election banner

supportive housing icon

30,000 ‘Supportive’ Housing Units For The Mentally Ill And The Severely Addicted

This is one of the planks of the NDP’s mental health and addictions policy. 3,000 units of ‘supportive’ housing will be built every year for 10 years. This policy will cost $228 million per year in capital costs and $50 million in operational expenses.

affordable housing

Affordable Housing, And Lots Of It

65,000 affordable homes are to be built over 10 years. The NDP also affirm that housing is a human right. The NDP commit to signing on to Prime Minister Trudeau’s National Housing Strategy, which makes the same clear statement about housing as a human right. Co-Op construction bids will also be supported with a small amount of money.

Zoning Changes And Increasing Repair Funding

 New housing developments will be required to set aside certain number of affordable homes. Rental properties will also be brought in under ‘inclusionary regulations’. The NDP will also encourage densification in key areas, provide municipalities with more powers in planning development. The NDP also commit to fund one third of the costs of repairing social housing at the municipal level.

resident rights act

A Residents’ Rights Act

This will add legal apartments, laneway houses, and granny flats to the properties of homeowners. It would augment the already considerable new rights and privileges of renters implemented for renters by the incumbent government. A rent registry would be created, so tenants know past rent charge history. Further protection for law abiding renters. And ‘guarantees’ of affordable rent in the long term and encouraging rental buildings.

property tax icon

Broad measures against speculation (A Non-Resident Speculation Tax)

Essentially the boldest measure, the NDP will extend the Non-Resident Speculation Tax (NRST) ‘anywhere speculation is overheating the housing market’. A ‘Housing Speculation Tax’ will put a tax on foreign and domestic speculators who fail to pay taxes to the Ontario treasury. This emulates recent measures by the British Columbia government. The tax would be applied annually, would cover the whole province, and would target foreign and domestic speculators aggressively.

warranty icon

Other measures mentioned:

  • “Fighting the use of real estate for tax evasion and money laundering purposes” by calling for a multi-agency working group
  • Reforming Tarion Warranty Corporation to protect homebuyers from shoddy construction and unfair financial risks
  • The above mentioned Housing Speculation Tax is projected to generate $671 million dollars to the provincial treasury annually by 2019-2020, roughly one third of the entire dividend to the provincial budget from the LCBO.

As expected, the NDP are aiming to boost affordable housing investments, increase legislation to protect renters, and to tax speculation more aggressively. Measure to spur more diverse forms of development, to increase densification, and to protect homebuyers are mentioned. Tembo is non-partisan. We eagerly await a fully costed and complete platform from the Opposition PC party.


Toronto’s Housing Market Is Stabilizing

Real estate, like many aspects of life, is molded by perception and psychology

picture of toronto houses

When prices begin to pick up consistently, and when demand is healthy, a feeling of prosperity and long-term benefit kicks in, encouraging more people to buy and in turn, fueling positive perceptions and emotions. When this energy runs out, people begin to hold off on purchases, sell rather than buy, and direct their focus to paying off debt and consolidating their finances. Eventually prices level off and fall. Like the stock market, sudden shifts can panic people into a negative stampede – a massive fall in prices and demand. Regardless of the real fundamentals, real estate will always be affected by perception.

Toronto Real Estate Is Still In Good Shape Despite A Rough Winter

When it comes to the real underlying fundamentals, Toronto real estate is in good shape. Tembo has repeatedly emphasized our region’s strengths and we have always taken a positive, long term view. A stable economy, a peaceful society, strong immigration, and a sense of financial and material comfort underpin the overall strength of southern Ontario and especially GTA real estate. The end of the summer of 2017 and the transition to winter marked a very intense and sudden reversal of fortunes for Toronto real estate, with large price declines and a strong fall in demand. But the very latest data suggests that the modest recovery many experts anticipated is finally beginning to materialize.

Real Estate Figures For March Look Positive

Figures for the month of March show a very modest but welcome increase in average home prices in Toronto: at just over 2%, from February numbers. The average figure is just below $785,000.00. While sales still declined just over 6% from March to February, the fall was less severe than some expected. With prices slowly but steadily beginning to creep up again and with overall sales figures declining less vigorously, the perception that the traditionally buoyant spring market will be healthy is strengthening. This is a welcome psychological change given the impact on the market of a gradually increasing interest rate environment announced by the Bank of Canada, foreign buyer taxes hitting the market, and new stress tests squeezing out riskier first time buyers.

Real Estate Figures March Infographic


Despite Market Turmoil, Condo Market Marches On

With house prices and sales falling in Toronto for a rough start to 2018, one of the shining beacons remaining in real estate is this condo market. Since the early to mid 2000s, the condo market in Toronto has boomed continuously, with only a brief blip in 2008-2009. Condo flipping, the practice of buying a condo early, preferably in pre-construction, and then selling it quickly after rapid price rises was de rigueur in Toronto from the mid 90s to the beginning of the dot-com bust and then again from 2002-2008, and was considered a safe and easy way to make money. The practice of course has continued after the 2008-9 recession, but by 2009 and 2010 the entry level price of buying a pre-construction condo had risen considerably.


Toronto skyline


Condos Construction Is Changing Toronto’s Skyline

condo construction

Condo Market in Toronto Continues 30 Year Boom

Condo housing starts in February of the year rose 103% in Toronto to almost 64,000 units compared to the previous month, making it a record not seen since 1990. Condo demand has remained voracious; foreigners, natives, and retirees all buy condos in huge numbers. For a majority of first time home buyers, condos are the only reasonably accommodative venue to get real estate equity. Despite challenges, the condo market in Toronto continues its almost 30 year boom.

Toronto Condo infographic

British Columbia Moves To Introduce new “Speculation Tax” – Will Ontario Follow?

British Columbia Moves To Introduce new “Speculation Tax” – Will Ontario Follow?

Vancouver Capital

There is big real estate news out of British Columbia. The long-term heat of the Greater Vancouver real estate has made British Columbia a trend setter in broad government measures. The previous British Columbia Provincial Government introduced Canada’s first foreign buyer tax in the run up to the 2017 Provincial Election. Long standing concerns about the affordability and supply of Vancouver real estate and the impact of predominantly East Asian foreign buyers on the market spurred the then Liberal government to act. Tembo has extensively outlined and documented the foreign buyer tax, set at 15%, and applying only to the Greater Vancouver Area.

A new “speculation tax” is in

            The 2017 Provincial saw the incumbent Liberal government narrowly defeated by a resurgent NDP backed by a strong Green Party in a coalition government. The new NDP government has just introduced an annual tax on investors who own empty properties and pay no income taxes in the province. The “speculation tax” of 0.5% of a property’s assessed value in 2018 and will rise to 2% in subsequent years. This will result in a $40,000.00 annual tax on $2 million-dollar homes, as an example. Experts believe the tax will have a minimum impact on speculation and as Tembo has explained, foreign buyers will find and utilize numerous loopholes to evade foreign buyer taxes and this speculation tax. The BC government has made housing affordability and the construction of affordable housing a major priority.NDP Leader

Ontario may follow suit

Kathleen Wynne

            Ontario quickly emulated the British Columbia foreign buyer tax and has already implemented it. Housing is a major political and social issue in Ontario and it is highly likely that the Liberal Government of Kathleen Wynne will introduce a “speculation tax” on empty high value foreign owned homes as well. The political value of appearing decisive and strong in dealing with housing will be appreciated by a government that will have a tough fight ahead of it to win a fifth consecutive term after 15 years in power. Tembo believes that there is a strong possibility of a speculation tax in Ontario. The impact of the tax on affordability, prices, and supply will remain to be seen.


Toronto Real Estate Markets Chills in January

toronto real estate

Sales and prices are down

Stats from January of this year paint a difficult picture for GTA real estate. The Toronto Real Estate Board outlined that sales stats fell 22% to just over 4,000 units in January 2018. Unit sales were the weakest since Jan. of 2009. Furthermore, the average home price fell to just over $736,000.00, a 4% decline from similar figures in Jan. of 2017. Sale prices are now back to late 2016 levels, with the recent saga of changes having evaporated the blockbuster gains of 2017.

Toronto Real Estate Infographic

Media call it a correction, blame government measures

mortgage application rejected

The media are broadly calling these reductions in prices and sales a ‘correction’, and they blame federal government-imposed stress tests, higher interest rates, and a reduction of foreign demand because of a provincial foreign buyers tax as chief causes for the reduction so far this year. The market was bracing for difficult conditions and cold stats given the vast swath of changes which have been introduced and the aforementioned stats reinforce and outline these difficult conditions. Stress tests alone essentially wiped out 10% of potential buyers, by simply elevating the difficulty of qualifying for financing.

Jan. stats within the broader picture

While tough for sellers and many real estate professionals, the above statistics, if analyzed within a broader context of the past several years, are but brief negative blips. In mid 2014, as little as four years ago, the average sale price for a home in the GTA was roughly $550,000.00. Prices have increased by 50% on average in just four years. A 4% reduction in average prices is a miniscule reduction.

home price increase

Real estate still strong, and conditions should improve

condo markets on fire

The condo market is on fire. Demand remains reasonably healthy. The economy continues to grow, and immigration remains high. Rental vacancies are at historic lows. As winter turns to spring, the real estate market should heat up and the broader community will acclimatize to stress test changes and gradually higher interest rates.