An Overview of Toronto’s HousingTO 2020-2030 plan

The City of Toronto is unveiling a broad, ambitious 10 year plan to address the major issues of homelessness, housing stress, and a lack of affordable housing options for tens of thousands of City residents.

The plan seeks to pool together resources from many City divisions, the province, and the federal government to invest over $20 billion in the next decade. At its heart, the plan seeks to bring together government, non-profits, and banks to cooperate on models to get as much affordable housing built as is possible. Pressure on politicians to address public housing repair bills, the lack of cheap aparments and homes for Torontonians, and increasing rents and housing prices is steadily building. In many ways, the housing crisis is augmenting inequality and is reinforcing poverty. A serious chunk of Toronto’s population is spending massive chunks of their disposable income on rent.

The plan has the following key goals:

Creating 40,000 new affordable rental homes approvals including:

·         18,000 new supportive homes approvals for vulnerable residents including

people who are homeless or at risk of being homeless

·         A minimum of 25% (10,000) of the 40,000 new affordable rental and supportive

homes dedicated to women and girls including female-led households

·         Preventing 10,000 evictions for low-income households through programs such as the City’s Eviction Prevention in the Community (EPIC) program

Improving housing affordability for 40,000 households:

·         31,000 households to receive up to $4,800/year/household in Canada Housing

Benefit

·         9,000 households to continue receive housing allowances

·         Maintaining affordability for 2,300 non-profit homes after expiry of their operating

agreements

·         Providing support services to 10,000 individuals and families in supportive housing

Improving housing conditions for 74,800 households by repairing and revitalizing

Toronto’s rental housing stock, including:

·         Repair of 58,500 Toronto Community Housing units

·         Revitalization of 8 TCHC communities to add 14,000 new market and affordable

homes with 5,000 replacement homes across the city

·         Bringing 2,340 private rental homes to state-of-good repair

·         Assisting 10,010 seniors remain in their homes or move to long-term care facilities

·         Providing property tax relief for 6,000 eligible seniors

·         Providing home repair assistance for 300 eligible low-income senior

homeowners

·         Redeveloping 1,232 City-owned long-term care beds and creating 978 new beds

utilizing provincial investments

·         Supporting the creation of 1,500 new non-profit long-term care beds

·         Creating 4,000 new affordable non-profit home ownership opportunities

·         Assisting 150,000 first-time home buyers afford homes through first-time Municipal

·         Land Transfer Tax Rebate Program

Is this enough to solve Toronto’s affordable housing crisis? Probably not, but the scale of the initiatives outlined in the plan and its aggressive nature in tying together a wide array of agencies, levels of government, and private and non-profit players shows how serious the city’s leaders are in trying to make tangible impacts in addressing what is the paramount socio-economic challenge our City faces. The HousingTO 2020-2030 plan will be voted on by Council next week. 

Emulating the Singapore model to boldly solve Toronto’s Housing crisis

Toronto is in the midst of full-blown housing crisis whose severity will soon stretch and tear at our City’s social fabric, inflame socio-political tensions, further erode our resident’s quality of life, and cripple long term economic potential.

Over two decades of insufficient private home building, historically unprecedented low interest rates, and an ongoing torrent of foreign capital investment have created a market Swiss investment banking giant UBS recently crowned “the world’s second biggest City housing bubble.” We have reached the stage where average housing unit costs have hit $880,840 pushing the price-to-income ratio to 8.2; meaning that average housing costs over eight-times gross household income, almost three times higher than ideal levels.

Buying a home is not the only challenge, with a rental market experiencing a surreal vacancy rate of 1.5% and one-bedroom apartment rent rapidly approaching $2,000. Our housing market is poorly structured and caters to investors, many of whom are foreign. Much of our private building capacity is dedicated to building miniscule, overpriced, shoddy but exceedingly profitable condominiums. Recently released data from Statistics Canada asserts that up to 37.9% of these units are vacant.

Superficial pledges from the political class and incremental, modest increases in investment (HousingTO, TCHC subsidy reform, foreign buyers’ tax) that we have seen in recent years do not address the fundamental underlying dysfunction in our market, and are window dressing measures that will do little to nothing to solve Toronto’s housing crisis. Like Singapore in 1960, Toronto is experiencing a severe shortage in housing, sustained population growth, and untapped economic potential. Singapore’s response to its past housing crisis has been internationally respected.

The country created a Housing and Development Board (HDB) that efficiently and rapidly built quality rental apartments to sell at below market rates to needy citizens. Within 5 years, the HDB built 51,000 apartment units and ended the supply shortfall. Today Singapore has a 90% home ownership rate and over 1 million publicly built, privately owned apartment units. Public housing in Singapore is of very high quality and occupied by all classes, rich and poor. Toronto’s public stock is crumbling despite record investment that will still fall short of needs. We have a waitlist of many tens of thousands who realistically will have to wait decades for affordable housing or will never get it at all. Transferring ownership of our public housing stock to current tenants will permanently transform the lives, shift repair liabilities off the city’s books, and free up resources to decisively and honestly resolve our housing supply crisis.

Canada’s population is exploding

Out country has had an interesting history of immigration stretching back hundreds of years. Throughout the late 19th century, immigration was modest compared to modern levels.

Annual immigration averaged roughly 25-50,000, topping 130,000 in the early 1880s but then falling to 80,000 in the 1890s and dropping precipitously in the late 1890s and early 1900s. A huge surge then occurred from 1902 to right before the start of the first World War. With the prairie provinces Alberta and Saskatchewan admitted to Confederation, elites recognized the urgent need and positive opportunity of settling the Western prairies and activating the agricultural potential of the region. Sizable grants of effectively free prairie land were advertised to European migrants, particularly those from Ukraine, Germany, and Poland, on the condition of long term settlement and productivity inducement. 400,000 people entered the country in 1912, an all time single year record.

In the 1920s and through the Second World War immigration began to fall until it recovered in the post-war boom. Over the last 20 years immigration levels have been high and steadily increasing, with both main political parties supportive of the trend. Average increases varied from 200-250,000, but the current Liberal Government has shown a zeal to increase this number further to 350,000+. Statscan has released data that shows recent increases in population have hit all time historic highs that have topped the traditional pre-WW1 figure of 400,000. From August 2018 to July 2019 the population of our country increased by 531,000. 60% of those immigrants settled in Ontario and British Columbia. These kinds of increases show that our immigration system is moving aggressively to address the most serious demographic issue we have; an aging population. Hopefully many of the new entrants are family sponsorship individuals who have likely been waiting for years to join with family members who are already here.

One can imagine the impact of this population increase on a housing market that is already squeezed from demand pressures. Even if immigration levels fall from this record high, they will still be significant in the years to come. The consensus on high immigration levels is shared by most of the political class, big business, and a significant chunk of the population. This won’t change anytime soon. Record high immigration are the new norm and this will continue to fuel rapid growth and housing prices. 

What will happen in Washington?

We are rapidly approaching the 2020 U.S. Presidential election. What’s already been an eventful, heated, controversial, and at times militant last few years politically in the U.S. is only going to intensify.

Donald Trump is facing tremendous pressure from a media establishment that despises him and immediately endorsed the now initiated impeachment proceedings against him. Impeachment is likely to be voted for by the Democratic House of Representatives. But in the Republican controlled Senate, it is unlikely that the pro-impeachment forces will be able to convince Republican Senators to vote against their party’s nominee.

Trump is extremely popular with the GOP base, he has a 95% approval rating among right-wing American voters. Successful impeachment would further inflame tensions in the U.S., and some commentators have suggested that it could spark a full-blow civil war. While the U.S. economy is slowing, voters still see the President as the best positioned politician to handle jobs and growth. Tensions with China are growing worse by the day, and the Senate recently passed a bill which effectively endorses the intense protests in that part of China and supporting the cause of rioters. This blatant interference in internal Chinese affairs will be very poorly received by the Chinese. Some have suggested that the Sino-American relationship is rapidly approaching a point of no return and permanent damage. 

The Democratic Party is undergoing an intense internal battle over who will be the nominee who faces off against the President. The present favourite is Joe Biden, but his star is waning. He has made numerous gaffes and mistakes and is losing momentum in the polls. Massachusetts Senator and Liberal firebrand Elizabeth Warren is doing well and has espoused an anti-plutocrat, populist message. Young up and comer Pete Buttigieg is surging but is an unknown commodity with poor name recognition. There is also the very real possibility that Hillary Clinton will try for a third run at the nomination. Either way, the U.S. will never be the same after the next election. 

A deeper dive into the (re-ignited) housing boom

Real estate is red hot in the GTA again. The stagnant market conditions with meager gains in price and demand momentum has now been replaced with surging prices, demand, and overall momentum.

Tembo has already noted that the psychology of the market has changed, and it is a far more confident space with greed and fear replacing complacency and lethargy. People are now once again weighing the potential gains of selling, and fear is driving people to jump in and acquire inventory that is scarce but that shows huge potential for equity growth.

What’s concerning to an extent is that inventories of housing are falling. The data shows a near 2% drop in what was available for consumers. People are holding on to stock with the expectation that price gains will continue. Big gains were seen i sales in Durham and York Region. Whitby, Oshawa, Richmond Hill, Newmarket and Vaughan all saw powerful surges in sold inventory. This highlights that Peel Region is maxed out in comparison (there are bidding wars for rentals in Mississauga these days), Halton was less desired than Peel, York, and Durham. Sales soared over 20% in Durham and York, with Halton and Toronto hitting 7%. 

In terms of the types of inventory, detached sales are up over 18% in the GTA. Condo townhouses are becoming increasingly popular and combine a degree of affordability with more space than a tiny downtown box in the sky. Sales of condo townhouses grew by just under 16%. Condo townhouses are increasingly seen as the most positive balance of affordability and space in the GTA. In Mississauga, five of the most affordable neighbourhoods are Applewood, Meadowvale, Fairview, Mississauga Valleys, and City Centre. In almost all of these neighbourhoods, condo townhouses averaged $400-800K, whereas modest detached home prices averaged $800-900K. 

Ghost Condos in the GTA

The condo market has been booming for a generation in Toronto with a tiny blip recorded in the 07-09 slowdown.

Condo flipping made thousands of savvy investors healthy profits throughout this boom, while our skyline has been transformed and developers raked in huge amounts of money. Condos were unheard of until the late 1970s but their value to investors became apparent as they are significantly more profitable than building apartments and collecting rent long term. 

For many, if not most Torontonians, condos are the only way to get a roof over their heads. They are far more affordable and plentiful than detached homes and townhouses. Condos aren’t simply a place to live in, they are also fully financialized assets, similar to stocks, bonds, and tax saving vehicles. Statistics Canada released data in early July of this year which shows that almost 40% of Toronto condos are not owner occupied. This means they are empty, rented out, or used a second property. For many international investors, a condo in Toronto is a money laundering tool. A good lawyer can help anyone with cash use loopholes to maneuver their way through and to buy a condo despite not being a citizen or resident of the country.

This number is one of the reasons we have a housing crisis in our city. So much housing construction is dedicated to building housing units that in many cases aren’t being used by locals. Our housing supply policies are being designed to cater to wealthy investors with tons of cash who are completely disconnected from local culture, life, and history. Greed is dominating our market and it’s leaving the region with a huge supply of extremely expensive housing that few people enjoy and that is out of the reach of many. While government measures have made some progress on reducing these trends, at the end of the day there’s always a way for an investor to take advantage of loopholes. 

The BOC holds

Bank of Canada Governor Stephen Poloz surprised no one when he announced that the Bank of Canada’s interest rate would remain unchanged at 1.75%.

As Tembo outlined in our past post, analysts were divided over whether the Bank would emulate U.S. policies and cut rates or maintain them where they are. But the Governor’s carefully analyzed speech was also littered with a number of poignant warnings:

“Canada’s economy will be increasingly tested as trade conflicts and uncertainty persist. In considering the appropriate path for monetary policy, the bank will be monitoring the extent to which the global slowdown spreads beyond manufacturing and investment.”

In other words, we’re in for ever more difficult times. This was an important warning. The Bank followed up the warning by stating that global economic growth would slow this year to its lowest levels since the 08-09 crisis. The Bank acknowledged that its counterparts around the world have all eased interest rates but it is proud to be standing firm on its decision. The Bank is giving itself wiggle room in case the economy slows into a recession and the slowdown extends past the manufacturing and investment elements of the economy.

It’s important to note that Central Banks around the world are not only lowering rates but are intensifying their market intervention by buying assets and extending additional forms of credit to their member banks. In the United States, the repo frenzy Tembo touched upon continues. This signals that there is some leak in the international financial system, some lack of liquidity that needs to be plugged by cheap and rapidly accessible liquid capital. As we’ve noted before, a repo is when the Fed sells a financial product (bond) to big banks only to repurchase them shortly thereafter at a higher price, thus injecting the difference directly into the financial system. This is particularly effective in reducing short term interest rates in the money market.

Canada is in a stronger position than its international counterparts, as our BOC is not stimulating the economy to similar extents, but it is staying cautious and preparing for the worst.

Ontario’s parliament resumes October 28th

After one of its longest recesses in history, the provincial PC government will be back at work when the Legislature resumes on October 28th.

The PCs took many months off to rest and re-calibrate, and to allow the Federal election to unfold and take its course. The reality is that Premier Doug Ford has made a number of serious blunders and his personal popularity has taken a beating. Cuts to autism funding, clashes with Toronto’s municipal government, and a terribly received first budget all took their toll on a government that has now well passed its honeymoon with voters. Doug Ford’s personality popularity has reached lows which even Wynne surpassed at the height of the public’s fatigue and frustration with the previous Liberal government that ran Ontario for 15 years. In order to have a competitive shot at winning re-election in less than 3 years, Ford will have to do work assiduously to rebuild his standing with voters.

His first major challenge will be to respond to growing labour strife. Powerful public sector unions are gearing up for what many believe will be a protracted fight with the governing PCs. Relations between the party and the public sector unions, particularly teachers have been poor for over two decades, since the tumultuous Harris PC government of the late 90s and early 2000s. The unions’ relationship with former Premier Wynne did not end well and the previous Liberals engaged in varying forms of austerity to cut the province’s significant budget deficit. The last thing the pub. sector unions wanted was a PC Government led by Ford. While a deal was reached between education support workers represented by CUPE through the government pouring money into slightly higher wages and a maintenance of the workers’ sick leave plan, other unions may be harder to please. The OSSTF, which represents high school teachers is voicing increasingly battle-ready rhetoric on news that Ford wants to cut average class sizes from 22 students to 25 to save money. Strike votes are ongoing for high school and elementary teachers across Ontario.

The Ford Government would be wise to strike a balanced compromise with the unions if possible. A full strike of teachers would be extremely disruptive and would place pressure on stressed out parents who’s kids will stay home. Teachers unions have huge member lists, tons of money to fight a government, and have significant support among the public. Every Ontario Premier who took on the teachers eventually lost his or her job – Rae, Harris, Eves, McGuinty, and Wynne all had their disagreements with this powerful interest group. While the average Ontario teacher earns 90K a year, a healthy salary that many private sector workers will never achieve in their lives, teachers are also under constant scrutiny, have lost authority in their classrooms, and are dealing with a youth population addicted and distracted by smartphones, technology, and social media. A protracted fight between the unions and the government will deplete political capital and take attention away from other important issues, like housing, the economy, and middle class pressures. 

Where will GTA housing be next year?

The CMHC recently released a report which attempts to predict the state of housing in our city next year.

The report is bullish, suggesting prices on average will rise by roughly 5% – taking the average home price to between 740-850K. By 2021, the CMHC thinks prices will hit almost 950K. These huge home prices are expected to be sustained even as the same report suggests that home construction numbers will rebound to levels at the time of the 2017 boom peak. The big factors which will underpin these price rises are the predicted strong gains in employment in Toronto, growing migration from other provinces, and growing levels of immigration to the city. The recently re-elected Liberal government will push the immigration level to over 400K, a move that is unlikely to be opposed by the Green Party or the NDP. 

While housing starts (new home construction) are predicted to go up to as high as 36K units by 2020, this is still completely incapable of even remotely satiating demand. Only in late 2021 will pressure on the rental market begin to ease slightly, as the number of new units going online in the market is reaching multi-decade highs. This is sad news for the hundreds of thousands of Torontonians who are living in housing insecurity and who are dealing with bidding wars for rental units, a dream for landlords – who have never had it this good. In other words, don’t expect big changes, things will remain tight, competitive, and above all, expensive. Additionally, CMHC believes that mortgage payments will remain stable over the next years, suggesting that interest rates won’t be swinging widely up or down – this is one of the few good pieces of news in the report for prospective buyers and homeowners who are not interested in selling. 

On the supply side, as we’ve written and explained many times, there’s simply very little capacity for builders to meet the huge demand needs we have. Toronto is building more high rises than any other city in North America, and much of our best land for low density suburban subdivisions has been eaten up. Even with the provincial government already pushing through anti-red tape deregulation measures that will benefit and speed up construction, there is not much that can be done unless all three levels of government come up with a serious, meaty, and very aggressive pro-development housing policy with strong incentives and specific targets. But this is unlikely. At the end of the day the factors which are keeping demand strong aren’t budging, and the forces preventing supply from growing massively aren’t present.

Rate Decision Coming Up This Week

The BOC will be announcing its next move on rates on the week of October 28th. Whether they stay even or go down is a big question, but they most certainly won’t be going up anytime soon.

If rates do go down, expect the recovery and renewed dynamism in the GTA real estate market to be reinforced, and given added momentum. If they stay the same, the higher price and strong demand trends will stay healthy. Most experts predict that the BOC won’t cut rates. The number is low as is and the economic overall is perceived to be in very good shape. While BOC policy generally does not diverge much from the monetary policy of the Fed, many market watchers expect that the Fed’s recent push to lower rates and revive QE (quantitative easing) won’t be necessary in Canada. Unlike the U.S., Canadian politicians rarely criticize or even talk about the BOC at all. At the height of the very high interest rates of the mid 90s, the Bank was politely scolded, and politicians sent letters asking for rate relief. Lately in the U.S., as many of us know, the President is openly at war with Fed Chair Powell; his own appointee. The C.D. Howe Institute, an elite, neoliberal think-tank based on Bay St. is calling for the BOC to hold off on rate cuts now and to wait until early 2020 for cheaper money.

In Washington, the consensus appears to point toward a 3rd consecutive cut in rates by Chair Powell this week. U.S. economic data is weakening, with manufacturing and housing showing slowdowns and the bulk of now much more subdued GDP growth dominated by consumers maxing out their credit cards and increased government spending. The Fed has also quietly began to increase its book of financial assets, and has long since ended its previously strong commitment to incremental reductions of its massive balance sheet. This basically that the Fed is once again buying assets, intervening in the market, and artificially raising asset prices while providing cheap money stimulus to Banks. There is growing repo activity, where the Fed is selling government bonds to investment only to buy them back within days at higher prices – effectively providing the buyers with excess capital that is not loaned. Repo activity is oversubscribed lately and is running the many tens of billions of dollars. This suggests a need for capitalization among U.S. financial organizations. 

As Tembo predicted, the once high GDP growth achieved months ago by a Trump tax cut and low interest rate stimulus is now falling back into traditional territory. If Powell does cut rates again, it will signal that the Fed is both concerned at U.S. economic data and also sensitive to the pressure and open criticism it is facing from a President who refuses to temper his language and who revels in his own bombast. Under Trump, the U.S. federal deficit is climbing again and is now close to the $1 trillion dollar mark. If the U.S. goes into a protracted and deep recession, it will have little wiggle room, little capacity for sustainable government fiscal stimulus, and almost no room to lower rates. A recession anytime soon would likely spell serious political trouble for a President who is staking his political future on a booming stock market, stable economy, and gradual, albeit ephemeral foreign policy retrenchment.