What Does Ontario’s Proposed Bill 66 Mean For Its Residents?

In early December of last year, the Ford Government introduced a proposed law titled the Restoring Ontario’s Competitiveness Act. The bill is a comprehensive piece of legislation that alters several existing laws and introduces new ones – referred to as an omnibus bill.

 

Bill 66 is receiving increased attention lately given some of its controversial provisions.

Open For Business Zoning

The Bill introduces a new type of zoning, called OFB ZBL (Open for Business Zoning By-laws). This new zoning type is designed to not have to conform to legal standards set out in a number of major provincial environmental and planning laws, such as the Greenbelt Act, the Great Lakes Protection Act, and the Lake Simcoe Protection Act. The provincial government argues that this provision will provide municipalities with the capacity to quickly approve major industrial and commercial projects to create jobs and tax revenue. 

Critics Fear Environmental Impact And Out Of Control Development If Bill 66 Is Passed

Critics, on the other hand, say that the proposed by-law provisions would create the potential for massive environmental degradation and the transformation of protected green spaces into industrial and commercial areas. Water, soil, and air contamination could increase, and municipalities could embark upon aggressively competitive squabbles with each other to attract revenue generating projects.
Some City bureaucrats around the province claim that Bill 66 will upend traditional provincial planning arrangements and lead to out of control development. Tembo is keeping a close eye on the provincial government’s stated move to spur development and construction. Bill 66 has the capacity to alter land values by introducing industrial projects to areas that are designation for safer development. This could have drastic consequences. 

On Canada’s Wealth

There has been a fair amount of media coverage over the last few days from an interesting, recently released stat from StatsCan on Canadian net wealth. It seems we’re a lucky country – our net wealth has topped $11 trillion, and our economy produces goods and services worth near $2 trillion.

Toronto Banks
The $11 trillion net wealth number was not a surprise for experts, but what has piqued the interest of observers has been the real estate component of that huge net wealth figure. The value of real estate represents over 75% of our net wealth, or just under $8.8 trillion. 
Over the last decade, real estate rose from comprising roughly 62% of Canada’s net wealth to the aforementioned figure. Canadians are much more dependent on real estate for their wealth than Americans – in the US, real estate has generally held steady at just over 70% of net wealth. This statistic corresponds to the general macro-economic trend that has continued in Canada over the last decade, where low interest rates and government policies have leaned on real estate and construction to drive growth. Low interest rates, strong demand, and the inability of the private sector to consistently build enough housing has all acted as fuel to real estate prices, and thus equity and net wealth.

Canadians Are More Dependant On Housing For Their Wealth Than Ever Before

Most Canadians hold the view that inevitably over the long term, their home equity will continue to rise. Many baby boomers and older Canadians are depending on this (rising) equity to supplement their pensions for consumption in retirement and to pass resources on to their children and grandchildren. This belief in relentless home price increases should have been tempered given the turbulence the national real estate market experienced over the last year and a half. The stats show that we are more dependent on housing for our wealth than ever before in our history, and even more so than our real estate crazy neighbours to the south. What we must all remember is that so much of this wealth is based on debt, and that debt needs to be serviced through discipline. 

Bank of Canada’s Huge Announcement On Mortgage Bonds

On Friday, November 23rd at 10am, the Bank of Canada issued a ‘market notice’ announcement with big implications. For the first time, the Bank stated that it would begin making innovative additions to its balance sheet: the purchase of mortgage bonds, or mortgage backed securities.

The news was not announced in a press conference or a press release, but a sleepy ‘market notice’ at the bottom of the Bank’s media/press page on its website.

So, What Are Mortgage Bonds?

A mortgage bond, or mortgage backed security (MBS), is a financial product that is made up of many mortgages, let’s say 100 for example. These mortgages are usually issued at the same time, at the same mortgage rate, and generate interest (income for the purchaser). Buyers could be Canadian banks, foreign banks, and domestic and international investors. 
Mortgage backed securities were at the heart of the 2007-8 financial crash. The bonds were given the highest credit ratings, (what’s safer than a mortgage/house as an investment?) and were scooped up by clients all over the world. What buyers didn’t know was that many of these mortgages were poorly underwritten, and very risky. When foreclosures started kicking in the bonds went bust, and clients lost tons of money.

Why Is The Bank Of Canada Announcement So Significant? 

By now purchasing these bonds, the Bank of Canada is directly providing a powerful stimulus to the banking system and the real estate market. If Banks can now profitably sell mortgage bonds to the central bank, it is likely that their incentive to further increase mortgage debt will rise. This could have a negative impact of the quality of bank underwriting, and will provide a boon to housing prices by facilitating higher demand.
Tembo will keep an even closer eye on the Bank of Canada, this news signals that simply watching rates is not enough. This added central intervention into market brings more risk to Canada’s housing system. You heard it here first.

October Was A Good Month For GTA Real Estate

Positive numbers marked the overall situation for GTA real estate. Both the detached and semi-detached home and condo markets saw positive figures. Condo prices rose 7.5% and semi-detached home prices were up 6.6%. The average selling price for a home rose past the $700K range where it has languished for roughly to hit $810K, This was the first significant increase in prices in over 3 months. 

The positive sale price increases highlight a recovery that is steadily building momentum. Analysts saw the figures as proof that the perennial forces of supply and demand were returning to their general positions in the GTA market. The supply of homes continues to be a significant factor impacting the market – with recent inventory showing a tightening of listings. The slowdown the market saw exacerbated this issue because many prospective sellers are waiting for prices to increase again before listing their homes.
The condo market continues to show its heft. Impressive price figures and demand has not been shaken by government intervention. Higher interest rates in the medium to long term may damage the health of the condo market but it continues to be seen as a haven for young professionals trying to get into the market affordably. The recovery continues. 

The Fed eases off on its tightening

Federal Reserve Chairman Jerome Powell did not signal another rate hike in its most recent announcement this week. The Board was unanimous in its support for the not raising rates. With the U.S. economy absorbing large stimulus through tax cuts, increased government spending, and still very low rates, economic activity and job growth is on the rise. This has strengthened the Fed’s longstanding argument that rates have to be increased.
Caption: U.S. President Donal Trump shaking hands with Fed Reserve Chairman, Jerome Powell at the White House
The big opponent to higher rates has been Donald Trump. Irritated at the propensity for these rate increases to dampen economic growth, the President has vocally attacked the Federal Reserve. He has argued that all of its actions have been ‘wrong.’ It’s a possibility that the Fed’s decision to hold off on rate increases could have been prompted by this language and a desire to placate the President, especially given the U.S. mid-term elections.
The results of these mid-terms has been mixed for the President. On the one hand, his party gained Senate seats and tightened up its control of the U.S.’s upper house. On the other hand, the Democrats won back control of the House, albeit not with the momentum many in the media had predicted. Many key gubernatorial races were also won by Republicans, particularly in the key states of Ohio and Florida. The next two years will be tumultuous and difficult, and the partisan divisions in America will only increase.

A Brief Post-War History Of Real Estate Development

Before 1945 most of the GTA was farmland. Large suburban cities, Mississauga, Vaughan, Maple, Brampton were either small towns, non-existent, or farmland. Toronto was largely relegated to what most now consider the city’s downtown core. Then it was known as Metro. From 1945 to the mid 60s the first true ‘suburbs’ were built. Forest Hill, now Canada’s most affluent neighbourhood tied with Rosedale, was one of them. Government guarantees and mortgage support, along with large scale infrastructure spending facilitated these suburbs.
Downtown Toronto Queen street and spadina 1945
Caption: Major intersection of Queen Street and Spadina Avenue, May 1945. (City of Toronto Archives, TTC Series 71, Item 15135)

The 1950s Real Estate Boom

At the height of the 50s economic boom, the Chair of Metro, effectively the head of Toronto’s development and planning, was Fred Gardiner – the namesake of the famous downtown highway. Gardiner claimed that Toronto was so prosperous and growing so fast that the local government could build whatever it wanted. Gardiner claimed that: “Money is not an issue for us, we have the resources to build whatever we choose.” This strong activist government supported a massive real estate boom. From the 60s to the 80s, much of Scarborough, Etobicoke, and North York were completed. Mississauga began its explosive growth in this period. Over time other suburbs and developments were completed.
Looking southwest from around Jane and Lawrence 1950s
                                   Looking southwest from around Jane and Lawrence 1950s

The 1980s Toronto Real Estate Crash

The late 80s was a time of real estate speculation and overbuilding. This lead to an eventual crash which took 7 years to recover from. From the mid 90s to 2008, the GTA underwent a massive housing and condo boom. This continued after the conclusion of the Great Recession and peaked in the summer of 2017. While significant downturns have occurred, southern Ontario and the GTA have been development and real estate hotspots for almost 80 years running. 
Yonge Street, across from the Eaton Centre and looking north, Toronto, Ontario, Canada
Yonge Street, across from the Eaton Centre and looking north, Toronto, Ontario, Canada (This image is available from the City of Toronto Archives, listed under the archival citation Fonds 124, File 3, Item 130).

A Positive August For Real Estate

Numbers reveal a positive August for GTA real estate and welcome figures for an industry that had a relatively cool summer selling season.

 

August real estate

In Toronto, sales increased by 8.5% and prices were up 4.7% from a year ago. The average price for a home is now roughly $764,000 dollars. Although nowhere near early 2017 highs, the market is showing its resilience and demand despite all the battering it received over the past year.

New listings increased by 6% and the overall number of active listings increased by 9%, showing many new sellers joining the market and feeling positive about their capacity to get good prices for their assets. General media sentiment on the figures was positive, with many remarking that the figures show a market that is rebounding, on positive footing, and in good overall shape.

On Interest Rates And The Bank Of Canada

The Bank of Canada maintained its existing rate of 1.50%. There was no increase, which some expected, largely due to uncertainty over a trade deal with the U.S. and the potential implications and affects on the economy of a bad deal.

As Tembo has noted there is a risk of the U.S. placing tariffs on the Ontario economy and Canada’s forced departure from NAFTA. Such an outcome would devastate Ontario’s economy, whose backbone is automobile assembly and its associated spin-off industries and supply chain. Core inflation exceeded the Bank’s target of 2% and is at 3%. 

The Latest Trade Negotiation News With The U.S.

Chrystia Freeland

Canadian Foreign Minister Chrystia Freeland, speaking with reporters outside the U.S Trade Representative building in Washington D.C.

The Prime Minister has stated that there will be no NAFTA deal with the U.S. unless Canada’s cultural industries (arts and broadcasting sectors) are protected. The PM is worried U.S. media conglomerates or companies could buy a Canadian newspaper or TV station. In addition the Prime Minister wants a dispute settlement clause included to to “ensure the rules are followed.” President Trump has tweeted that a deal with Canada is not a ‘necessity’ and he has repeatedly warned that he could easily exclude Canada from a deal if tariffs on Canadian dairy and eggs are not eliminated.

Major Toronto Condo Projects For 2018

Toronto’s condo boom continues unabated, the number of construction projects and the lineup of cranes over the skyline continues to grow and impress. In this blog post, Tembo will outline some of the key condo projects that are notable this year.

aqualuna toronto condo

Aqualuna at Bayside is the fourth and last market condominium development proposed for Toronto’s nascent Bayside neighbourhood. The building with peaks of 16 and 15 storeys is designed by Denmark’s 3XN architects for Tridel and Hines.

 

Danish architects 3XN, famous internationally with unconventional and unique designs, have designed interesting twin tower condos on the waterfront called Aqualuna. Additionally, construction of the One tower, Mizrahi’s signature condo megatower at the intersection of Yonge and Bloor, is well underway. This building will have 9 floors of retail space, and several massive luxury condo suites.

 

Mirvish + Gehry project

Mirvish+Gehry is a planned two-tower mixed-use building complex in Toronto, Ontario, Canada. Consisting of two towers, 92 and 82 floors respectively, when completed it will be among the tallest skyscrapers in Toronto and the tallest skyscrapers in Canada.

The Mirvish + Gehry project, an eagerly anticipated collection of massive condos downtown just east of the entertainment district is also underway, with pre-construction planning changes and revisions continuing. Sugar Wharf by Menkes is an assortment of many massive condo projects at Queens Quay East continues, with work ongoing. Massive condo projects are also underway in Peel region (Mississauga and Brampton).
 
Toronto is 16th in the world by the number of towers completed over the height of 150 meters. By North American construction standards, Toronto leads its continental competitors in the number of projects that have been planned. With low rates, a strong economy, and huge demand, Toronto will continue to see projects planned, completed, and underway.

Another Rate Hike Is Coming

July’s inflation figures are up to 3%, the biggest monthly increase in over 7 years as prices for gasoline and and air travel increased sharply.

Interest Hike Hike Coming

Bank of Canada Could Increase Rates By Another 0.25%

Tembo has consistently reminded its readers and clients that the Bank of Canada is very mindful of inflation and watches it carefully. The Bank is internationally renowned for keeping inflation in and around its benchmark target of 2%. This sudden spike in inflation is likely to increase pressure on the Bank to raise its rate by another quarter percentage point. 
 
This recent increase in inflation comes at a time when the economy has been growing strongly and the Bank has continued its policy of increasing rates in tandem with Central Banks around the world. Canada’s mortgage banking rates are still very low by historical standards, and will remain low even as they respond to likely rate hikes by the Bank of Canada. On a separate note, real estate figures in Montreal and Toronto are improving and warming up. 

New Construction Heating Up

In addition, the latest CMHC figures show that construction starts (both condo and houses) are increasing across the country, from small municipalities to the City of Toronto. On a final general update on real estate, polling shows that the biggest political issue for Millennials is the affordability of housing, given the astronomically high average prices for real estate in the country – even after recent cooling measures.

Toronto Commercial And Industrial Real Estate Is On Fire

The traditional condo, detached, and semi-detached housing market is in relatively good shape in the GTA. This week, Tembo will focus on another component of the market; commercial and industrial properties.

Toronto Commercial Real Estate
In a few of our past blogs and newsletters, Tembo has outlined that the general trajectory for commercial properties has been positive – with healthy stats; strong demand, high prices and soaring investment. In 2017, commercial property investment hit an all time high. Some of Canada’s biggest pension funds, corporations, firms, and banks invested huge amounts into building, leasing, and buying commercial real estate.

Commercial Real Estate Trajectory Continues

Commercial and industrial real estate availability hit a record low of 3.9% this year, according to the CBRE. Toronto’s availability is the lowest in the country, at 2.2%, even lower than Vancouver’s tight 2.4%. 
Massive socio-economic changes and strong growth are driving the ongoing surge. Warehouses are in high demand, as is real estate that caters to the e-commerce and food sectors. Recently, multinational Amazon announced several large scale warehouse, or Fulfillment Center investments across the country, most notably in Ottawa.
The massive commercial demand has seen the market respond with huge increases in construction activity; a 47% rise from earlier years. In provinces with relatively weak economies and increasing commercial vacancy, such as Alberta, new sectors such as cannabis and e-commerce are replacing traditional ones. Overall, residential real estate will be competing for capital that could be allocated to the commercial sector.
The boom, in all things real estate, continues.

June Was Good to Toronto Real Estate

Sales had their best month in over 14 years as growth hit 18% from June 2017 figures.

Toronto Real Estate Update
Prices rose almost 3%, with the average home now exceeding $800,000. Listings also declined, tightening supply and beginning a trend which will benefit sellers in the long term. Overall, numbers in all respects were positive for both buyers and sellers.

Sellers Are Feeling The Pinch

The very strong data comes at an important time when market watchers and participants could use good news after a very tumultuous period. Real estate is under huge pressure from multiple fronts. New insurance rules, extreme conservatism among banks, a higher interest rate environment, and lack of supply hurt buyers. Sellers are feeling the pinch from government intervention which was designed to deflate sky high prices, and which worked. 

Toronto Condo Market Continues To Soar

The condo market continues to do very well, with prices up over 7.5% on average in the city of Toronto. In all, these positive numbers and the move to a healthier market overall is a strong signal which sheds a light on how resilient the GTA real estate market is. Many experts believe these numbers point to a broader, positive long term trend which will hold for the rest of year as long as macroeconomic indicators remain in decent shape. 
If