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. 

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. 

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. 

A sizzling September

It’s striking to see the shift in the media’s tone on real estate over the last few months.

The positivity started in earnest in late June and early July, and began to pick up as the summer ended and the school year began. With September 2019 now behind us, a clear and objective picture is available with all the new data that’s been released. Stats show that prices for all types of housing went up strongly from Sept. 2018 figures. The increase was 5.2%. The significance of that growth was highlighted by the Financial Post, which noted that the now median $805.5K benchmark was just $10,000 short of the all-time record high median price set in 2017. What a year for real estate that was. We are a few percentage points away from all-time record real estate highs.

The energy behind all of this good news is the surge in sales we’ve documented a few times now. Double digit increases have returned to the market in all categories. Holy grail detached homes led that charge with 29% increases in sales. Toronto is not the only city in the country recording strong sales, Vancouver’s are up over 46%. Buyers have clearly adjusted to the strict new mortgage rules and developers aren’t able to come up with enough supply to meet demand. Canada’s population is growing very rapidly. Even as immigration targets have risen to well over 300,000 newcomers annually, natural population growth is edging up the overall net increase to well over 500,000. Most of those people settle in the GTA and Vancouver.

Some realtors are firing on all cylinders to meet the demand we’re now seeing. One realtor sold 30 condos in a single weekend and says the stats are returning to 2017 hyper-boom levels. One of the reasons supply is so limited is that so much inventory, particularly condos, are being held by investors from all over the world who rent out the units or put them on Airbnb. Estimates of the total number of condos dedicated to non-permanent use vary, but some high-end numbers put the figure at over 40%. Market watchers are noting that with luxury condo sales exploding supply is not a class issue; everyone is having trouble finding their nest!

On The Return of National Real Estate Price Growth

The good news we’ve been writing about haven’t been limited to real estate in Toronto, southern Ontario, and the GTA, it’s spreading across the country.

The national real estate benchmark, which outlines real estate price changes every 4 months, now shows its first uptick since the beginning of the year. After reaching its all time high in May of 2017, when market dynamism was truly ecstatic, the benchmark collapsed and reach a low point exactly 2 years later. September’s number should bring price growth back in the green nationally. What else can be done to help get that number in a better position? Let’s see.

Meanwhile, political pressure on the Federal government to do more to make real estate more accessible to prospective home buyers is building. Finance Minister Bill Morneau has been pressured to extend the amortization of houses from the present 25 years back to 30. This would provide home owners with more time to leverage a mortgage and the possibility of lower monthly mortgage payments. The previous Conservative government cut the amortization period from 35 years to 30, and then the present 25. This aggressive move was done in order to combat excessive dynamism in the real estate market and was welcomed by many, even though it had a direct and immediate impact on the market.

In the United States, 30 year amortization is common, as are fixed rate 30 year mortgages at very low rates. Imagine not having to negotiate and sign for a new mortgage after every 5 years and instead have the comfort of knowing you will enjoy a historically low, locked in rate for the life of the house. A spacious 5 bedroom, 4 bath suburban home in Indianapolis, Indiana, selling for 399K, can be mortgaged out for 1,400 a month with a 3.3% Bank of America 30 year mortgage with an 80K down payment. This is unheard of in Toronto and the GTA. 

A Very Good July for Real Estate

Just look at these numbers, a 4.4% increase in prices from June figures, sales up over 24% from July 2018, and overall sale prices up 3.2% from July of 2018.

The average Toronto home sold for just over $806K. The number of properties that were sold went up to 8,595 from 6,916 from June. This is a huge increase, and all of those numbers were well above official inflation rates. As always, supply of the most desired real estate was tight, driving up prices, limiting options, and redirecting supply to less dense markets and different real estate products. Listings were down 9% from July 2018 numbers, outlining the extent of declining stock. In the rules of supply and demand, when supply contracts prices rise, and the cooling of the market that we’ve been used to recently definitely cooled the market.

tress tests are still around, but their shock has subsided. Families that were locked out by the tests have had more than a year to re-calibrate, to save more money, and discover new financing options. Some may have decided to buy a condo instead of a town-home, or decided to start their real estate equity in a small town as opposed to a cozy suburb. Prospective buyers who saw a cooling market pulled their listings and decided to wait the market out. The contraction in listings that followed are now seeing their impacts fully felt and that pressure is starting to turn 2-3% increases into 4% price increases. All in all, the market is re-orienting back to a more dynamic state, at least for now. 

 

But Tembo feels that certain international pressures could align to add even more oxygen to GTA real estate. First off, as we’ve reported, the Fed cut rates. Within a few days, President Trump lambasted the Fed for not cutting rates FURTHER. Market changes and instability that Tembo will outline in its newsletter have created immediate international reactions to the Fed rate cut and other socio-economic and political changes. Tembo predicts that the BOC will cut rates soon, especially if the pressure to keep monetary easing going builds up in Washington and around the world. Home prices across Canada have remained roughly static for the last two years and rate cuts at home could shift that momentum to price growth. 

The History of Home Prices in Toronto

A few generations ago in the halcyon golden age of 1950s prosperity in Toronto, family homes were incredibly cheap. With newfound post-war home loans for returning GIs, abundant land for development, and a rip-roaring economy, young couples were blessed with plentiful real estate opportunities. The disparity in prices to what is considered average today is mind-boggling. Using the handy Bank of Canada inflation calculator, this blog post will outline decade by decade house transactions to show the state our prices over time. 

Late 1950s

A couple buy a home in midtown Toronto for just over $30K, adjusted for inflation this comes to $130K in today’s dollars. The house is two stories, detached, in a fairly large lot in the Davisville and Yonge area, and considered suburban at the time. (The area of Forest Hill was developed in the 60s and 70s, and was well outside the city’s limits at the time). The house was sold a few years ago for $1.6 million, more than 50 times the purchase price. At the time, a $30K purchase was considered high end, given normal suburban homes in North York, East York, and Scarborough averaged $15-17K at the time. Bidding wars were unheard of, paperwork was minimal, and property taxes were low. 

1960s 

By the late 1960s home prices had risen, but modestly. The average price was in the mid 20K range, or 180K in today’s dollars. Couples could buy comfortable family homes just outside the traditional city core for prices in the high 20K range. Price increases were much more modest and organic then the fluctuations we’ve seen in the last 10-20 years. At the time the economy was not as financialized as it is today, and credit and money supply growth was much more constrained. Throughout the 1960s, homes generally sold for less than 200K in today’s dollars. 

1970s

A similar picture as the 1960s, but with slightly stronger price growth and some fluctuations. Average prices were in the 30-40K range. 

80s

The financialization of the economy took off in the 1980s, and loosening credit and a big stock market boom stimulated a concurrent real estate boom. The late 80s boom was felt worldwide and in almost every economic indicator, Toronto real estate saw incredible growth in that time. But it all ended in 1989. 

90s and transition to 2000s and present

The 90s were a difficult time as interest rates were very high and the bursting of the 80s bubble took its toll. Only by the late 90s, as rates had come down, the dollar had gone up, and prices had recovered, did the seeds of our current boom truly begin to sprout. The rest, as they say, is history. Only 2007-2009 saw a slight blip in the pace of price increases, the rest of the period from the early 2000s to the present has seen rapid price growth. 

Stress Test Relief!

There’s a very big real estate story that isn’t getting much widespread coverage in the community. When federal regulators announced the unveiling of tighter rules on uninsured mortgages and mortgages with down payments of less than 20 percent, the market sputtered.

The move was designed to clamp down on risky mortgages, tighten confidence in the housing sector, and to cool a market that was literally on fire. The tests required that borrowers needed to prove they would be able to manage the costs of their mortgage if rates were to rise. Experts believed the move single handedly knocked out 10% of prospective buyers from having a shot at sealing the deal on a home purchase. We’re talking about tens of thousands of people, at the least. The stress tests were praised by experts, economists, and some bankers but were lambasted by the real estate lobby and politicians. 

After almost a year of criticism and calls for reform we finally have some relief. The rate at which a mortgage holder has to qualify being able to pay for has now gone down from 5.43% to 5.19%. While not a significant change, it will have an impact on those prospective buyers on the margin. Some experts believe that the continuation of a lessening trajectory could have a significant impact on the market, with as little as a further 0.50% reduction lifting thousands into home ownership. Tim Hudak, CEO of the Ontario Real Estate Association asked for federal regulators to restore 30 year insured mortgages, to further ease stress test rules for new homebuyers, and to scrap the requirement that those who change their lender on an existing mortgage have to also pass stress tests. With an election rapidly approaching, don’t be surprised if further loosening of these rules continues, real estate has been repeatedly polled as one of the biggest concerns on peoples’ minds.

 

Finally, when Canadians were asked to pick which city they would own real estate in, the result, quite strongly, was Toronto! That’s right, our city is seen by most average Canadians as the best place in the country in which to own a home. Despite Vancouver’s beautiful natural environs, great weather, and lack of winter blues, and Montreal’s thriving cultural scene, affordable prices, and great food choices, Toronto still won out. Unfortunately for those polled, rents and home prices continue to rise in the city, with one metric showing that the price for two bedroom and one bedroom units is effectively the same. The demand for ANY space is so great that it doesn’t matter how many bedrooms it has. This summer continues to deliver positive news on the real estate file. 

The Return of Surging Detached Home Sales

Toronto had its best June for real estate in over 2 years. With over 8,800 units sold, we beat our 2018 and 2017 figures. Only in 2016 was the number of sales around this time of year higher. Also recall that 2017 was a blockbuster year for demand, price growth, market activity, and general enthusiasm. The slight drop in sales compared to last month also matches historical averages – we usually see a surge in Spring and April/May that dips slightly as we head into the summer. New listings declined slightly, to 15.8K, and all in all, we saw a price increase of 3.6% from a year ago, with $798.5K now representing the average. A 3.6% boost is solid, well above inflation, and nothing to sneeze at. Stats show price gains in semi-detached, condos, and townhouses. But the really big news from last month was that sales of detached homes surged 19%, a very handsome rise indeed.

The average detached home price is now $832K, with average sale prices now at early 2017 levels. If trends continue we could see a return to the plateau of just over $900K that was attained in the last bull run for prices in the 1st quarter of 2017. The cause of the positive sales numbers was the fact that supply didn’t change, and demand didn’t relent in its chase for housing. Condo sales were down, mostly in the core, but rose generally throughout the rest of the city and across the region, likely as a result of higher prices downtown and lower inventory. Stats also show that people are leasing condos at much higher rates as opposed to outright ownership (15% in the 2nd quarter). Listings are generally rising across the GTA. Rents keep going up, and past inflation, but at a lower pace than what was the trend in the last year or so. The average one bedroom condo in Toronto will cost dwellers just under $2,200. 

Despite this positive news key stakeholders and real estate bodies continue their calls for more accommodation, relaxed regulations, and a winding down of the stress tests that have locked out an estimated 100K people from getting into the market. Interest rates are holding steady, and as we’ve repeated, momentum seems to be shifting to more monetary accommodation around the world as opposed to a gradual rising of rates. In Japan, Europe, and China, central banks are maintaining, and in some cases boosting money supply in their regions, lowering rates, and buying more stocks and bonds to ‘stimulate’ the economy. This trend is going to come to North America, and sooner rather than later. Overall, given where we were not long ago, when pessimism and disappointment were building, the underlying fundamentals are getting better! 

Toronto’s Biggest Real Estate Project

Oxford Properties, the real estate arm of OMERS, the pension plan for Ontario’s municipal workers, has signaled its intention to build a $3.5 billion mixed use project just north of the Rogers Centre and CN Tower. The proposed development would see two office towers of 58 and 48 stories respectively, 800 rental apartments in two buildings, and 200,000 square feet of retail space built; just over 20% the size of the Eaton Centre. The project is innovative for several reasons and is receiving a buzz of largely positive attention.

For one, the designers involved are internationally renowned: Pelli Clarke Pelli Architects. Responsible for the International Finance Centre in Hong Kong, the well known Petronas twin towers in Kuala Lumpur, and other major landmarks. The building designs appear sleek, curvy, and modern while avoiding the usual uniformity of Toronto high-rises. Second, the towers will be largely re ntals with an integrated day-care on site. The units will also feature 2 and 3 bedroom units which Oxford claims are sorely lacking in Toronto’s downtown core. The office blocks are designed to cater to large scale tech. and financial employers undergoing rapid growth with young work forces who prefer downtown living to their older counterparts. A fair amount of retail space and a connection to the PATH will provide convenience and more employment opportunities to locals as well.

The real unique aspect of the project is that a large park will be built over the rail lands the project is adjacent to. The rail deck park complements recent proposals to build a $1-2 billion park above the rail corridor to provide the downtown core with much needed green space. To put the scale of this project in context, in total Union Park represents over 4.3 million square feet of retail, office, and residential space, more than twice the size of the square footage of the Toronto Eaton Centre complex and 25% bigger than the West Edmonton Mall, once the largest mall in the world. The project is a gamble. It is a expensive proposition and depends on a large number of tenants occupying its retail and office spaces in particular. Bold and ambitious, Union Park highlights the scale of Toronto’s ongoing construction boom and signals to the world that we’re just getting started!