COVID-19 and the housing market

We are all impacted by lay offs, long line ups at supermarkets, empty toilet paper shelves, working from home, or worse. If our own lives haven’t been completely shifted by the COVID-19 crisis, we know someone else who has. In this blog, Tembo will take a look at how COVID is impacting Toronto real estate and the broader southern Ontario housing market.

So far, with March coming to a close, the industry is arguably in very good shape all things considered. First and foremost, real estate is considered an essential business by the provincial government. It’s importance to employment, output, and just ensuring people have somewhere to live is crucial – and the government has obviously responded to that and acknowledged it. Guidelines on home showings and social isolation have been updated and restricted but realtors have used technology to manage some of these disease-related challenges.

International commerce and buying continues, and in many respects, the crisis may accelerate foreign purchases and investors scramble to move their money or persons around the world looking for stability in an ocean of unease. Construction is an issue, with pressure on governments to effectively shut down sites growing despite the importance of construction. The short to medium term impacts on construction sites remains to be seen. Media have already reported that construction sites related to government funded public transit will see delays in their timetables.

Prices and demand have yet to be impacted negatively. March’s numbers will be released in the next few days and will be interesting. April and May figures will be interesting, especially if quarantines, shut downs, and further economic disruption continue. Even if prices and demand does fall, it will likely be temporary, as prospective buyers waiting on the sidelines and investors with cash bide their time for opportunities.

The big and very positive news is that the big banks have announced that people will be able to apply to defer mortgage payments, and lowered interest rates means people can refinance for lower mortgage payments. While this is not an ideal measure, it offers flexibility in a time of crisis. All in all, the immediate impact of the crisis has not phased our ironclad market, but the medium to long term impacts will depend on how long this all lasts.

Buttonville Airport is going for sale!

Buttonville Airport is a privately owned, public airport just north of Markham. It covers over 170 acres of the primest of prime suburban 905 real estate. The airport is a half hour drive from downtown Toronto and is just east of Highway 404, Buttonville’s strategic proximity to the rapidly growing GTA and the massive growth in air traffic over the last several decades helped transform the site from a ‘grassy strip’ to the largest, most dynamic privately owned airport in the nation. 2018 saw the airport achieve just over 44K aircraft movements, down from over 80K in 2014. In comparison, the large publicly owned Billy Bishop Airport in downtown Toronto has aircraft movements over 125K. In 2009, the family who then owned the airport announced that they wanted to initiate a broad redevelopment of the site into a mixed use commercial, retail, and residential development. This was highlighted as a golden opportunity to unlock tremendous value for a huge tract of strategic real estate. The family sold in 2009, forming a ‘partnership’ with Cadillac, and the price has not been disclosed, but the value of the undeveloped acreage was believed to be worth between $100-150 million at the time.

Cadillac’s plan would have created 10 million square feet of overall multi-use space worth billions. In comparison, the total size of the Yorkdale Mall is just under 1.9 million square feet of retail space. 6-7K new residents would have been accommodated, generating tremendous property tax revenue for the City of Markham. At least a dozen mid and high rise towers were to be constructed. In all likelihood, the ambitious scale of Cadillac’s strategy would have made the airport family billionaires. However, the immense rezoning work required to approve the project was never completed. The deal was shifted off to the Ontario Municipal Board, but negotiations involved too many stakeholders and too much work. Delays kept pushing back the project. The uncertainty and complexity of the project proved too cumbersome for Cadillac and it appears the partnership have now agreed to wash their hands of the property and to put up the holdings for sale.

The sale will create opportunities but also challenges. Significant corporate jet traffic uses the airport and will have little room to transition to as Billy Bishop is limited in its traffic and Pearson is bursting at the seams. The sale will likely up pressure on the federal government and federal transportation regulators to finally and definitively approve construction of Pickering Airport. The GTA is growing to the extent that a second international airport will be necessary, barring that, Pearson will have to be rapidly expanded. Pickering Airport’s construction will intensify development in Durham Region, create many jobs, and spur additional construction, rezoning, and densification. The recently elected Mayor was strongly supportive of airport construction and won election with over 60% of the vote on a pro-build campaign.

 

Bully Bids and Bans

Ontario’s powerful realtors and their respective lobbying vehicle, the Ontario Real Estate Association (OREA) have asked Doug Ford’s provincial government to outlaw the practice of ‘bully offers.’

A bully bid is an offer submitted by a prospective buyer ahead of a seller’s established offer time. These bids are largely designed to aggressively pre-empt purchasing activity from other potential buyers and to place pressure on the seller to accept. This aggressive bid is submitted before the designated offer day. Sellers accept the bully bid if they believe that it will exceed what they will get conventionally. 

The practice can occasionally result in one buyer out-muscling potential counterparts and entices a seller to close a deal quickly without reviewing and considering other potential bids. The move is seen as unfair and limiting to realtors, who have little room to bid up prices if only one bid is submitted and ultimately accepted. Realtors also feel banning bully bids would enhance fairness in the market and allow all prospective buyers, or at the very least a greater number of them than present, will be allowed to participate in bids. OREA submitted 28 recommendations on reforms to their profession to the government which is currently reviewing the Real Estate and Business Brokers Act; the landmark legislation governing real estate professionals.

OREA is headed by Tim Hudak, the former Leader of the now governing PC Party of Ontario. The organization is heavily staffed with politically minded employees and is close with the present administration and enjoyed reasonable ties with the former Liberal Government. Several PC lawmakers and government staffers are former realtors and the government is keen to develop and maintain strong ties with realtors, developers, and the construction industry. These groups have heavily bankrolled the PC Party in the past. 

 

Proposed Ontario Bill 66 Gets Squashed

In last week’s blog, we outlined proposed Ontario Bill 66, which had a provision in it which would have given municipalities the power to approve commercial and industrial development in protected green spaces. This would have opened the Greenbelt to potential industrial and commercial development – if local municipalities were to approve, and with subsequent Ministerial approval.

However, after a wide swathe of negative media coverage, strong opposition to the bill from municipal governments across the province, and angst from important stakeholders, the Ontario government changed its mind. After the Ontario Federation of Agriculture (a group friendly to the governing PC party) voiced its nervousness to the Bill and its ‘unworkability’, it was becoming increasingly clear that opposition went across ideological lines. 
Late last week, the Ontario Government stated it would pull the key Schedule 10 provision of Bill 66 (the bylaw giving municipalities power to bypass the Greenbelt Act) from the law. With this move, the government effectively defanged the bill of its most contentious component and showed a novel capacity to change its mind. The announcement came from Housing and Municipal Affairs Minister Steve Clark, one of the government’s most experienced figures.
With these changes, residents of Ontario can have peace of mind that their protected green spaces will not be chopped up. The government will now likely unveil new measures to spur development and increase the housing supply in the province. Tembo will keep its eye on the provincial government very focused, as many structural changes and policy announcements will be unveiled in the coming months given the concocting of a provincial budget in April. 

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 Unemployment

Unemployment hasn’t been this low in over 40 years, having now hit 5.8% nationally. Ontario and BC lead Canada, with 5.4% and 5% unemployment respectively.

In hard hit Alberta, suffering from a collapse in oil prices, unemployment is at 6.7%. Unemployment is highest in Newfoundland at 15.4% and Prince Edward Island at 9.5%. The availability of jobs across the country is helping governments collect more tax revenue, is fuelling strong consumer consumption, and supporting sustained economic growth. Strong real estate demand is being fed by the robust labour market. In addition the strong jobs numbers are good news for the large number of new Canadians moving into the country.
But there is more to the low unemployment figures, many of the gains were made on the back of large numbers of part-time jobs even as full time job figures declined. Another important note is the increase in full time public sector jobs, reaching a very high 49,600. Average wage growth is improving above inflation but is cooling from previous strong trends. With inflation going up, the end result is more mixed. The figures are good for real estate and underpin the reality that the Canadian economy is in good shape. Times have not been this good in many decades, and consumers should use present stability to feather their nests and prepare for rainy days.

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: 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: 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: 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.

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 – What’s in it for real estate?

Ontario Election 2018 – What’s in it for real estate?

In this blog post, Tembo Financial Inc. will analyze the election platform for the Progressive Conservative Party (PCs) and will outline what the official opposition is proposing to do for real estate professionals, prospective homebuyers, and homeowners if it were to replace Premier Kathleen Wynne’s Liberals as the province’s governing party.

 

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1.    Local Infrastructure Fund

This is being touted to create jobs and build infrastructure in small communities.

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2.    Investment in Parks and Green Infrastructure

Investing some money to make certain green spaces across the province more user friendly.

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3.    Increased access to apprenticeships, doubling the loans for tools program

This will stimulate people learning an apprenticeship, and could be beneficial to the real estate and construction industries hungry for skilled apprentices.

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4.    Transit

The PCs are making a big push to invest $5 billion over 4 years on top of existing funding into new subways, particularly a downtown relief line which Tembo discussed previously. They will also upload the administrative and maintenance costs of Toronto’s subway system from the TTC while allowing the TTC to keep all the fairs. In return, they want the city to build more LRTs – especially a connection from the soon to be completed Eglinton-Crosstown to UofT’s Scarborough campus. These initiatives will spur development, improve property values, and stimulate construction.

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5.    Selling transit station air rights to developers

Self-explanatory, the PCs want to develop long along and by transit stations to create more housing stock.

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6.    Reforming the Planning Act

To reduce permit delays, cut red tape, and to stimulate more housing construction and development by sending a clear signal to municipalities.

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7.    Reviewing the province’s property portfolio

In other words, see what the province owns or has rights to and look to sell chunks of it to developers so they can build. Think underused or vacant parking lots, undeveloped land, wills, etc.

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8.    Reforming planning processes

This will encourage municipalities to update their planning and zoning processes and to update them routinely so as to send regular signals to developers about what and how to build, the goal is to ultimately increase supply in the long term.

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9.    Reforming planning processes

This will encourage municipalities to update their planning and zoning processes and to update them routinely so as to send regular signals to developers about what and how to build, the goal is to ultimately increase supply in the long term.

 

Overall the PCs are promising to make big new investments in transit and to increase housing supply. The full platform with all of its proposals is available here: https://www.ontariopc.ca/peoples_guarantee

 

Disclaimer:

Tembo Financial Inc. is non-partisan and looks forward to analyzing the party platforms of the Ontario Liberal party and government and of the third party NDP. Let’s hope that the 2018 election sees issues of housing supply, affordability, and infrastructure discussed thoroughly and qualitatively.

The Market Rebound Begins

In a promising sign that the traditionally positive seasonal effects of Fall on the real estate market are once again kicking in, October sales of homes in Toronto rose over 12% from September figures. The increase will be well received by realtors and prospective sellers, as it shows that the market is showing renewed resilience and that demand and buying potential remains firm. Growth in October is usually expected by teal estate professionals in a usual year, but the 12% increase is slightly stronger than usual metrics.

Prices for average homes also increase slightly, hitting roughly $780,000.00. Prices have been increasing for very conservative but the October increase shows an acceleration from September numbers – again, this is a very promising sign. The increase in prices and sales shows that a market that had faced rapid and dramatic cooling from a long list of government and regulatory measures after peaking in May is once again begin the slow but steady process of warming up again.

While sales and prices are slowly returning to health, concerns about a continued large gap in the supply of homes versus still shy demand remain with close market watchers and realtors. The gap may be bad for those wanting to sell, but benefits buyers, who at the height of the market in May were hard pressed to get a bid in a prospective home, let alone a fair shot of sealing the deal with a buy. The large amount of supply continues to place downward pressure on sales and price growth.

Condo market surge continues

As a previous Tembo blog has outlined, the condominium market in Toronto remains very strong and shows strong price and demand growth. Although many pockets of the GTA have lukewarm and slow condo markets, the overall market, and particularly activity in the core continues to surge. Average October prices increased over 20% in October. The average price of a condo in Toronto now exceeds $520,000.00

As Tembo has repeatedly stated, the fundamental underlying pillars of the GTA real estate market remain firm and strong, and in the long term, the market will continue to be resilient and will continue to offer opportunities for buyers and sellers.