On Toronto’s Move For More Affordable Housing

With sky-high real estate prices, extremely limited supply, and a vacancy rate incomparable to its international competitors, Toronto is in the midst of a housing crisis. Housing, transit, and affordability were the key issues for politicians in last year’s Mayoral and Council elections. 

John Tory

Toronto Mayor Pushes Housing Now Plan

Incumbent Mayor John Tory made tackling the housing supply issue a key commitment if re-elected, and many City Councillors emulated that promise. A week ago, the Mayor successfully persuaded his Council colleagues to endorse his Housing Now Plan and to vote it through. The plan is an aggressive measure being heavily pushed through by the Mayor and senior City bureaucrats. 

The Housing Now plan calls on the City to facilitate the transfer of surplus land to private sector partners so as to develop it into housing. A certain amount of the finished units are to be set aside as affordable units with controlled rent. This is geared to benefit low income families. Toronto has a massive list of individuals and families waiting for affordable housing. In total, the plan is expected to result in 10,000 new units of real estate.

As Toronto has a weak Mayor system, its Mayor does not have executive powers and serves more as a glorified City Councillor acting as the Chair of Council. Unlike many of his American and international counterparts, he has no veto over votes, and cannot directly replace the departmental heads of the City’s large civil service. 

Officials have been eager to push the plan through given its importance, and this effort has been largely supported by City Councillors. The Housing Now plan was opposed by many of the city’s more left-wing politicians, who believed it did not go far enough and that its targets and limitations were not ambitious enough.

All levels of government will continue to increase their intervention in the real estate market so as to spur more development for an increasingly impatient pool of prospective buyers.

 

On 2018’s Final Real Estate Stats

For Tembo’s final blog of 2018, we want to leave you with some interesting GTA statistics. All of our predictions for 2019 were outlined in our final newsletter – many of which are beginning to look on point given big falls in the markets marking the end of 2018.

fireworks

Stress Tests Have Kicked In 

Some 100,000 Canadians have been locked out of the housing market because of federally imposed stress tests. Already stringently cautious banks were made even more particular in approving mortgages because of the impact of the federal government’s stress tests. These tests force families with lower than ideal deposits for home purchases to buy insurance to cover their investment and reduce risks.

Pensions Are Pumping Up Real Estate Holdings

Trusteed pension funds have boosted their holdings in real estate by 2.5% to almost $190 billion as 2018 closed. Despite seeming like a small percentage change, this represents billions in added investment. In our last blog and newsletter, we highlighted the importance of real estate to the nation’s wealth, and this stat shows the reliance on real estate to the nation’s trusteed pension funds. All sectors of the economy are all in on real estate, and expect dividends and returns from a continuously healthy real estate market. 

Global Markets Are Falling Fast

stock market crash

The DOW underwent its worst day of Christmas trading in history, dropping over 600 points (3%). The Fed’s decision to increase rates last week was to blame. In addition Wall Street was spooked by news that U.S. Treasury Secretary Steve Mnuchin made calls to the CEOs of America’s biggest banks without authorization from the President to check on their liquidity. This was viewed by many as an act of panic. The contagion quickly spread around the world, with some international headlines using the term ‘panic selling’, for the first time since 2007.

Toronto Home Prices Up In November

Prices for detached homes rose 3.5% to mark the end of 2018, even as listings and sales dropped slightly. We end 2018 with the average price of a detached home in Toronto now hitting some 788K. While listings declined slightly in November and early December, they were still 12% than in 2017. Home prices are still significantly lower from their summer 2017 record highs. 

On Toronto City Council

Yesterday, the Ontario Court of Appeal ruled that Bill 5, the Legislation passed by Premier Doug Ford’s government to reduce the size of City Council from a planned 47 seats to 25 is the law of the land.

City hall toronto

Bill 5 was originally struck down by Judge Edward Belobaba who argued it violated voters’ Charter Rights. The Court of Appeal harshly criticized the Judge, effectively arguing he went out of bounds by striking down a perfectly legal and constitutional bill.

So What Impact Does Bill 5 Have On The Toronto Council?

Toronto’s upcoming municipal election will see a completely new Council. For the first time in decades, many incumbent Councillors will be facing off against other incumbents in the now larger wards. This will create genuinely competitive democratic races, as many incumbents in the old smaller wards were able to comfortably stay in office for decades using the advantages of incumbency. These 25 total wards now match the provincial and federal ridings for the first time. A Torontonian will now have 1 MP, 1 MPP, and 1 City Councillor all representing the same territory for the first time.
 Doug Ford
The new Council, with fewer Councillors, will be able to make decisions faster. Decision making will be streamlined by having fewer delegates competing for access to the bureaucracy. Toronto City Council is famous for its dysfunction, entitled politicians, and lack of real change. Journalists, academics, public policy experts, and residents have noted this for decades. A smaller Council will eliminate much of the squabbling and endless flip-flopping on major policy files, especially transit and housing, which is the now status-quo.  

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.

On The Next Mayor Of Toronto

The 2018 Toronto Mayoral election is fully on with the entry of Jennifer Keesmaat into the race.

Toronto’s former Chief City Planner from 2012 to 2017, Keesmaat was well known for her strong voice and outspoken style, unlike other high level public servants. Most expected a quiet, dull race due to the lack of a high profile opponent, with incumbent John Tory set to comfortably win a landslide.

Keesmaat’s “City Building Vision” Agenda

Keesmaat is positioning herself on the left of the political spectrum, in opposition to Tory’s centrist and slightly right-leaning agenda. She is campaigning on an ambitious, positive, expansive ‘city building vision’ agenda with new spending and a bigger role for municipal government. Her first major announcement was a pledge to build 100,000 affordable housing units over 10 years. In response Tory argued that over 20,000 units are under construction now, and that Keesmaat’s office failed to approve a single unit of affordable housing.

Keesmaat Pledges More Affordable Housing

A Keesmaat administration would likely increase spending on affordable housing, shift property taxes up above inflation (Tory has never increased them beyond inflation), and would emphasize enhanced densification, pro-cycling policies, and public transit. Keesmaat’s emphasis on affordable housing will make real estate a crucial and dominant issue in the race, which will good for observers and the housing minded. Although Tory is expected to hold on to power, many high-profile Mayoral incumbents have recently lost re-election; Denis Coderre, former Mayor of Montreal being one of them. An interesting and passionate election is incoming.

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

Rental Housing, We Need It

toronto skyline

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

Why Building More Rental Housing Is A Good Idea

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

Are We Paying Too Much To Rent?

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

top ten median rent across canada

What A New Conservative Government of Ontario Means For Real Estate

Doug Ford’s Progressive Conservative Party won a decisive majority government last week

doug ford

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

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

Market, Not Public Forces, Will Prevail

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

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

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

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

Bank of Canada holds its ground despite surging economy

Bank of Canada holds its ground despite surging economy

Yesterday the Bank of Canada held firm and its very recent change in tone and policy by confirming it would hold its benchmark interest rate to 1%. The Bank increased rates twice in quick succession, once in July, as the housing market was searing hot in some parts of the country, and again in September, after a wide spate of government measures had by then significantly cooled prices and demand.

Bank of Canada Headquarters

The Bank offered no hint as to when rates would be raised again and this week’s decision is the final rate decision for 2017.

We will have to wait until next year to wait and see for further hikes. Some market watchers were expecting a hike as strong economic activity, robust GDP growth, and very high employment growth were all recently reported.

The most recent employment numbers are off the charts, with 80,000 new jobs being created in the month of November – market expectation was 10,000 new jobs. Ontario generated the lion’s share of these jobs (44,000).

The national unemployment rate hit a 10-year low because of these gains, falling to 5.9%. in Quebec, unemployment has hit an all-time record. Unemployment should continue to fall as retailers add some more positions for the holiday surge before year end. Hourly wages are also up just under 3% nationally, an unusually big increase.

 

Canada unemployment chart

The best piece of news is that 37,400 manufacturing jobs were created. These are solidly middle-class, high paying, productive positions that Canada has generally underperformed in creating.

Usually, central banks respond to strong figures like these by raising rates in fear of higher inflation from more spending and more borrowing. The Bank of Canada is internationally recognized and renowned as being extremely focused and hawkish on meeting its inflation targets. The broader market expectation is that further rate hikes will be on the table early next year if wage, employment, and GDP growth continue their robust increases.