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. 

Have You Ever Heard of Section 37?

Planning law and regulation in Toronto and the province is complicated, cumbersome, and difficult to understand. It is overwhelmingly written by Queen’s Park, given the Constitutional arrangements in Canada which afford provinces so much legislative punch and power, especially in comparison to regional and municipal governments. Planning law reviews do occur on a routine basis and everyone has their own opinions and views on the state of the overall system and on what should be reformed. One interesting component of planning in the region is Section 37 – which refers to a section of the Ontario Planning Act. 

Section 37 is a clause which gives municipalities, through local Councillors (elected politicians), the power to negotiate changes to planning and zoning in exchange for monetary commitments to certain arbitrary projects. For example, let’s say you’re a developer with a fair bit of cash and you want to build a 30 storey condo in an area where zoning says 20 is the max. You’ve got access to a deal to buy a plot of land for a decent price, now want to make some profit, but calculate that a 20 storey building won’t net you the kind of proceeds you want. So, what do you do? Well, you activate S. 37 and ring up your local City Councillor.

Negotiations start. The Councillor hears you out and thinks what you want is not too unreasonable – it’s only a few extra storeys. What’s wrong with making money? Now in exchange for the immediate zoning change for your extra 10 storeys, the Councillor wants you to scratch his back. You see, he wants to get re-elected, and there’s a neighbourhood where he didn’t get as many votes in the last election that he could use in the next. He wants you to promise $250,000 to upgrade a park in his tricky neighbourhood. You say sure, why not, and the deal is done. Under Section 37, the commitments to projects in exchange for zoning changes are designed to be used to help the community add resources in needs in exchange for the heavy duty development changes. If a developer builds a 60 storey condo instead of a 20 storey condo, the impact on roads, sewers and local schools will be massive.

Councillors have huge power to negotiate these deals for their own political ends and the Section 37 system has come under serious scrutiny in recent years, especially under now deceased former Mayor Rob Ford. With the planning system undergoing massive reforms by now Premier Doug Ford, expect Section 37 to be changed thoroughly.  

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.