A Rare Well Rounded Look at Toronto's Real Estate Market: The Post City's Real Estate Round Table
I don't typically focus on real estate news as seen in the media; I find article headlines are often click-bait and their content based on misleading or incomplete information. However, the April 2018 edition of the Post City Magazine has an article that provides, in my opinion, a really complete view of the market place right now and the implications on our future real estate environment.
The round table discussion included many influential and well respected members of our city's real estate, planning and economic scene, to provide a well-rounded and thorough consideration of our city's economic climate in real estate.
- Benjamin Tal
Deputy Chief Economist, CIBC Capital Markets
- Jennifer Keesmaat
Former Chief Planner
- Brad Lamb
Developer, Lamb Development Corp
- Joe Oliver
Former Minister of Finance
- Michele Romanov
Dragon, CBC's Dragons Den
- Paul Miklas
CEO Valleymede Homes
- Michael Kalles
President Harvey Kalles Real Estate
- Tim Hudak
CEO, Ontario Real Estate Association
- Brian Gluckstein
Principal of Gluckstein Design
- Barry Cohen
#1 Remax Sales Person in Canada
- Danielle Bryk
Designer HGTV Canada
- Maryam Mansouri Hurst
Vice - President, Mansouri Living
In this article, I highlight the key comments and points made by the panelists throughout their discussion. The topics range from the real estate market, government policy, planning and development, and the economy, to provide a rare well-rounded discussion. Also note that these are highlights and summaries, for a copy of the full article sent to you directly, click below.
Mr. Tal, as you are one of the country's top economists, give this roundtable a sense of where the Toronto real estate market is right now.
Well, I think that it's challenging. In fact, this is the biggest test since 2008. We have too many things happening at the same time
- Rising interest rates
- Office of the superintendent of Financial Institutions (OSFI), 200 basis point qualification rate, which is a big deal
- We have Trump, which is a major issue
I don't think that the number one issue is interest rates. I think that the interest rates will be rising very, very slowly. The number one issue is the OFSI. The number one issue is the qualification rate. We are seeing an affordability crisis happening, and clearly the rental market is not there because of the fact that we don't have purpose-built rental activity.
These conversations always strike me as funny, because a year ago we were talking about how the market was overheating, prices were out of control, we needed to slow things down. Now things are slowing down, and everyone's saying "Oh, God, things are slowing down. There's this incredible risk. Why are things slowing down?"
Last year the topic was adding supply, this year there are 52,000 more units in the pipeline than there was last year. There's almost 300,000 units overall that are approved and not yet built.
The challenge is that when there are so many policy measures put in place at once it's hard to know what's having the actual impact
Of the 52,000, 89% of them are, in fact, condos
The development market is incredibly strong - a new development today in Toronto, and it doesn’t matter if it's Mississauga or Scarborough, North York or Downtown, is typically being sold in 24 hours. The average price now downtown for a new launch is $1,200 a square foot. In the resale market, we're seeing increases in the last six months of around 15% in prices. Maybe 20. We're seeing multiples on almost every sale. The issue we have is supply.
You know, unemployment is low today. Factories are at capacity. The economy is largely doing well, and so the only way to kind of prevent this inflation is going to be for interest rates to rise.
We have to look at going into a 40 year period of rising interest rates, not falling rates
We are much more sensitive to the risk of rising interest rates, and what the Bank of Canada is telling us is that the disease is also the cure. Namely, the increased sensitivity to higher rates will prevent interest rates from rising to the sky.
I think there's a very huge lack of family-sized condos and apartments.
We need to, A, increase that supply, and B, I think we need to have a mind shift around this stigma on raising families in an apartment.
At the City of Toronto, we've had an initiative underway called Growing up Vertical. We learned that families are already living in condos. They just have nowhere to park their strollers. They have no amenities for children in the condo. What's amazing was the response to this, developers like Tridel became very involved. Part of it is a cultural shift that we're going through as a city right now, and we can either push against it or embrace it.
So this is not going to happen. The process from buying a property as a developer to finishing it off is seven years now. You often put it to market within a year of buying it. So it's a six year process. How many families are going to buy a condo and wait 6 years? Nobody.
Maryam Mansouri Hurst and Brian Gluckstein
This is where you come into problems, at that price per square foot, you'd need to spend 1.3-1.4M to have a proper space for dining room, living room storage, etc.
That price just blows people out of the market again
We have a supply issue, given preferences.
We did many focus groups, and many families still want to live in this, you know, nice house with the backyard. So you have people going to Hamilton or Barrie because that's the only thing they can afford.
I'm not sure that current policies are helping. Rent control was not the right policy.
Even if it was "rent increases" (inflation plus 2%)
Most developers said they just need 3-4% and they would do purpose built rental.
The only thing that can help relieve the pressure is RENT options - and there aren't any now
We have to change the state of mind of many people: if you're 35 years old, married with 2 kids and you are renting, nothing is wrong with you.
If we can make that happen, and change rent control , then we have a chance
Phase two is coming - this legislation (a private member's bill put forward by Peter Tabuns, MPP for Toronto-Danforth, called Bill 144) has gone though its first reading at the legislature: that you can only raise an empty apartment by that amount allowed by the province, which will totally destroy the rental industry. That’s coming
You know, what all this means is that if you think that this city is unaffordable now, you wait. This is just the beginning.
Where to Buy Now
The junction or you know, way east or way west. There are a lot of areas in the city that have great stock of houses that are not the most desirable neighbourhoods right now, but are going to be quite desirable and almost unaffordable within the next decade.
An area like Weston, I think, is a hidden gem. It's a 15-minute ride on the UP express to get downtown. It has excellent transit access, excellent parks. There's a new cultural hub that's being built in that area. I would also say look in the areas around the SmartTrack stations because those areas tend to be very low density.
There will be new development, and those are areas where you're going to see the access to the rest of the city flip on a dime once the SmartTrack stations are open.
I would say Scarborough. There's the subway and it's incredibly cheap .
There's a lot of land and there are small communities really starting up, where all these young families have beein going. You can see the development along Kingston Road with the cafes going in and all of the different things.
Looking beyond starter homes, areas like Forest Hill, Rosedale and Lawrence Park are what really distinguish Toronto from places like New York or Boston or Chicago. Nowhere else can you live in established neighbourhoods and be 15 minutes from the downtown.
Our debt to income ratio is extremely high sitting at 171. There are two separate parts to the debt story. One is people in their 30s and 40s. They are actually extremely responsible. They have been using prepayment at a rate we've never seen before. The main issue is those young families that are still blinded by the affordability mirage taking those extremely large mortgages to buy low-rise, and that's where the vulnerability is.
The issue is not people defaulting, by the way. The issue is that, if you start paying too much toward housing cost, then you pay less to consumption. When everyone starts to do this you have a recession, a recession leads to higher interest rates, which leads to higher unemployment and unemployment leads to default.
There's a lot of room for Toronto to increase density in our low-rise areas. Taking New York as an example, no one lives in a full brownstone anymore. Many people are turning their properties into luxury multi-unit dwellings. That's something we could definitely do here.
The reason people are opting for apartment buildings downtown is not because they necessarily want to plunk their family in an apartment building. It's that they can't afford a single family dwelling, and they find it intolerable to commute for an hour and a half when public transportation isn't a good alternative.
Foreign Buyer Tax
In the short term it was a psychological impact that took some of the froth out of the marketplace. But it doesn't have a long term impact of consequence.
The most damaging policy in the Fair Housing Plan was rent control. It's going to punish the low-income seniors, people with disabilities, young people the most.
There are so many loopholes. My experience with my buyers is that one in 10 even talk about the tax. In the case of people migrating, they are putting it through a friend or other family members.
Rent control is going to cause a crisis of rents. We're seeing rents rise 25% a year right now.
Isn't that an argument for rent control?
No. It's for more rentals. The amount of properties currently for rent in the condo market downtown right now is around 1200. Last year there were 1800. So two things are happening. Small-time investors are selling the units through the market to end users because they don't like rent controls. Rather than holding for 10 years they're holding for 5.
Is it a bad thing if investors are selling their properties that were previously renting to an end user? I'm not sure that's a bad thing. It can provide stability in a building in the community to actually have people who own the unit living there. But what it does point out is that using condos as a de facto rental market and rental supply is a poor way to provide rental in a city.
So purpose built is the way to do it.
The issue with condos is that there isn't any security for tenants - if condo owner only keeps a place for 5 years because of the rent control and then sells it, that tenant is now put out.
The future of the city is families and people downsizing - both those groups want stability meaning purpose built is required
Confidence in the market: Would you recommend your children to buy a house now?
Yes. You're going to be in it 10, 15 or 20 years and raise a family in it, so why not? Absolutely buy a home.
In the city proper prices are continuing to rise at all price levels. So prices in the core are going to keep rising until there is a recession.
How will the Bequest Boom Impact the Toronto Market?
In the next 10 years, there's750 Billion to be transferred from this generation to the next, which is the greatest transfer of wealth in the history of our country, and a lot of these people will not be affected by the interest rates.
Now, the focus is on people in their 60s, 70s transferring money to their kids. I'm actually focusing on people in their mid 80's 90s, transferring money to the 60s, yeah? That's 250 billion. It's happening over the next 5-7 years. Now, given the fact that the baby boomers that will be receiving the money are already relatively comfortable, they have a big house, this probably will skip a generation. It's already happening. The rate at which parents help kids is at a record high, and it's rising. So that's another dimension of the mystery of how people can afford.