10th Annual Real Estate Roundtable: Our expert panel makes sense of the GTA real estate market
L-R: Tim Hudak, Patricia Lovett-Reid, Brian Gluckstein, Jennifer Keesmaat, Brad Lamb and Sebastian Clovis
A decade ago our experts saw no end to rising home prices. Find out what our housing heavyweights think now!
David Rosenberg, Chief Economist, Gluskin Sheff + Associates
Jennifer Keesmaat, Chief Planner and Executive Director, City of Toronto
Brad Lamb, Developer, Lamb Development Corp.
Joe Oliver, former Finance Minister of Canada
Sebastian Clovis, Host, HGTV Canada
Patricia Lovett-Reid, Chief Financial Commentator, CTV News
Tim Hudak, CEO, Ontario Real Estate Association
Brian Gluckstein, Principal of GlucksteinDesign
Michael Kalles, President of Harvey Kalles Real Estate Ltd.
Royce Mendes, Senior Economist, CIBC
Paul Miklas, CEO, Valleymede Homes
Barry Cohen, #1 Re/Max salesperson in Canada
Sean Cooper, Author, Burn Your Mortgage
Ron Johnson, Editor, Post City Magazines
Ron Johnson: Bank economists and market experts are now calling this market a bubble after the recent 22% increase, what is the state of the GTA real estate market on the ground right now?
Barry Cohen: This reminds me a lot of the mid-'80s or the late '80s and the market is on fire, as everybody knows. So up 22% is impressive in one year. we did sell our house last summer when three of the four flew the coop and not unlike most buyers, we thought we were just downsizing. Now we're actually looking at an upsize because we can't find anything to downsize to. So it's a concern. I have a new compassion, for today's buyers, the challenges ahead.
Royce Mendes: I don't find it helpful to call the market a bubble because nobody here is calling for it to pop. In my perspective, the term froth is more appropriate because you have underlying fundamentals that remain solid on unemployment, population growth, credit metrics. And then you have some form of speculation or some type of behavioral economics, driving prices a little bit higher or faster than they would be otherwise. And I think that's a better way to frame it.
David Rosenberg: When I was [chief economist] at Merrill [from 2002-2009], I started calling for the housing collapse in 2005. So I was early by about two years. But I remember that I called it a bubble in my reports and it got people very upset. But the thing about bubbles is that bubbles do pop and this bubble will pop.
And the question is, how do you define the bubble? And I would say that anything that is at least two standard deviations above any historical norm if you don't call it a bubble you're just being disingenuous.
And when we have a situation in the GTA where now it takes 10 years of income, say median family income, to buy a typical single-matched detached home — this time last year it was more like seven years — we haven't seen this before. It's more than double what it is in the rest of the country. Home prices are about 30% above what any economic model will tell you "they should be."
So whether it's about speculation or the foreign buyer, something exogenous, the Bank of Canada talked about this at length in their December financial review, and they talked a lot about the excesses in the home price over and beyond what you would consider fundamental. Now we're not talking about something that's 5% or 10% above what you could actually model, you're talking about something closer to 30%, which is a three standard deviation event. So it is a bubble and if we do acknowledge that bubbles have this history to pop, it's just impossible to time. When this thing does pop, it's going have some serious implications for the economy and the financial markets.
Jennifer Keesmaat: So, counterpoint. The assumption behind a bubble popping is that demand will decrease. The bubble doesn't pop if demand doesn't decrease. So from my perspective, you need to put Toronto in a global context. but Toronto specifically, at this moment in history is emerging as politically incredibly stable, as a beacon of openness for people all over the world, and as a result we're seeing immigration increase. The interest in the city, just over the past six months, has increased exponentially on a global stage.
If that's something that's going to change then yes, we're at risk of a pop. But if that's something that's not going to change, if this is our new reality, if we are now emerging for the first time in history to be on par with places like London and Paris and New York, which by the way, everyone's been talking about how they're going to pop for 50 years, and the pop hasn't happened because their desirability on a global scale has continued to be unprecedented.
Tim Hudak: Talking about the bubble and such, I think that's entertaining to you on the financial pages but it's not going to help the millennial generation. The issue is around supply. I agree with Jennifer and I'll try not to repeat it but there are very strong reasons why demand is increasing. Toronto's a great place to live, as Jennifer expressed. Our economy is much stronger relative to the rest of Canada. We're attracting 100,000 immigrants per year. We have record low sustained mortgage rates and we've got a new generation, a larger cohort, coming in with the "Bank of Mom and Dad" backing 'em up, so you see a big increase on the demand side.
Patricia Lovett-Reid: What about the boomer that doesn't want to move from their home? I see report after report where they want to stay, they'd like to continue living their life there, but on the other side of it we have the "Bank of Mom and Dad" and we're seeing many families say, "okay, I'm going to gift that estate just that much sooner," so that they can stay in Toronto and they want that sort of thing to happen. But to your point, I also see a lot of reports from boomers who suggest that they're going to downsize. They may mean downsize in terms of footprint but if they want to stay in Toronto they're not downsizing in dollar amounts. They're going lateral or up.
Joe Oliver: There is a serious social and, therefore, political problem. And that is that most millennials can't get into the market without very significant parental support. And we're not talking about $50,000 or $100,000. They need really significant money, which most families don't have, particularly if they have several kids. They're facing a number of unpalatable alternatives: they either stay in rental accommodations, they go into a miniscule condo, they have a very long commute and move out of the city.
I think, if you just took 5% of the Greenbelt — the Greenbelt is 1.8 million acres — 5% is 90,000 acres. If you liberated that for development over, let's say, a 10-year period, you can house a million and a half people in a half a million residences and generate a million and a quarter person-years of employment. And no one would notice it other than the fanatics, who view this land which McGuinty set aside as somehow sacrosanct.
And the other aspect, of course, is that this is very situational. It's really Toronto now. It used to be Toronto, Calgary, and Vancouver. And for two totally different reasons, it's now just Toronto.
Paul Miklas: I'm trying to acquire 10 acres out in Pickering. And, right now, they're asking 1 million to 1.1 million per acre. So when you mentioned about the millennials now travelling outside of the city to go to cheaper pricing, as a developer-builder, I'm looking at it thinking, "this is ridiculous, what do I actually have to get to bring this townhouse to the market?"
Or you go to another site out in Markham, for example, go back about 18 months ago, you could buy an acre of property for about 1.4 million. Today, to buy that same piece of property 18 months later, you're at 2.1 million. Therefore, you're introducing a 2,000-square-foot townhouse at roughly somewhere between 1.2 million to 1.4 million.
Sean Cooper: I see two main issues that are really driving up prices. First of all, a lack of supply. If you look for a house in a neighborhood, everyone's looking in that neighborhood, and there are just one or two properties available. So it's going to end up in a bidding war. And that just drives the price higher.
And another area I see driving it is the "Bank of Mom and Dad." And what's worrisome for me is that I'm not 100% sure that people have a ton of money to give to their children. They're probably taking out home-equity lines of credit. And what if interest rates go higher in the future? Interest rates going up are good because it means the economy is stronger, but when people are loaded with all this debt, then it'd be a bad situation later on.
Brian Gluckstein: It's going be a complete shift in the expectation of how you live. Young people in New York don't think they're going to have a house. Young people in London don't think they're going to have a house. They live in apartments. They raise children in apartments, whether they're rentals or condominiums. And that's the expectation. The expectation is to just go to a bigger apartment and a bigger apartment. So the whole concept of owning a house is not going to be available for these people.
Hudak: I don't buy that. Come on. Manhattan is an island. London, England has been around for a thousand years. As Joe said, there is a lot of land available. We've created our own artificial barriers.
Gluckstein: But they don't want to live in the suburbs. A lot of young people do not want to live in Pickering and Barrie. They want to live in the city where they grew up and where their jobs are and where their social life is. I look at the kids that work in my office. They don't want to live in Pickering. They don't want to commute from Barrie. They want to live in the city. They would like to live in Leaside. They would like to live in Leslieville. They would like to live in those areas, those they can't do.
Michael Kalles: Can I talk about a little bit about condominiums? Eight years ago, I was in a sales meeting and our salespeople were very uptight about the number of towers that were coming out of the ground. They said, "oh my God, we're going to have a glut of supply again." I said, "Watch out. We're going to have a shortage."
So in January, I just looked at my numbers. In January of 2015, we had 15 weeks' supply of condos. In January of '16, we had 5 weeks' supply.
So what we're going to see is, I agree with Brian, I think expectations are going to change. People who want to live in the core, younger millennials, will have to accept condominium living as the solution.
Miklas: They don't actually want to be strapped with a huge mortgage either. They don't want to go through what we went through as far as paying the mortgage out
Keesmaat: But there's a shift in generational thinking here that we should be cautious not to impose our own thinking and our own values. And we should actually look to this generation. The downtown is growing four times faster than the region as a whole. This tipped for the first time a couple years ago. It's because of the astronomical demand for condos in the downtown. We're building more condos in the downtown than we ever have in the past. And yet we have a shortage of supply. That's because the demand is very, very high.
Two years ago, we undertook a study in our condo communities to assess quality of life, to identify the needs of condo communities. And we were astounded to discover young people living in condos who raised as their number one issue that they want to raise their family in a condo and that the condos need better amenities, and they need better schools in the downtown because they don't want to leave the downtown when the time comes to raise a family.
We also looked at the data and discovered that there is a mini baby boom happening in downtown Toronto in condos today. You can tell if you look at the strollers, you look at the stroller parking in condos. So we created a study called "Growing Up: Planning for Children in New Vertical Communities" and we're working with interior designers, with developers around guidelines to build condos that respond to the needs of families. This is a market demand.
And what's interesting about this generation is that they're actually the first generation that grew up in the outer ring suburbs. These are kids that grew up with a long commute. These are kids that grew up in Markham, in Scarborough, in Richmond Hill. And they're saying, "It's not worth it to me. I would rather live in a smaller space. I would rather walk to work." Seventy-five per cent of the population in the downtown, which is going to almost double in the next 20 years, so it will be half the size of the entire province of Saskatchewan just in 17 square kilometers.
Rosenberg: I've got to go back and reply to a couple of things that were said.
I think it comes down to something one of you said about the fact that we only have, basically, 1.7 months' supply of inventory in the GTA, and so we have a certain speculative development that's driving the prices beyond their equilibrium. I think if anybody in this room is involved in real estate, you should be concerned, or if I was to say to somebody in the stock market, that the stock market's actually priced 30% above its inherent value, I think people who follow the stock market might want to know that. The Fed's going to raise interest rates, their bond yields are going to go up, irrespective of what the Bank Canada does.
But something very funky is happening with the housing market. There's not a snowball's chance in hell, we've gone up 20% in the past year, on top of 20% at the margin, because of just supply constraints. where they actually are is very disturbing, because we just know, if you believe a mean reversion, and we correct 20% to 30%, which only brings us back to where we were in 2015, that's going to have a really big impact at the margin for those people that leveraged up, that got us where we are today.
Brad Lamb: I don't think we're in a bubble. I'm not an economist. I think that's not a science, it's an art, right? So you're both predicting eventualities, and I don't think any economist here has been right predicting the real estate market in this city for 15 years. I don't think any economist in this country's been right about interest rates for 15 years. So you're predicting a model, and you're predicting it based on your understanding of what's happened in the past. As Jennifer said, this city is not the same city it was 10 years ago or 20 years ago, it's vastly different.
I have conversations every day with people who point out the average condo today up for sale has 12 offers on it. They're normal people, these aren't speculators from China or Pakistan. They're Canadian kids that are trying to buy a condo, and there are 12 offers on a condo in the resale market. And why is that? Because there are 700 condos currently for sale in the entire city, from Eglinton down to the Waterfront — 700 condos for sale. It's purely a supply problem, and the way to alleviate this, no offense, is to massively increase our planning objectives.
I developed a building on Charlotte Street, right downtown, Spadina and Adelaide, finished it seven years ago. I got 16 floors, with a massive fight with the planning department, 16 floors. Fast forward six years later, I got 33 floors with a massive fight from the planning department. Now today, my neighbor is getting approved with planning for 45 floors.
Rosenberg: Let me just go back to what you said before because I think you'll regret it. Okay? Because the reason why demand is so strong, and there's a variety of reasons, is because of where interest rates are. Okay, we are living on borrowed money and it's borrowed time, and I'm just going to tell you, I spoke to a lot of people, just like I did when I was in the States in '05. No one really thinks New York's in a bubble, and by the way, the market there is softening, but Toronto is in a bubble. If you want to define it, as I do, it's basically anything that's over two standard deviations from normal. I think that most people in the market, whatever market, would say that's a bubble.
Forty-nine per cent of the borrowers in the GTA have a high mortgage ratio, they're the ones that can't put down the downpayment and because they can't afford the home, are carrying a total debt, including their credit cards, of 450% or more. Two years ago that ratio was 32%, last year it was 41%, and today, 49% or almost half. And I don't know what's changed in the past two years, interest rates are the same.
An interest rate increase from 12% to 13% is not the same as 1% to 2%. From 1% to 2% is much bigger, and we're much more leveraged. And we know that [Governor of the Bank of Canada] Poloz is like the little boy with the finger in the dike.
If something nefarious should happen in China, now there's something that everybody's talked about forever that hasn't happened. The point is this, we don't really control interest rates. It's really a global interest rate environment. Now, at the short end of the curve, the Bank Canada controls that, but anything outside the 1-year part of the curve, that's really determined by the U.S. Treasury market. And right now, I'm stunned that the Fed's going to raise rates in March, but the markets, they've been talking hawkishly.
But what happens at the 10-year or 5-year part of the curve, which is where mortgages are priced off of, is going to be determined more what happens in the U.S. Treasury market. And I'll tell you, if U.S. Treasury yields are trading closer to 3% than they are right now at two-and-a-half, rest assured our mortgage rates aren't staying where they are.
So the big risk, I think, is an exogenous increase in mortgage rates, and a lot of these calculations start to change and where home prices go up.
Hudak: Seriously, this is an excellent philosophical discussion that I'm sure readers will enjoy partially. But I think most of them will care, will their son or daughter get a freakin' home and get out of the basement, or get out of the shoe box?
Look, I think that out of resource and balance, we often think that the world ends at Steeles. So the areas that actually have had the fastest increase in real estate prices are Durham and York that show that some people do want a single family home. We see a strong demand for condos. Some will choose that.
Lastly, we do need to actually have greater single family homes in the GTA, because that's actually where the biggest demand is today. Not in [downtown] Toronto.
Lovett-Reid: But we still haven't addressed the financial side of it and the individuals. We talked a little bit about the fact that the boomers are aging. I can tell you from a lot of statistics that I've seen, and the debt-equity ratios that people have, there's not a lot of money at the boomer side to help out the millennial, and we're not seeing the wage growth where it needs to be.
So you'd kind of put the two together, and not everyone's prepared to do what Sean has done to burn his mortgage. So there's still a gap there.
Hudak: Sure, I just think the single greatest thing we can do to actually help that generation experience ownership is on the supply side of the equation.
Cohen: I don't think everybody wants to be in downtown Toronto.
Keesmaat: Going back to the comments I made about putting our region in our country on a global scale, adding another 10,000 units, another 50,000 units, it doesn't matter if the demand on a global scale is going to be significantly higher.
That's the part I think that's funky, as well as your warnings about low interest rates are very well heeded, and the debt ratios. But the flip side of it is, if we are in a brave new world where Toronto and the Toronto region are going to be of interest on an international scale in the way they never have before, then we won't see prices drop by adding more supply, because the demand just continues to increase. In fact, that's what we've seen over the past year.
We've built more units in the City of Toronto than we ever have, and yet the prices have accelerated exceptionally. So if demand continues to accelerate, we will always have a supply challenge.
Ron Johnson: Let's talk about affordability. In 1989, at the height of the last market, 55 per cent of income went into serving home ownership costs. We are on our way to 50 now, but not there yet. One economist I recently interviewed, Benjamin Tal from CIBC, said that Toronto is approaching an affordability crisis.
Tim Hudak: I think that there are two aspects here. Number one, price tends to take care of itself in a free market. So you're already seeing that with high real estate prices in Toronto. So think what the focus of policy makers should be is around increasing supply, and that begins with speeding up approvals at the planning level, emboldening politicians to actually allow more density. I mean, at Yonge and Lawrence, I think it's ridiculous that it's only a few stories tall off a subway station.
The last point I'm going to make on this too is, I do believe the land transfer tax in Toronto is an impediment to housing supply. Where we lived on Douglas, in the Yonge and Lawrence neighborhood, honest to God, there were five neighbours like us, couples, young families, who said it was far too expensive to just move across the street and pay the land transfer tax. So they instead renovated their home, and that meant that an entry level home never came up to that millennial couple.
Sebastian Clovis: I find that there really have been two kinds of renovations that people have been doing in the last while, and one of them is a cosmetic renovation, where they're getting ready to sell their house. That's kind of the flip generation Toronto has had a lot of, and then there's the renovations where you're doing it for yourself, where you're dealing with making sure it's energy efficient, and there's insulation on the walls and all the rest of it. I found that people are siding more towards customizing their home for themselves because they're staying inside of their homes, whereas before we're doing a lot of renovations just to put lipstick on it, just to make it look great so it can get back out into the market. It's not an investment. That primary home, I don't think people are looking at it as an investment thing. They're looking at it as, I need a backyard for my babies to grow up in. I need a place for my family to be in, and they're planning on sticking there as long as possible.
David Rosenberg: Well, I want to go back to what Benjamin Tal said, who I think is actually probably the best housing economist in Canada. Those numbers are startling, because what you're saying is those affordability ratios are now approaching the stretch levels we had when mortgage rates were like 14 per cent. Canada's got one of the highest debt ratios in the world. the debt GDP ratio in Canada today is about the highest in the OECD.
Brad Lamb: What country in the world can afford to raise interest rates?
Rosenberg: Well, what country in the world can afford to raise interest rates is a great question. But what I will say is this much. The rest of the world has stopped cutting interest rates. This experiment with negative rates in Europe and then Japan has proven to be somewhat of a disaster, and the era of quantitative easing is coming to an end. The country that first embarked on this process of zero rates, the country that embarked on quantitative easing, which was the United States, is the country that, two years ago, became the first to abandon quantitative easing, and they're the first to start raising interest rates. Everybody will move, not in unison, but they will move with a lag. Canada, unfortunately... we're lucky. Our biggest trading partner, we give 20 per cent of our GDP to the U.S. But our interest rates are more hitched to the U.S. than they are to any other country in the world. So it doesn't really matter what Japan is doing or what Germany is doing,
Hudak: It's actually the province that is causing most of these problems with the policies, from the greenbelt to the places to grow legislation that basically says the entire GTA has to look like Yonge and Bloor. One great idea would be to allow as of right zoning for higher rises along the new subway line to allow for the building of more missing middle and higher rise along those lines.
Brian Gluckstein: But you look at Leslie And Sheppard, which was nothing. I mean, small houses around there. Now the subway is there. There's an IKEA there and a Canadian Tire. Now it's all high rises.
Hudak: That's a great example.
Gluckstein: So there is this intensification when the subway is built. It's unbelievable.
Jennifer Keesmaat: But it doesn't actually just happen magically, right? That's a really good example. There's a tremendous amount of planning work that went into creating those policy frameworks. We've done it on Eglinton. We have put as of right zoning in place all along Eglinton because of the Eglinton crosstown. It's actually happening relatively quickly. Remember, the entire city doesn't develop all at once.
Johnson: Vancouver, obviously, has implemented a tax on foreign buyers. That seems to have increased our market here even more, especially at the high end. I guess the question being, should we follow B.C.'s lead and implement a foreign buyer's tax, or not?
Joe Oliver: Well, I've outraged my libertarian friends. And there are libertarians actually in Toronto. There are few. Not that many of us. But we exist. By proposing a foreign buyer's tax here in Toronto. Because, well, my excuse is that it isn't a tax on Canadians. But the rational is that the very thing that I thought would happen has happened, which is that foreign money has gravitated from the overheated Vancouver market to Toronto, and we've seen what the impact has been in Vancouver. Now, some say that the market was already about to slow down. But it clearly has slowed down a lot, and prices have come down somewhat. But other people would have the data.
Barry Cohen: 10 per cent.
Oliver: So the prices are down 10 per cent. So it hasn't been devastating. But it has been significant.
Cohen: The activity is down 40 per cent.
Patricia Lovett-Reid: 42 per cent.
Oliver: But the demand is increasing. Maybe there's a bubble. Maybe it'll burst. Maybe it won't. But the underlying demand is going to continue. That's inevitable. So we have a serious issue here, and is this too ham-handed a way to go? I mean, that's very much debatable. But there's no question it would have an impact, at least in slowing price increases, if not bringing it down. But not catastrophically. That's the last thing you want to do, is create a crash with all sorts of spillover effects. Now, granted, and I disclosed this at the time, I had sold my house. I was looking for a place. But I've got to be consistent with my previous recommendation, right? But I do think sometimes, when asked to go out of one's comfort zone and look at policy alternatives you wouldn't otherwise consider because the circumstances are really quite extraordinary, and the idea of empty mega homes existing in a city where people are desperate and unable to buy homes is not a good political or social situation.
Hudak: So I think, number one, as Joe said, I think it's a very ham-fisted approach to the issue. It doesn't solve the underlying problem, which is a supply problem. Second, from an Ontario perspective, I just don't think the sort of Trump-like anti-immigrant policies will be popular among Ontario political voters, or any of the three political parties.
Oliver: That's the first time I thought it was Trump-like. I recommended this before the Trump ascendency.
Hudak: It's always an easy knee-jerk thing, as you see happening in the States, to point your finger at the foreigner and avoid the real problems underlying why we have supply constraints in our economy. But I don't think that's helpful. Secondly, say you have a trained in India pediatric surgeon, who wants to work at Sick Kids Hospital, do we really want to put a tax on her and say, "You're not welcome to come to Toronto," or investment from the States or Hong Kong whose daughter is going to go to U of T, get her MBA and start a business here.
Oliver: But it's directed at non-residents. When someone becomes a resident, they're not affected.
Lamb: The problem with this is it plays on psychology on people that aren't foreign buyers. So we have a local person in Vancouver that sees this as, "My God, that's going to affect pricing. Pricing's going to fall. I'm not going to buy." So it causes a contagion of fear. It's not a good thing.
Keesmaat: So I think it comes back to the point that Tim was raising, which is, what is the problem we're trying to solve? My concern is that we are a very different market with a very different dynamic than Vancouver. Even if we could agree around this table that the foreign buyer tax did exactly what they were hoping it would do, and I'm not sure we could agree on that... But if, let's say it was a good policy intervention. That doesn't mean it's a good policy intervention here, in part because our market is so fundamentally different.
Oliver: How is it fundamentally different?
Keesmaat: It's fundamentally different, and some of the developers around the table could probably speak to this as well. My reconnaissance actually comes from the industry. We do not have a dynamic where we have foreign investors buying up massive amounts of portfolio and holding onto it as an asset. We have a different dynamic here, which is, in particular, most of our investor units are actually purchased by Canadians. They are Canadians that are buying an investment portfolio that they are then turning around and putting into the market rental pool. So the difference is, you hear about the dark condos in Vancouver, which are literally housing that is sitting empty. No one is living in those units. We don't have that dynamic in Toronto.
Oliver: We haven't had that.
Keesmaat: We do not currently have that. It's actually de facto. In the absence of purpose built rentals it has de facto been adding rental stock to our market in Toronto. Those units are occupied. We know they're occupied. We collect, on an annual basis, a tremendous amount of data.
Oliver: So are these foreign buyers doing the investing?
Keesmaat: But that is the point. My point is that, the problem we're trying to solve is foreign investment. That's the problem. I'm saying there's a mismatch between the policy and what it's trying to achieve.
Oliver: I would never have made this recommendation if Vancouver had not done what they did. My concern is that, because they did that, we're going to start seeing, or we probably already have, to some extent, the Vancouver effect in Toronto. That's the point.
Gluckstein: Well, we're going to heat up an already overheated market. So how do you do it without that? Because if everybody who was going to invest there says, "Now Toronto is more friendly, so I'll divert all of my investments here," it's really now layering another element of unaffordability to people here. When we open sales centres for condominiums, we don't even build sales centres anymore, unless for the luxury market. It is all foreign buyers.
Keesmaat: In Toronto, it's all foreign buyers?
Lamb: They’re not all foreign buyers, they're immigrants. They look like foreign buyers because they're not white but they're not foreign buyers.
Sean Cooper: Let me just jump in just for a second. I think it's a lot about optics because, you know, it's easier to tax foreigners rather than taxing locals. And I'm not sure if Toronto should be taking lessons from Vancouver or British Columbia because they seem to be doing a lot of policy changes but they don't have the data to back it up with legs. And they're also going on the demand side and not looking at the supply side.
Hudak: That's a good point. I spoke with my colleague who runs the B.C. Real Estate Association about this experience. Obviously, it's a live debate here in Toronto. And what he said backs up what Brad's instincts were exactly. It caused a cooling of people putting their homes in the market at the higher end. So the number of homes that have sold at the mid-to-higher-end market has gone down substantially.
Cooper: Toronto is such a multicultural city, I don't think that's the message we want to be sending right now especially with Trump's anti-immigrant policies.
Clovis: I'm hearing at the table, I'm hearing a lot of numbers flying around. Granted, it's not my specialty. But I do understand that, you know, the millennial generation that we're talking about not being able to get into homes, not being able to get into a primary home, are 40 years old at this point in time. We're not talking about kids that are 20 years old. Millennials are 1980's and up. We're 40 years old now, and we're not in a house, and we're not having kids because it's not affordable, because you know what? The cost to put a kid in daycare is the same cost as a mortgage payment, or the same cost as it costs to rent an apartment, and we have debt from university.
It's not just an isolated thing. So when I hear the discussion going around the table speaking about foreign investors, and people investing in these properties, I just hear the word investment a whole lot, and it's not about investment for millennials. It's about, can I get into a house? Can I just have one home for my family, right? The difference between a primary and an income property. Income properties are huge — everybody wants income properties. People who are already in. There's way too big of a segment of people who aren't in, and can't get in. Then that's just going to create a situation where they're having to rent indefinitely.
Lamb: Well, there's nothing wrong with that. Listen, you don't have to own a house. There's no God given right to own a house.
Clovis: It's a Canadian dream to raise a family and own a home.
Lamb: Listen, but many people in many countries outside of Canada and the United States never own homes, and they have perfectly delightful lives. You don't have to own a home to have a great life. And it's not a right to own a home. In this city, it's becoming a more expensive city. If you look at the number of people that own a home in Berlin, it's 15 per cent. Here in Toronto it's probably 65 per cent.
Keesmaat: 50 per cent.
Lamb: So why is it 50 per cent? Why can't it be 30 per cent? Why can't lots of wealthy people own apartment buildings? Why can't people own 50 rental condos, and rent to the people that can't afford to buy them? They still have a nice place to live, and they pay rent.
Johnson: One thing we've noticed at the magazine, is that in areas like Yonge and Eglinton and Yonge and Sheppard, they are being built up so quickly that they're surpassing standard infrastructure things like schools. At a new condo building in the Yonge and Eglinton neighborhood, there's always that TDSB sign that says, "You might want to buy a condo here, but your kids might have to be bussed to a different area to go to a school. So are we concentrating more on those hotspots and ignoring areas like along Bayview Avenue?
How do we promote more equitable growth throughout the city, as opposed to just hotspots?
Keesmaat: Well, maybe I'll take the first stab at that. But an interesting example is the Honest Ed site, which is obviously a significant site on the subway system right in the core of the city. We have a report coming forward on April 4, we're going to be recommending that project. It's a significant amount of density right in the heart of city. What's so interesting is one of the first things that we did in terms of our planning analysis was look at the infrastructure needs. Open space, parks, schools, community centres. We've integrated a significant amount of amenities required on the site. So there's daycare spaces on the site. 80 per cent of the open space requirements, the park space, is being accommodated on the site.
But importantly, I asked the magic question about schools, all of the schools in the area have capacity. In fact, they're 60 per cent capacity right in the core of the city, in part because you have a lot of the older people in the Annex who are hanging onto their homes, not moving out. A lot of the young children have moved out. So it's very nuanced where there's capacity and where there isn't capacity in the city. When we look at strategic sites for information, we always have to do that community services and facilities analysis to see about the capacity in that specific area. There are some areas in our suburbs where we have no room in the schools.
Johnson: So I don't get how it works in Yonge-Eglinton, where there is no capacity for schools. But it's also a park deficient area. There's just condos.
Lamb: Because developers buy land and build condos. You know, every building that gets done, there's a parks levy. So every developer has to pay five per cent of the value of the land that's valued by the city, and they pay that as a tax to the city.
Hudak: I just think that time is so precious that people are always going to want to live along the major transit corridors. Plus, it is expensive to own a car and to find parking, and to pay for insurance. So I think that's going to be natural. I think the city and the province are making wise investments when they're doing underground transit or rail that's not taking out lanes. So what you do is then accept that as fact and start pulling those pockets together. So you've got the intensification of Sheppard. Then it's pretty low until you get down to Eglinton. It should be like you'd see in another major North American city. With respect to the question about schools, I think this is incumbent on the province then to start thinking more creatively, and maybe the model of having a school take up a lot of acreage on the ground level will not be the school of the future. Maybe the province shouldn't own schools. Maybe a developer could own the schools and the province will rent that. They could actually be incorporated in buildings above ground. I think that's the kind of model we need to pursue, rather than trying to force people to move to where the schools currently are.
Johnson: Okay. So a question we get a lot is, where in Toronto is there still value in buying a home? We're talking about up and coming areas.
Lamb: Scarborough. There are great pockets in Scarborough. Beautiful little houses. $600,000 to $700,000 houses. That's, I think, the next place to blow in Ontario. Hamilton is going, but Scarborough is not.
Cooper: That's kind of in my backyard along Kingston road there, from Victoria park all the way to Midland. They're really fixing up that area, and they're putting in high end condos. So if you're looking to get in an area, I'd definitely invest in that area, because it's going to be maybe priced like the Beach area in the next decade or so.
Cohen: So it's really east and west, just not in the centre of the city. Then you probably get the best bang for your buck in Oakwood, Vaughan, and then also up north here, Clayton Park, which is Sheppard and Bathurst.
Paul Miklas: Thornhill is still pretty reasonable too.
Johnson: So we talked a lot about renting. I noticed when I looked it up, the vacancy rate for renting apartments is the lowest it's been in a number of years as well. So not only are people lining up to buy condos and getting in bidding wars over bungalows, but they're also lining up to rent apartments.
Lamb: But that's going to increase, because there's a shit ton of apartments coming in time.
Keesmaat: There are 26 buildings either approved or under construction.
Johnson: Purpose built rentals?
Keesmaat: 26. This is very high.
Royce Mendes: But the household formation still looks healthy, right? I mean, things still look relatively optimistic.
Johnson: A lot of people in our publication areas, they're sitting on really large lots, and there's a lot of things happening where they're trying to split their lots and put up town homes. And the city is also looking at laneway homes. Is the city doing enough to promote these kinds of new methods of densifying in the older established areas that allow the homeowners kids a chance to move closer to home?
Hudak: I think laneway homes are a great idea. I'd love to see that. I mean, that will help the millennial generation, or people get starter homes in nice neighbourhoods.
Oliver: I mean, there obviously isn't a single silver bullet, and we shouldn't be thinking of either/or. I think there's a whole series of things that we have to do. I mean, intensification is part of it. But opening up land for development, accelerating and simplifying the planning application process, I think, is really key. Public transit, obviously. Moving schools where they're needed. I mean, I think there is a bit of a crisis. I'm not talking about the bubble. I think there is a bit of a social crisis here. You know, we're bringing in a lot of immigrants. We've got to supply housing to people, and we've got a bulge here coming through, and I think we have got to do everything. But it requires a multi-level government response. The Feds have a role, the provinces and the municipality. You know, the so-called bubble is one issue. But longer term, we've got to do all these things, it seems to me, to maintain our social responsibility and to make this city one of the great cities in the world.
Gluckstein: And transit is a big part of that. We need more transit.
Miklas: Quick question. What are the chances of the city moving along with allowing the rear laneways to convert?
Keesmaat: So we have a pilot project underway right now in two wards in the city, and the councillors have been very involved in those pilot projects. So Tim's point, it's not a policy problem. It's a political problem, and you really need the consensus of the homeowners in the area that that type of a change in character is something that they generally support. It's a great way to add gentle intensification that's incremental, but doesn't result in a transformative change, but it incrementally adds change and adds more housing. The challenge is a political one. There are certain areas where people are vehemently opposed to doing so. There are other areas where you have communities that completely get it, and are very supportive. So we decided that the best way to try and advance it would be to do a pilot project with two councillors that are supportive, and we're going to be bringing forward a recommendation to city council, the objective being to advance it to the extent that we can, recognizing that, if you have area ratepayers that don't support it, it's going to be problematic.
The second is a real tension when you look at, and this is one of those many variables I think that is resulting in escalating prices, the minute a developer buys a house and wants to sever that lot and put two houses on it, the price just went up, and there's absolutely no way someone who is trying to bid on that house to make it their own home is going to be competitive. So the extent to which you allow that lot splitting actually drives up the prices of single family homes even higher, and we have certain areas of the city in North York, in Mimico, where this is a major issue. The area residents are quite in arms, because the character of their neighborhood is changing. If you bought your house and it was your home, it wasn't an investment, and all of a sudden all of the houses on the streets are being torn down, and now there's three-storey homes being built, and the character of the neighbourhood is fundamentally changing, you can appreciate that someone who didn't view their house as an investment is going to take issue with that.
But they also feel that, because the houses are being increased so quickly, we have current value assessment. They're being pushed out of their homes because the values are going up so rapidly. So there is another side to that, which is very tricky, that the minute you start seeing single family homes as development parcels, well then no one has a hope in Hell of being able to buy that as a single family home, because they're competing against developers. So there is another side to it that's a little bit tricky, which is why I think we still have a lot of low hanging fruit in this city, which is our avenues. We're just starting to do it between Eglinton and Davisville. We're just starting to get mid rise. But we can accommodate hundreds and hundreds of units right on the subway line, just between Eglinton and Davisville, in mid rise forms that are very compatible.
Lamb: So you know what the problem with that is? There's not enough lift for a developer to go from a three-storey street front to seven. There's no lift. You can't make any money.
Keesmaat: We have five developments underway in that corridor right now. So it is working.
Lamb: Let me tell you. No one of scale is going to do that. They're all small developers who are happy making a few hundred thousand dollars.
Keesmaat: Actually, they're the big ones like Freed, and Menkes is on the corridor.
Lamb: Where's Freed building a low rise building along the corridor?
Keesmaat: Well, the art shoppe site.
Lamb: That's a massive tower. That's massive.
Keesmaat: It's a tower that steps down to the mid rise.
Lamb: Come on. That's 700,000 square feet of density, or 500,000 square feet of density. I'm talking about, along Kingston road.
Keesmaat: But we have eight mid rise buildings on Kingston Road right now being developed.
Lamb: Yeah,I know you do. But they don't make any money.
Keesmaat: They're being built by developers who have a pro forma.
Lamb: Just think of this. If you're taking a three-storey property and you're selling for development site, there has to be extra value made. So why would the person sell their three-storey building to a developer if you can use it as a store and it makes as much money as it does for the owner to sell to the developer, why would they sell it? So the problem is, you need to increase those avenues from the six to seven, to 10. That's when you're going to see some change. It's too low. Seven is not going to solve your problems.
Keesmaat: Some of them are 10. They range between six and 12, depending on the width of the right of way. We're really performance driven. So you said, "Why not put two extra storeys on another building?" Well, because if that two extra storeys shadows a neighborhood park...
Lamb: So what?
Keesmaat: ...Or shadows a school...
Lamb: So what?
Keesmaat: Well, we value sunlight.
Ron Johnson: Let's do a look ahead and hear your predictions for the year to come.
Brian Gluckstein: Well, I don't see any stopping of this. Our luxury clients are buying and fighting over properties. We just had a client that bought a house, there was a bidding war — three people, $25 million. So it's going strong, and our condo work, literally we're selling the buildings in days. Literally in days. So when we meet again next year, I don't see any change. The only thing I see is higher prices.
David Rosenberg: One thing the government cannot do is stop people from around the world seeing Canada in general, and the GTA in particular, as an increasingly safe and stable place to not just do business, but to set up a residence in a world that is becoming increasingly less secure. So call it a flattish year — valuations a clear constraint but the demand for real estate is not going to subside very much, if at all, barring a global recession.
Barry Cohen: I see a lot of what we had in the past continuing for the immediate future. I have an eye on foreign investment because of the new constraints in China. But eventually they'll catch onto the underground there. So let's reevaluate next year.
Brad Lamb: I think the high end of the market is kind of immune to price shocks, to some extent. So I think, inevitably, just because prices are getting high, the market is going to slow down. The amount of development is going to slow down, because I just don't think the buyers are going to be there at that price. So I think just naturally, we are going to hit a point where it's hard for anyone to justify the numbers we're seeing. So there has to be a slowdown in price appreciation. I think it's coming. I don't think it's coming this year, but I think it's coming. I don't see a disaster looming, because it needs an external event for that to happen. But I do see a slowdown. Not this year, but I think next year we'll see maybe 10 per cent or 12 per cent growth in pricing, and after that I don't see any more than three per cent or five per cent. I don't see how it can happen.
Sebastian Clovis: I don't see a bubble bursting at any point soon. If there is a bubble. I think that the time of buy, flip and sell has kind of come to an end as far as renovation goes. I don't think people are able to make as much money as they could before. So, I think for renovation anyway, it's down, out or up. People are, rather than buying and selling, they're looking at digging down their basements, putting second stories on and building additions out. So long as the real estate market stays hot, you know, renovators and renovation firms, like my own, we're going to be hot as well. Because I don't think people are moving as much. People are priced in at this point in time in the city. And so, hey, it's good for me.
Paul Miklas: So long as the demand is there, I see us continuing on the same track we are at. Whether we're in Toronto, whether we're in Scarborough or whether we're in Oakville, Markham, Pickering — there's a demand for product at all different levels. And they're all getting multiple offers or their sale centre is opening up and selling out. The land continues to creep up, even the raw land you have to take hold and develop. So the way things are moving right now, with the demand that's in place, I continue to see — probably over the next year for sure — we'll see a six per cent, and possibly eight per cent, and even as high as 10 per cent upswing the following year.
Michael Kalles: I think that the further around the world we look, the better Toronto looks. And I say that not just overseas but even across the continent with banking and instability. Toronto getting ranked by major magazines as one of the most livable cities in the world. I see the market continuing to move strong and Toronto's becoming, in many ways, it's becoming a world city in a lot of important ways.
Sean Cooper: So with an election coming up in the province in the next, I guess year and a half or so, I guess there's some pressure on the Wynne Government to do something to make housing more affordable. So there's the rebate for first-time home buyers but prices are still escalating, and it's just getting worse and worse in Toronto. So, I guess it depends on whether they put in enough foreign buyer's tax or how they kind of address this situation.
Post City: What's your advice to millennials like yourself that are looking to buy a first-time home?
Cooper: Get creative. Get creative because, as I mentioned in my book, if you don't have a significant other, you might have to buy with a family member or a friend. Or even if you have an apartment, or you buy a condo, rent every spare bedroom to a roommate, or use the share economy Airbnb, or become an Uber driver to make extra money. You just have to get creative in this market. Unless your parents can give you a ton of money, but I don't know a lot of parents that have that kind of money.
Tim Hudak: The year 2017 will be a lot like 2016 but it will precipitate action by the province. So I think that Kathleen Wynne, Patrick Brown, Andrea Horwath, and John Tory will all resist the scape-goating of immigrants that you're seeing at the south of the border. But I do believe the province will come up with a strategy around affordable home ownership. I think they'll come up with some solutions around intensifying long transit lines, linking infrastructure, spending to do greenfield developments. Accelerating turnover responses in planning departments in the GTA and then doing more in the mid-rise size. So I think they'll have a comprehensive approach because this will accelerate as an issue heading into an election in June of 2018.
Royce Mendes: I'm going to stay true to my original statement, which was that there are positive fundamentals here with froth on top of that pushing prices higher. I think there will be a cooling in activity this year. That's what our research suggests. The federal government's moves on mortgage rules, slightly higher interest rates will cool the market. But the fundamentals are still there to support something of a soft landing constructive outcome in this.
Jennifer Keesmaat: A generation ago when people came into this city, an entire family lived in one house in Roncesvalles. So I have a very good friend who now owns a house in Roncesvalles. And when she was growing up, her grandparents were on the main floor, her aunt and uncle and their two kids were on the middle floor. She lived with her mom and dad, and her brother on the third floor. And she marvels now that she lives in a whole house because of the way that she grew up. So I do think there's a managing of expectations.
I think the rhetoric about people living in a shoebox is very damaging. Those are homes. Just like when she lived on only one floor in a house in Roncesvalles, that was her home. And she went on to university and had a beautiful life in Canada. And I don't think we should knock that. I think we should actually manage expectations. And recognize that living in a smaller space in a dense urban setting but having the choice of walking, and having access to international sporting venues, and arts and culture, and great restaurants is also part of being in a global city. So, I think, continuing to have a dialogue about how we're changing and what we're becoming is a really important part of managing those expectations for millennials.
Joe Oliver: We were poor then. I would report that the fact is, way when my grandparents came, oh but 100 years ago, to Canada, they were in a small apartment but not because they wouldn't have liked to be in a big apartment. They just didn't have the money. And so, in a sense, you're talking about going back a bit, which makes me a little uncomfortable. I know that isn't quite what you're intending or wanting to say.
But look, I'm not going to retread what everybody has said. I think we've got a limited supply, we've got increasing demand. I don't see a crack here at the moment. But one question I wonder about is the amount of foreign buying, which may gravitate from Vancouver to here. Political instability in China is increasing and while there may be some limitations, there'll be more eagerness to find a home for a capital in this country, which is a haven without political instability.
A declining dollar can actually exacerbate that issue. And the dollar could be vulnerable because we know that interest rates in the United States are likely to go up more than interest rates in Canada. So the differential will push down the dollar. And also the border adjustment tax if it comes in, I don't know that it will. That will definitely push the dollar up very significantly but over a period of time. So that would increase the amount of foreign buying.
So we just don't know how big an issue that may be because if foreign investors look at Canada as a safe haven, it doesn't really matter whether they're on the West Coast or they're in Central Canada. So I, sort of, worry about that. Barring political intervention, I just think this is going to continue for a while.
Clovis: So subways out to Scarborough and get building, baby!