As many of my clients and colleagues know, I think it’s sloppy to believe we can “read” someone else’s mind (although many attempt this daily by assuming they know what is going on in another’s head.) In the same vein, I am also no fan of what I call “future thinking“; this is guessing what is going to happen well in the future and worrying about it. However, in some instances I do undertake this latter enterprise.
As we look toward the spring 2020 market we’re already seeing hand-wringing, with either worried or eager anticipation, but I find myself wondering where this all is heading.
In Toronto, we are hearing rumblings (and seeing sales data) that are reminiscent of the 2016 peak in prices. While at the same time we are gripped by housing supply shortages and an affordability crisis. What is going to give here and what can we do to better prepare ourselves?
For context, Canada’s population grew by 531,000 between August 2018 to July 2019 – the largest 12-month increase in our country’s history (according to Statistics Canada).
What impact is that growth having on the housing market?
Well to begin with nearly 60 per cent of this growth occurred in Ontario and British Columbia, and all these people need places to live. Both of these markets are struggling to handle the changing demographics, increases in rents and we are already seeing house prices soar upwards. Presently there is an affordability crisis in both Toronto and Vancouver, and the housing stock shortfalls will likely continue for the foreseeable future. Toronto’s population is currently between 3-5 million (depending on which geographic boundaries we use) but it is set to be over 8 million by 2031…
One reasonable solution to the housing crunch would be to create more rental units and get them on to the market to help accommodate this population explosion.
To cite RBC Economics data: the Toronto census metropolitan area (CMA) CURRENTLY needs 9,100 more vacant units to reach a “healthy” vacancy level (of 3%.)
However, a more looming stat, which the RBC report outlined, was that Toronto requires 22,000 new rental apartments and/or rented condos per year to satisfy demand between 2019 and 2023.
Sadly, we aren’t even close to closing these gaps. More devastating however is that even if we anticipated that 65-70% per cent of ALL new build condos were to be rentals, AND if we had an additional 4,000 new purpose-built rental apartments in the GTA every year, we would still miss that 22,000-unit goal. When this goal is missed, the economic principle of supply and demand assures that rents, and home prices, will continue to climb.
So, what can we do? Ineffective policies, a reliance on underfunded and poorly managed government initiatives are likely not the answers. Perhaps shifting our perspective is the solution.
Montreal builds plenty of rental product and this large supply helps make rents more affordable. In Quebec, like in much of Europe and the Americas, renting is a lifestyle choice. But currently here in Toronto it seen as a secondary choice or is outright stigmatized.
Faced with supply issues and combined with a strong economy nationally (and provincially, here in Ontario at least), we may be forced to accept alternate views on owning vs. renting, and potentially many may even consider living with others.
Many individuals are getting creative and rethinking what constitutes a home. In some senses this is a return to our pasts, while also being a path towards ownership in the future.
Co-living is a form of housing where residents have individual space in a shared property. Residents, legally called “Co-Tenants”, generally sacrifice some square footage, may share an entry or yard but get to live in cities and neighbourhoods that would otherwise be financially out of reach for them. As renters these Co-tenants may reduce their private space in return for lower rents and share a kitchen, living room, bathroom and building amenities.
Co-living or Co-ownership can be done with family (especially generationally, in larger properties), with friends in a 2-bedroom condo, and even when you are new to a city, renting and building new relationships. You won’t have the same level of privacy, but you also are not spending $2400 month in rent for your own 1-bedroom condo or shelling out $850,000 to buy the same unit solo.
Perhaps as the Amazon-effect cuts more deeply across retail and commercial industries we may see many of our malls, big box stores, and strip plazas redeveloped into apartments.
Perhaps we will see some loosening of development fees, speedier municipal permitting processes, a healthier Residential Tenancy Act or a more balanced Landlord Tenant Board. These changes may in turn signal the return of a building boom which may help solve this coming crisis.
In prime markets, where purpose-built rental projects may be expected to grow, the above issues will be key considerations for international capital, real estate investment trusts, developers and smaller investors who may consider these ventures.
At the end of the day, people want to be in Toronto. There are great jobs and world-class culture here. They are going to find a way to live here now and on into the future.