Search Results for: toronto housing market forecast 2011
Garry Marr – Financial Post
Say hello to the man who deserves credit for all the condominiums that have sprung up all across the city over the last decade. He’s well known to you, missed by some, still hated by others. He’s Mike Harris, the former Premier of Ontario — and the leader who removed many of the shackles from the province’s once-tightly-controlled rental apartment market.
Look around Toronto — and Ontario’s other urban centres, for that matter — and you see cranes everywhere, building condominiums. There are still plenty of investors lined up to buy those units and rent them out, creating a new, de facto apartment market.
The sizzle may have lately cooled from the condo sales scene: research firm Urbanation Inc. reported that sales numbers in Toronto were off 30% in the third quarter of this year, compared to the previous three months, with prices remaining flat.
Comment: Yet those same numbers were higher than the long term average. Everyone forgets that 2011 was a record year, even coming down from that makes 2012 the 4th best year ever.
But still, by the time the year’s over, the Canada Mortgage and Housing Corp. forecasts that Ontario will have 37,500 multi-family units it didn’t have before.
Mr. Harris may not have created the low interest rates that have helped drive so many condo sales, but his rent-control reforms have made it easier for homebuyers to make a business case for condo ownership.
To be accurate, only a fraction of those units — about 4,800 — will be so-called purpose-built or traditional apartments, with the rest likely being condos. In the previous six years, the province added 128,882 apartments; of those, 109,214 are essentially condos. A lot of buyers speculating on condos are able to do so because they know they’ll be able to recoup market rents on their investment, while they wait to sell, putting loads of rental supply onto the market. Without that boom, some parts of the province would clearly still be stuck with the kind of vacancy rate we faced in the 1990s — namely, close to 0% — and a market where renters lined up for scarce suites and were forced to pay illegal, under-the-table “key money” to secure apartments.
Isn’t it time Mike Harris got his due?
Mr. Harris, who has generally steered clear of political interviews since he left office in 2002, agreed to talk to the National Post about the pressures that were in place in 1997 when his government instituted new regulations that allowed landlords to free themselves from unprofitable regulatory restraints in place since the mid-70s. When a tenant moved out, all landlords would finally be allowed to raise rents to match prevailing market rates. On units built after 1991, Mr. Harris’s Tories erased almost all rent controls.
“The exemption from rent controls of vacant units was a compromise solution between total control or total de-control,” recalls Mr. Harris. “It has been very successful at achieving its first goal of allowing landlords to repair existing units and moving them to market rents. This kept a lot of units in the rental market that otherwise would have disappeared. Secondly it has spurred a building boom of condo units that substantially increases the supply as well.”
He remembers strong pressure from tenant associations to leave controls alone, and from landlord groups to eliminate or wipe them out. Still, both sides agreed something had to be done to improve the deteriorating rental stock, which landlords said they couldn’t afford to do under existing rent control rules. The rules capped their rent to the point they could not recover capital costs for even basic upkeep.
“Our policy advisors felt very strongly that this new policy would maintain and enhance existing supply and lead to some new construction, while protecting existing tenants,” said Mr. Harris. “We also felt that over time we would end up with enough supply to have competitive market rents. Clearly the policy, along with low interest rates and intensification policies, has exceeded even our expectations for new construction. Given a fair opportunity, market forces do work.”
On some level, it’s hard to argue with Mr. Harris, or those who credit him, because statistics do show a huge boom in development. Others will say the boom has done nothing for affordable housing. But Ben Myers, the vice-president of Urbanation suggests the number of people coming to Toronto may have actually been partly driven by rental availability: fewer condos might just mean fewer people moving to Toronto.
Even with the supply created by the condominium sector, vacancy rates across Ontario were just 2.3% in April, according to CMHC. And the number is actually falling, despite all the new construction. Toronto has the tightest vacancy rate in the province at 1.5%.
Urbanation says there have been about 115,000 condominiums apartments constructed since 2003 in the Toronto area. If you take just 20% of that figure — many industry observers estimate that up to 50% of condos end up in hands of investors, and are then rented out — it’s clear condominiums have been a major part of the housing solution in the city. Being able to charge market rents has meant investors have been able to recoup some of their mortgage, condo fees and maintenance costs, while they wait for their property value to appreciate.
“We’ve been building 50 – 60 storey towers, and without [the changes] maybe they would be 25–30 storey towers,” says Mr. Myers, about the impact of the Harris reforms.
The other key Harris change was to make all units constructed after November 1, 1991 entirely exempt from rent control, other than to restrict rental rate increases to one a year.
Ontario is now has some of the lightest rent controls outside of the five provinces — Alberta, Saskatchewan, New Brunswick, Nova Scotia and Newfoundland — that have none at all.
The fact that it’s difficult to quantify the precise impact of the rental control changes may be one reason the Tories do not get more credit for the effects on the market. But the other issue is that, even today, they remain controversial in some corners.
“It’s just such a sensitive issue,” said one economist who did not want to be identified. “It’s been a huge, huge advantage. The impact has been significant. It’s hard to isolate the number.”
Toronto developer and broker Brad Lamb says without these condos units, market conditions would probably be worse than they were in the 1990s. “There has been no rental stock really built for 40 years, it’s all condo,” he says. “There is an absolute shortage of supply. We’d be [in trouble] without condos. There would be people on the street breaking windows because they had no place to live. It allows for semi-affordable units.”
That’s one possible caveat to the condo phenomenon: critics claim it does little for low income dwellers. Some would say that’s addressed by a trickle-down effect: as people in cheaper, older buildings move on to newer condos, they create vacancies on the lower end of the market.
Michael Shapcott, director of housing and innovation at the Wellesley Institute, a left-leaning non-profit group, notes that 87,000 households are on the waiting list for affordable housing in Toronto. He argues that, if there were a trickle-down effect, units in older buildings would be filled by those people. Instead when older units do open up, the rents are raised out of reach of lower income tenants.
But Vince Brescia, president of the Federation of Rental-housing Providers of Ontario, says rent control actually makes thing worse for low income families, because tenants are reluctant to move out of their apartments knowing they’re being massively subsidized by their landlord, keeping turnover low and supply tight. All the new supply has kept the rental market more affordable, because every time a new unit is built, it means a fresh vacancy in the existing market. “That’s where you get affordability,” says Mr. Brescia. “That creates affordability at the lower end of the market.”
Mr. Brescia says it’s important to recognize that the Tory rule changes also helped boost the supply of purpose-built apartments. In the years that former NDP premier Bob Rae ran Ontario, fewer than 1,000 purpose-built apartment units were added to the market every year. That jumped to between 4,000 to 5,000 annually after the Tories’ rule changes.
“There is no question it’s had an impact. We would have less purpose-built and probably less condos, but it’s not black and white and you can’t put a numeric value on it,” said Mr. Brescia. “We would have had a lot of condos built anyway, but not as much. So, yeah, [Mr. Harris] can [take some credit].”
Give the last word to Mr. Harris about whether his changes to rent control have been beneficial to the market and he notes that even his political opponents have evidently seen no reason to go back to the old days of tying up the rental market with rent-control rules.
“The fact that there has been no movement from any political party to change the exemption over the last 10 years is a testament to the balance that was achieved,” he says. “And clearly the maintaining of supply and the new construction have allowed market forces to keep rents substantially lower than otherwise would have been the case.”
Contact the Jeffrey Team for more information – 416−388−1960
Laurin & Natalie Jeffrey are Toronto Realtors with Century 21 Regal Realty.
They did not write these articles, they just reproduce them here for people
who are interested in Toronto real estate. They do not work for any builders.
Incoming search terms