Tag Archives: rental market
The urban upset
Adam McDowell, National Post
Richard Florida sighs, deflated by submarine sandwiches.
A photograph of two Subway sandwiches lies on the table of Mr. Florida’s office at the Martin Prosperity Institute of the University of Toronto as he sits for an interview. He stares at the memo about cheese placement from Subway Australia’s head office to franchisees. What vexes the most celebrated urban planner of the moment is the fact that the memo replaces one black-letter directive (overlap the cheese) with another (tessellate the cheese — you can look it up).
Having spent years advocating making service jobs more challenging and rewarding, Mr. Florida would prefer to see “Sandwich Artists” encouraged to do the geometry for themselves. “This is exactly what drove General Motors into the ground,” he says, shaking his head. “Treating employees as cogs in the machine.” The problem with being a guru is no matter how persuasive or prescient your recipe may appear, the real world has a habit of fixing a whole other sandwich. For example, Mr. Florida’s adopted home of Toronto has not been behaving the way he would like in the postrecession era.
Toronto has figured prominently in Mr. Florida’s sermons since 2007, when U of T poached the urban theorist, originally from New Jersey, from Washington’s George Mason University. He says he has told Americans, “If you’re really interested in seeing a liveable, sustainable city, you’ve got to come to Toronto.”
An entire chapter of his most recent book, The Great Reset: How New Ways of Living and Working Drive Post-Crash Prosperity, is dedicated to the greatness of Toronto. In particular, the number of young families living downtown impresses the transplanted American.
As the post-recession era unfolds, however, Toronto threatens to become one tough sandwich for the urban economics guru to swallow. Mr. Florida’s adopted backyard is exhibiting a few trends that would seem at first to make the “spatial fix” he predicts in The Great Reset more unlikely to happen.
As is his prerogative as an academic, Mr. Florida wears the hat of the prophet or the evangelist, depending on the circumstance.
In the book and in our interview, he likens imagining the orld a few decades from now to trying to predict the post-war suburban boom on the day of FDR’s inauguration. That being said, self-fulfilling prophecies often pan out, and The Great Reset urges business and political leaders to help realize a new, post-industrial “spatial fix.”
“One thing is certain,” he says in Chapter One. “[An] emerging way of life, which some already refer to as an impending ‘new normal,’ will be less oriented around cars, houses and suburbs.”
Back to some of those difficulties fitting Toronto into this theory:
1. People still want to own their houses
“Mobility and flexibility are key principles of the modern economy. Home ownership limits both,” Mr. Florida writes in a chapter of The Great Reset about a coming “shift toward renting.” A labour force attached to its houses is less competitive than an unfettered one, he argues.
He explains that a robust rental market has contributed to the success of cities from San Francisco to Washington and New York. “When 40% to 45% of your housing stock is rental, it enables you to adjust much better to economic changes,” Mr. Florida says.
Meanwhile, figures released by the Toronto Real Estate Board this year have shown the city’s housing market back to the usual: in other words, record-breaking frenzy. The May report, issued last week, revealed the average cost of a house in Greater Toronto has reached $446,593, or 13% higher than a year earlier.
The market is so strong, Toronto Real Estate Board president Tom Lebour says even people who expect to move from the city in a year or two often buy rather than rent, in order to build up some equity. Mr. Florida says advice about home ownership only applies to certain people and cities, and is mostly directed at the United States, which got more carried away during the boom of the 2000s than Canada.
“Folks who have a job that they know is stable, and they’re going to stay in the city for a long time, they should probably buy a house,” he says.
2. People still want to live in the suburbs
According to data released this week by Statistics Canada, 14% of residents in the child-rearing age range of 25 to 44 decamped from the core municipalities of Toronto, Montreal and Vancouver between 2001 and 2006 and headed for the decidedly less Floridian suburbs.
Some 95,700 Torontonians swapped their 416 area codes to become suburban 905ers, compared with 27,500 who moved in the opposite direction.
While Mr. Florida may be associated with championing dense urban environments, his postrecession message has acknowledged that the suburbs are not going to be vacated.
“There’s no shortage of dyed-in-the-wool urbanists out there predicting the death of the suburbs and a return to denser, urban neighbourhoods,” he writes. “It’s a lovely, romantic notion, but it’s wrong.”
Homeowners and businesses with roots and investments in suburban locales are not about to make a reverse flight back to cities. Mr. Florida says one key to the Reset is “the rebuilding of older suburbs,” and he lauds “attempts that officials and planners and politicians are making to have more transit-oriented development, to rebuild our walkable communities, to retrofit our communities.”
Mr. Florida says projects like this are taking place in Mississauga, Markham and Ajax.
3. Suburban transit riders are still waiting for expanded public transit
In the remade suburbs of the future, Mr. Florida says “those who prefer to take public transportation or walk or ride their bikes to work will also be able to.”
In reality, Ontario’s governing Liberals curtailed Toronto’s plans to branch light rail transit into its inner suburbs in their March budget. The regional transit body was asked to find $4-billion in savings over five years, which forced shortening of the routes and lengthening of the construction timelines.
Last year, Mr. Florida and his colleague Roger Martin delivered a report to the Ontario government insisting it invest in the province’s workforce and infrastructure, stopping bailouts for failing industries. Mr. Florida declined to bite the hand of Premier Dalton McGuinty when asked to comment on the Transit City decision.
“I’m not an expert on transit. Look, I think we need a transit system that is seamless, that can get people from point A to B to C to point Z without having to go nuts — and certainly a transit system that connects us to our airports. We definitely need high-speed rail in this region,” he says.
The most fearsome challenge facing Toronto, according to Mr. Florida, is a familiar one to drivers. “The traffic in this city is terrifying.”
————————————————————————————————————–
Contact the Jeffrey Team for more information - 416-388-1960
————————————————————————————————————–
Related posts:
- Condos to remain an attractive option for many home buyers TD Canada Trust Canada’s condo markets have delivered a strong performance...
- Real estate deep freeze now hot thaw Sales in May and early June have outdone May and...
- Toronto Real Estate Forecast 2010 MLS® sales in the GTA will hit a record high...
- Real Estate Market Update On a micro level, the news pertaining to the Central...
- Dissecting the Condo Bubble Instead of running out and selling your condo before it's...
Dissecting the Condo Bubble
Both arguments for and against are weighted. And the verdict is…
By Chris Denda – Eye Weekly
If you were born after 1975 you probably haven’t experienced a housing bubble first hand. Between 1989 and 1995, housing prices in the city plummeted, dealing a devastating blow to tens of thousands of homeowners and their savings. This was the last major real-estate bubble Toronto faced, and if history truly does repeat itself, the emergence of another housing bubble is not a question of “if” but “when.”
Comment: Huh? A bubble is dropping prices? No, it most definitely is not.
Instead of running out and selling your condo before it’s too late, take heed and remember that rising condo prices and a dozen or so cranes downtown don’t trigger bubbles alone. The ultimate health of our 2010 condo market will be determined by much more. Is there a condo bubble and will it burst this year? Let’s look at arguments for and against. In the end though, you’ll be the judge.
THE ARGUMENTS FOR A BUBBLE
Condo prices continue to rise
Since the last major Canadian real-estate bubble burst in ’89 and prices finally bottomed in ’95, the appreciation of condos in Toronto has been unprecedented. “In the last five years, [the GTA condo market] has gone up by 8 per cent compounded per year, so it has well-exceeded inflation,” says Paul Dydula, a real-estate analyst with N. Barry Lyon Consultants Ltd. This rate of appreciation extends beyond that five-year horizon all the way back to 1995. It’s visibly evident on a Toronto condo price graph that price levels from ’95 to present have not experienced any significant correction.
Comment: What is a correction? Prices of everything go up over time, that is an economic fact. That is why your grandparents paid $0.25 to go to a movie and you pay $12.95. Why does everyone insist that real estate prices must go down? Should the prices of cars, bananas and pants also drop 20% to make them more “normal”?
There is an oversupply of condos in Toronto
With over 40 condo projects recently completed or currently under construction in the Toronto core alone, and over 26,000 new high-rise occupancies forecast across the GTA in 2010, there is no denying the market is, and has been, hot. So far, demand has absorbed these new units, but can the city support this pace of development? Will job growth and the overall need to migrate into the city’s core be enough to absorb the seemingly endless supply of new condos hitting the market?
Comment: Uh, if all the condos are selling, then there is no oversupply. Are there 20 closed sales centres with their windows boarded up? No, there aren’t. So how can there be an oversupply if the market is easily absorbing them all?
Speculative investors are artificially inflating prices
Many of the city’s condos aren’t purchased by end users. Rather, they’re often bought by investors who rent them out. If they can’t rent them, the alternative is to place them back on the market for resale, further adding to the city’s condo supply. Barry Lyon, president of N. Barry Lyon Consultants Ltd., sees this as a possible concern. “We’re all watching the rental market carefully. Thirty per cent of the condo market is defacto rental investor — some offshore but most are local.”
Comment: When there are a bunch of similar units for sale in any one building or complex at the same time, it actually pushes prices down. Since investors all tend to buy the same style of unit, they have to compete against each other to sell. Since they tend not to upgrade much, the only real way to get ahead of the competition is to price their unit a little cheaper. And again, if the resale condos are bought and easily absorbed into the market, then there are not too many and the supply is just right. In fact, we have seen a shortage of listings – both houses and condos – over the past 12-18 months. That is why there have been so many bidding wars, because buyers are fighting for the few available properties.
THE ARGUMENT AGAINST A BUBBLE
Condo prices have gone up, but Toronto is still affordable
There is a distinct difference between a condo bubble and a boom. While it’s true that the major cause of bubbles is extremely low interest rates, those rates must be coupled with other factors such as loose mortgage lending regulations, widespread speculative investment, and demand and pricing based on hype instead of intrinsic value, to name a few, resulting in a perfect storm.
Comment: We do not have loose mortgage lending. We have some investor buying, but it is not like the speculation of 20+ years ago. Whether prices are based on hype or not is up for debate. The fact is, prices are based on almost 100,000 annual sals, so there is more to it than simple hype.
Toronto’s early-2010 condo market does not meet the criteria necessary for that perfect storm to occur. There is no question we are well into a condo boom, however, the 8 per cent average annual compounded appreciation rate of condo prices over the past five years is much less than appreciation levels seen during the last bubble build-up of the late ’80s. Toronto’s condos are still considered inexpensive by global standards. “Toronto proved itself to the international market,” says John Mehlenbacher, Chief Operating Office of The Condo Store, a pre-construction condo brokerage. “[Globally, Toronto has] always been undervalued and conservative, and in these lean times, this approach allowed it to grow and prosper.”
Additionally, much of the recent demand for condos is a result of the pent-up demand from consumers who have delayed their buying decisions during the recession and are now acting.
A steady supply of new condos is healthy
Although there seems to be a new condo release every week, we are a city in constant evolution. New neighbourhoods are being created, new live-work communities are being formed, Toronto is growing and the opportunity for even a young professional to enter the realm of home ownership exists. A consistent supply of condos to the market is key to maintaining affordability in the core and furthering this positive evolution of our city.
“Affordability is the hallmark of the Toronto market,” Lyon says. “We all need to focus very carefully on that. The reason we are enjoying these big volumes of condo sales and community formation is that we are relatively affordable. And I think that’s the biggest challenge facing the community — holding [affordability] in check with an ongoing good supply. If we lose affordability we lose the great depth of market that we are servicing.”
Condo purchases by investors are not what they used to be
The reality is that investors do, in fact, represent a significant portion of condo buyers in Toronto. However, since the last real-estate bubble, stringent government regulations that limit investor over-speculation and artificially inflated prices have been imposed. Lyon explains how investors were viewed with a lot of suspicion in the earlier years.
“In the late 1980s, everyone was an investor, the cab driver, the barber, everyone was picking up a condo to flip it. Today’s investor is savvy. Foreign investors are required to put 35% deposits down; in the ’80s, that was 5%, they could just walk out of [the deal].”
Comment: Actually, deposits were as low as $1,000. That was the problem, that is easy enough to walk away from.
In addition, Canadian regulations outlaw zero-down mortgages and 40-year amortization structures as opposed to the lax mortgage-lending practices that sparked the sub-prime mortgage crisis in the US in 2007. Recently, the Canadian government is under additional pressures to further tighten these mortgage-lending restrictions.
Truth be told, a predominant view among many of Toronto’s condo experts is that, over the coming year, neither bubble argument will actually pan out. “I don’t think there’s a bubble,” Mehlenbacher comments. But the condo boom and Toronto’s hot market will, more than likely, cool. However, this is not necessarily a bad thing. Lyon forecasts a flattening market moving into 2010-2011. “I think we’re going back to 2005-2006 levels, still healthy but less inflationary. We get somewhat nervous when the market takes off. It’s not in our interest. We definitely favour a balanced market.”
————————————————————————————————————–
Contact the Jeffrey Team for more information - 416-388-1960
————————————————————————————————————–
Incoming search terms
Related posts:
- Real estate deep freeze now hot thaw Sales in May and early June have outdone May and...
- Condos to remain an attractive option for many home buyers TD Canada Trust Canada’s condo markets have delivered a strong performance...
- Condos as the New Toronto Starter Home With property prices in the GTA skyrocketing, 50% of condos...
- Toronto Real Estate Forecast 2010 MLS® sales in the GTA will hit a record high...
- Young buyers drive Toronto condo boom The Toronto condo building boom that began several years ago...
Quarter of Canadians expect to buy a house soon, poll suggests
Keith Norbury – Yourhome.ca
A third of Canadian renters expect to buy a home within the next two to three years, according to survey results that pollster Allan Gregg presented earlier this month to delegates at the 37th annual Canadian Home Builders’ Association conference.
Meanwhile, 24 per cent of Canadian homeowners also expect to sell their current home and buy another one within that time frame, according to other recent polling data that Gregg presented.
Together, those figures indicate that 26 per cent of adult Canadians expect to buy a house in the near future.
“That is a very, very big number,” Gregg said.
The house-buying perception of renters coincides with the belief of 79 per cent of them that credit is easily obtained. Nearly a quarter of those renters polled believe credit is “very easy” to get.
“Arguably this perception is naïve,” Gregg said. “It doesn’t matter whether it’s naïve; it’s still very, very real. There is a very vibrant, younger cohort out there in the rental market who wants to get into the housing market, who believes it is going to be easy to obtain a mortgage.”
Real estate sales
Gregg offered other nuggets of good news. For example, a recent Harris/Decima poll indicated that nearly seven in 10 Canadians anticipate interest rates will rise in the near future.
“This leads us to conclude that the consumer is steeled already for an interest rate increase and therefore, the prospect of an increase is already built in to their intentions,” Gregg said.
A significant exception to that optimism concerns the harmonized sales tax. More than two-thirds of respondents (69 per cent) in a recent poll said the HST would make it harder for people like them to buy a house in the future. Eight in 10 homemakers polled expressed that worry. And about three-quarters of respondents in B.C. and Ontario, where the HST is about to be introduced July 1, held that perception.
“Without telling stories out of school, this is a constituency that is highly valued by a certain government in a certain nation’s capital,” Gregg said to scattered guffaws. That makes the government “politically vulnerable on this issue,” he added.
Gregg came back to the HST as he closed his presentation, saying that builders have strong grounds to claim exemptions or amendments, he said.
In his summation, Gregg touched on several key points, including the following:
- “Notwithstanding what economists say, consumers still think we’re in a recession and that isn’t likely to change until we see an up turn in employment.” That gives home builders a strong hand because of construction’s role as an engine of growth. “Because if your health is tied to the health of the economy, your sickness leads to a potential downturn that many fear.”
- The recession had a “psychological impact on Canadians, leaving them more cautious, frugal, discerning, demanding and, if necessary, prepared to do without.” That raises the bar and the burden of proof for home builders “higher than you’ve ever faced in market place before.” By the same token, Gregg doesn’t see housing among the items Canadians will choose to do without. “The housing industry in fact has the potential, I believe, of the opposite being the case.”
- “The challenge obviously is to don’t let this window of opportunity close by virtue of the actions of others, most particularly mortgage lenders and public policy makers. They are the only things right now, barring some cataclysmic change in the data that we just reviewed, that could have a significant effect on this tremendous potential that appears to be yours right now.”
Mortgage restrictions will have an effect, disproportionately among the younger, new entrants into the market. But Gregg said delegates should applaud the fact the measures aren’t more draconian, which could have a caused an abrupt market downturn.
————————————————————————————————————
Contact the Jeffrey Team for more information - 416-388-1960
————————————————————————————————————
Related posts:
- Easy credit, soaring prices raise new housing fears Canadians are in the midst of a mortgage binge,...
- Canadians don’t expect mortgage rates to rise, but do expect housing prices to go up, says RBC survey Canadians voicing “buy now rather than later” preference TORONTO, March...
- Home ownership at record levels… so is mortgage debt By Colin Perkel – The Canadian Press Never before have so...
- Housing credit squeeze likely to keep bubble at bay Not that there was much likelihood of a bubble forming,...
- Home ownership at record levels… so is mortgage debt Interest rates at or near historical lows combined with low...
