5 MAIN CAUSES OF THE GTA HOUSING CRISIS
If you’re struggling to get on the housing market in here Toronto, you’re not alone. Even CBS presenter Shannon Martin has voiced her concerns during a report she created for the news network.
After Shannon’s rent jumped an additional $1,000 a month, she created the Facebook group ‘Toronto Housing Woes‘. The response it generated was truly staggering, with similar stories emerging from all across the city of Toronto.
Not only is the Toronto housing crisis putting a strain on living conditions, but it also threatens the talent the city can attract. After all, people come here for the jobs but they need a place to live.
So, what’s caused this colossal crisis in the first place? Here are our thoughts on the top 5 contributing factors.
"Not only is the Toronto housing crisis putting a strain on living conditions, but it also threatens the talent the city can attract. After all, people come here for the jobs but they need a place to live.."
1. Low Supply Of New Homes
The Canadian Urban Institute, City of Toronto and Canadian Centre of Economic Analysis authorized a report into the low supply of new homes in the city. The report confirmed that the demand for new housing in Toronto far outweighs supply. There is also a long waiting time for both social and community housing, which is around five to seven years.
When the condition of temporary housing is of a poor standard, the wait for social housing seems like an eternity. So, there is definitely room for improvement from the city council when it comes to the local housing strategy.
2. Affordability Remains at a Crisis Level
There is also an affordability crisis. RBC Economics Research has been keeping a close eye on the price of owning a house at market value throughout Canada. The research they carried out found that the lack of affordable housing in Toronto is at its worst. The 2019 report stated that owning a house for most people in Toronto is tough. This is despite the cooling of the Toronto housing market. It also found that the average share of household income needed in Toronto to cover ownership costs is 66.1 per cent.
Due to some effective cooling measures to tackle the affordability crisis taken by the government, the home prices did see a dip near the end of 2018. The fall followed years of continuous market growth throughout Toronto. It happened as a result of stricter federal mortgage lending guidelines, as well as the Fair Housing Plan of Ontario. However, this mostly affects detached homes in Toronto, as affordable housing on the whole is scarce.
The average rent for a home in Toronto is $2,385 per month. According to Glassdoor the average salary in Toronto is $63,000. Given the average rent would take up almost 50 per cent of the average income, it’s clear that there’s a definite lack of affordable housing in Toronto. Yet, despite this, the city has one of the lowest vacancy rates at 0.5%. Tenants are willing to do almost anything to secure real estate where they don’t have to pay the rent in advance – or answer multiple personality questions. In addition, there is an affordable housing lottery. Over 4,000 people recently turned up for an apartment viewing that had just 75 units.
Sadly, the result of the Toronto housing crisis is that there is a high proportion of those living on the streets or at best sofa surfing. Stagnated wage growth is not helping the situation either. It’s also becoming more difficult for people to afford the new houses that are currently being built.
3. Growth Of Population
The population of Toronto is increasing every year. (1) The housing supply in the city is already not enough to cater to the number of people in need of a property. It’s especially when considering the number of young adults looking to start living on their own. A report by Ryerson University’s Centre for Urban Research and Land Development claimed that the city of Toronto had the fastest rising population in Canada and the states. The difference was huge, with 77,000 more residents living in Toronto in July 2018 compared with the same time 12 months previously.
As a result, Toronto is the fastest-growing central city. Toronto is a market that is a magnet for young and mobile talent. Despite this, the construction of new and affordable buildings is down by 24%. That’s according to the Canada Mortgage and Housing Corporation (CMHC). Reports have also claimed that people will start to double and even triple up on housing prices. This would make most of the houses multi-generational. The demand on the already stretched social housing will also increase.
4. Prices Continue To Soar High
Condos saw a sharp price hike about a couple of years back. This resulted in an immediate effect on the Toronto real estate market. In 2017, when the regional government levied a tax of 15% on foreign buyers, the drop was more significant. But, this, in turn, helped in stabilizing the market. Another factor for the deterioration in the market movement was a result of buyer mood. Potential home buyers and investors waited on the sidelines to observe the market conditions, rather than jumping in to buy.
Despite this, there has been some improvement in the situation. As a result, the market has stabilized, making listings more attractive for home buyers in Toronto.
5. A Decrease In Rental Units
n 2018, all over the Greater Toronto Area, there was a vacancy rate of 1.2% and the average rent was at $1,359 per month. People were stopped from purchasing apartments that they were able to get their hands on. This breached The Human Rights Code. An Analysis of the Toronto Housing Market was published in January 2019 by Canadian Centre For Economic Analysis. It claimed that middle-income residents of Toronto are being priced out due to the expensive market prices.
There was quite a significant fall in new rental units that were under development. The trend was that investors would rent out their condos. Over the last few years, there has been a trend where about 100,000 new rental/purchase units were completed for residents. However, only 5,500 units were built for middle-income residents.
BUILDING PERMITS DOWN
The monthly total value of building permits in Canada decreased 4.0% in January to $9.8 billion. There were eight provinces that reported decreases in January, with the multi-residential sector in British Columbia significantly contributing to the national fall. The residential sector declined 6.6% to $6.1 billion in January, while the non-residential sector was relatively stable, increasing a modest 0.7% to $3.7 billion. On a constant dollar basis (2012=100), the total value of building permits went down 3.2% to $5.8 billion in January.
Residential permits decreased 6.6% to $6.1 billion in January with seven provinces posting decreases. The downward trend of multi-family homes continued as construction intentions declined 8.3% in January. Most of the decline stemmed from British Columbia (-27.9% or -$301.2 million) following a month of significant urban development intentions. Conversely, Manitoba posted a notable increase (+106.0% or +$63.0 million) in January.
Total permit values for single-family homes decreased 4.4% in January, with Quebec (-13.5% or -$74.6 million) contributing the most to the decline. Alberta (+0.8%) and British Columbia (+0.6%) were the only provinces to post increases for this component.
The total value of non-residential sector permits was up slightly by 0.7% to $3.7 billion in January, with gains in the commercial component offsetting losses in both the industrial and institutional components.
Commercial permit values increased 5.4% in January, with Ontario leading the charge (+22.8%). This was the second consecutive monthly increase as the component reached the third-highest recorded value since the start of the series (2011).
The value of building permits in the industrial component decreased 3.9% in January, with six provinces posting declines. After reaching its peak at over a billion dollars in November 2022, the component returned to more normal levels in January 2023.
APARTMENTS - ITS NOT JUST ABOUT MAXIMIZING YOUR RENTS...
Rents are just one side of the equation when it comes to apartment values and returns. Most apartment owners spend so much time focused on rental levels and turnover and maximizing the rents. This is important, especially when rents are going up and turnover is still strong. However, we will be entering into a period where turnover will slow and or there will be a period where your rents are maxed. What then? Well you will focus on the expenses. Well this should be going on in tandem with rental increases.
Many owners will appeal property taxes. They will sub meter hydro or install energy efficient lighting. Now we have a way to focus on water as well. While it is very difficult and expensive to sub meter water, there are ways to capture and reduce a high percentage of it in your building. There are also ways to mitigate leaks and floods (from burst dishwasher hose or toilet). This really can save your bacon and your insurance. Over the past decade or so owners have been adding dishwashers and laundry to suites. We are now starting to see some of these fail and cause lots of water damage in buildings.
Some of our clients are now installing: tamper proof shower head devices; new 3 ltr toilets and or toilet leak monitoring devices; and rupture proof and auto shot off water hoses for washers and dishwashers. Toilets and showers account for over 65% of all water use in a unit. They are seeing tremendous savings. We have seen water consumption go through the roof during the pandemic due to the lock down. This will continue as more and more people will continue to work from home.
But what are the returns? Case study - Toronto .... Mid rise rental apartment building in mid town.
This property was recently purchased and we were asked to implement a water program as mentioned above. The owners were in the process of renovating a unit where the rental lift with renovation was $500 per month. This was $6,000 per year and with prevailing cap rates this added about $120,000 per unit in value at a cost of $20,000 - so a multiple of 6x on their investment. WONDERFUL thought the new owner. "I will do this all day long" he said.
We installed various water savings device in this building at a cost of $23,500 and the annual water bill was $45,000. We took accurate water readings pre installation and then post installation to very the reduction in consumption. The reduction in consumption equated to an annual savings of $28,800 or a pay back of under one year. The more interesting point is that the saving increased the building value by over $600,000 which gives the owner a multiple of 25.5 x his investment dollar.
There are many devices out there and do not be fooled by most of them. Many device peddlers are beholden to certain products. We are not. We source out the best technology on the market at the time that will provide our clients the best use of their hard earned dollars. If you want to know more or get a free assessment of your building please contact me:
Nando Presciutti, Director of Sales and Marketing
RECENT APARTMENT SALES
3141 JAGUAR VALLEY DRIVE - MISSISSAUGA - $12,000,000 / $285,715 PER SUITE
This is a sale of a 5 storey concrete rental apartment building containing a total of 42 suites mostly 2 bedroom. The building sits on a large site being about 0.87 acres has a brick exterior, double windows, balconies and flat roof. Constructed in 1965 the building is heated via HWG system and there are 40 surface parking spaces. The building was marketed and sold to Reserve Properties Ltd.
16 ARROWSMITH AVENUE - NORTH YORK – $2,800,000 / $280,000 PER SUITE
This sale is of 3 storey concrete rental apartment building dating from the 1950's. It has brick exterior walls, double windows, no balconies and flat tar and gravel roof. The building has on site laundry and surface parking for 15 cars. The building sits on a large 0.37 acre lot and was all self managed by a private owner. The asset was not marketed and was purchased by a private investor.
30 CHARLETS STREET EAST - TORONTO - $7,500,000 / $357,150 PER SUITE
This property comprises a well located concrete rental apartment building with a total of 21 suites in the downtown core. Dating from 1915 this low rise building has mostly two bedroom suites with brick exterior, double windows and flat roof. The 0.81 acre site is ripe for redevelopment. The suites are generous in size and the building is well maintained for its age. The property was not exposed and sold to a private investor.
800 EAGLESON ROAD - KANATA - $61,000,000 / $426,575 PER SUITE / 4.25% CAP
This property comprises a well located concrete rental apartment building with a total of 143 suites. The building was constructed in 2021 and contains a mixture of larger 1, 2, and 3 bedroom suites with 5 appliances and en suite laundry. The tenants pay their own hydro and there is surface and underground parking. The building was 95% occupied at the time of sale and was full marketed to the investment community. The Purchasers was CAP REIT.
THE APARTMENT GROUP
Together the team has completed over 1,500 transactions and has sold over $7.0 billion in apartments and development land. Put us to work for you and see the results. NO ONE has sold more buildings than our group. Experience, knowledge and professionalism will insure you get the right deal or the highest price if you are selling.
The Apartment Group is a dedicated team of professionals specializing in the sale of multi-residential investment properties. With over 40 years of combined experience, the team brings together their strengths including strong negotiation and sales skills along with highly technical market analysis and appraisal methods.
We are a boutique Brokerage but have the capabilities of the larger houses without the overhead. We have: an internal database of over 10,500 active apartment and land Buyers; a list of all apartment building owners in the Greater Toronto Area; our web site gets over 50,000 hits a month; we highlight properties for sale through our newsletter which reaches 10,000 investors monthly.
President & Owner,
LORENZO DIGIANFELICE, AACI
Broker of Record, Owner