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February 6, 2012

2

The Impact of Low Vacancy Rates on Home Availability in Toronto

by mark mclean

Ask any real estate agent out in the field today and they will say that their number one problem is there is nothing for their clients to buy. A good house comes on the market and there are anywhere from 5 qualified buyers to a frenzy of 30 all looking for a place to live. Given all the turmoil around the Globe it seems that, logically, people should be retreating from the house hunt but that just isn’t the case in many of the large urban centres in Canada. What gives? I believe one of the biggest culprits is the lack of rental housing stock.

 In an article in last weeks Toronto Star, business reporter Susan Pigg  wrote about a recent report from the country’s mayors warning of a drastic shortage of affordable housing across Canada. Check out the article here http://bit.ly/wL7Zid . It is a classic case of big cities being behind the eight ball once again. Of course if you asked some of the big builders, they would say constructing apartment buildings is just too tough. Raw land is too expensive, the permit process is too long, financing is near impossible, and rent control issues change at the whim of each new government. Thankfully, much of the slack in the rental market is being picked up by the private sector. You only have to see how quickly new condominium projects are selling out. People are scrambling to buy investment units, but there in lies part of the problem. Builders are having a hard time keeping up with the insatiable appetites of condo buyers which in turn is driving up land values and condo prices while decreasing apartment sizes. Seven or eight years ago you could buy a new condo and rent it out and after maintenance fees, taxes and mortgage, the rent would give you a few hundred bucks a month. Two years ago it was acceptable to lose $100 to $200 a month because you expected that the condo would appreciate by more than the small loss. But what happens when you are down $700 to $800 a month? Is the investment worth it?

 CMHC estimates that Canada will need to add 50,000 rental units across the country, PER YEAR, over the next ten years and despite the private sector’s help in buying condos to rent out, the actual available rental stock has decreased. We simply cannot keep up. Of course if you saw the documentary Urbanize, you would have a grasp of what percentage of that huge growth is going to land in the big urban centres. The documentary suggests that in as little as 50 years 75% of the globe will live in big cities. Just think about what our leaders need to do NOW to prepare for that eventuality.

 So how does the lack of rental housing affect Joe Public’s frustration with trying to buy a home in Toronto? Simple. If I have a few widgets and everyone wants one, I have two choices; build more widgets or charge more for the ones I have. It’s the simple economics that is driving the condo market and since that market is inextricably linked to residential houses, the demand is exceeding the supply.  Being on the ground and in the trenches as I am I can tell you that income properties are a hot commodity as well.

 What’s the solution? We need to ask our governments to step in and be more innovative. As much as I hate the term, it is time to think outside the box. That may be a long shot given our mayor’s current purge and cut initiatives designed to reduce our spending. What is needed is a speedier building approval process and fast tracked lending policies mixed that with some well thought out and creative urban planning and some killer tax credits for energy conservation and green building solutions. Just take a look at the City of Brampton. They have streamlined building approvals, offered tax exemptions to private and non-profit builders and prevented reductions in existing housing stock. The result has been the creation of several hundred rental units and a potential bump up in the local economy.

Have a great week.

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2 Comments Post a comment
  1. Feb 8 2012

    I think you nailed it, Mark. There is a lot of confusion out there as to how so many condos can be built and yet there is no shortage for the appetite for condos in the city. I also have come across a lot of renters recently who find rent has increased quite a bit in the past few years. As a landlord, I am shocked at how much of a response I have had in the past year to renting out my apts.

    Reply
    • Feb 8 2012

      Thanks David. I sold my income property in 2008. Wish I didn’t now. Looking for a house now, maybe three or four suites.

      Reply

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