Our 15th annual Real Estate Roundtable, featuring 10 of the city’s top experts on the housing market, was an event to remember. The virtual event had over 500 people in attendance, watching our panel of developers, designers, realtors and economists discuss Toronto’s supply problem, affordable housing, the urban spread happening from those getting priced out of Toronto and updates to add value to your home. Read along or listen to the roundtable podcast, available below or anywhere you listen to podcasts.
This live event was co-hosted by the Centre for Real Estate and Urban Economics at the Rotman School of Management. The centre supports the creation and dissemination of knowledge in real estate and urban economics.
Moderated by Julia Mastroianni & Nathaniel Baum-Snow
Special thanks to our incredible sponsor The RE/MAX Collection
Barry Cohen Luxury Homes Specialist; Principal, Barry Cohen Homes Inc.
Odeen Eccleston Co-founder, Wiltshire Eccleston Developments
Hilary Farr President, Hilary Farr Designs
Brian Gluckstein Principal, Gluckstein Design; Author
Michael Kalles President, Harvey Kalles
Jennifer Keesmaat CEO, The Keesmaat Group
Michael London Founder, Michael London Design
Jeanhy Shim President, Housing Lab Toronto; Partner, PMA360
Michele Romanow Dragon on CBC’s Dragons’ Den; Co-founder & President, Clearco
Benjamin Tal Deputy Chief Economist, CIBC Capital Markets
What follows is an unscripted and unrehearsed discussion involving 10 of Toronto’s leading experts on real estate.
POST: We traditionally like to start things off with a state-of-the-market update from the CIBC deputy chief economist, Benjamin Tal.
BENJAMIN TAL: Thank you very much. So, the state of the market, well, it’s strong, it’s very strong. Maybe too strong. And it will slow down. That’s definitely going to happen because it’s unsustainable, and we want it to slow down. I would suggest that the next two years will be a major challenge for the housing market, a challenge that this housing market hasn’t seen since the 2008 recession or since the ’91 correction. I’m not saying that something bad will happen, but it’s a test. And this housing market will have to pass this test. We are talking about a significant increase in interest rates, and we don’t know how quickly interest rates will be rising. The market is pricing in a significant increase by the Bank of Canada, and this suggests that the Bank of Canada would go very fast.
I suggest that every housing market crash in history was helped, if not caused, by a monetary policy error in which central bankers raise interest rates way too quickly. And here, we have to realize that central bankers at the end of today are human. They can make mistakes. We are facing inflation and, unfortunately, the situation with Ukraine is making the picture even more foggy given the fact that there is some inflationary aspect in the commodity space. So, if the market was toying with the idea that the Bank of Canada will raise interests by 50 basis points next week, that’s not going to happen now because of the situation in the Ukraine. But the big picture is that inflation is rising. And we are talking about numbers that we haven’t seen in a long, long time.
Now, a lot of it has to do with COVID but not all of it. The labour market is very tight, wages are rising, and we don’t know how long it will last. So the way I look at this situation is the following: when I meet with the Bank of Canada — and I meet with the Bank of Canada very often, unfortunately — I tell them, “listen, go baby steps, go slowly because we have a situation in which you are risking raising interest rates way too quickly if you listen to the market.” But again, mistakes can be made because they were made in the past. And I suggest that we have to look at these inflation numbers very closely, not in the next few months because they would be very high. But if they don’t start to rise, if they don’t start easing in the second of the year, namely in August, September, October, if we don’t see inflation easing, if it’s still there, the Bank of Canada will have to raise interest rates or at least will think that they have to raise interest rates to catch this lagging indicator we call inflation, and then you overshoot. And when you overshoot, you cause the recession, and you plant the seed to a 2023–2024 recession with major negative implications for the housing market.
So I believe that the housing market is very strong. We are all familiar with the fundamentals. We all know that we are undersupplied. We all know that the fundamentals are very strong. We live it again today. But even an undersupplied market can correct if interest rates rise way too quickly. So I say go baby steps, start moving, start raising interest rates but don’t shock the market. Our enemy, the real estate market’s enemy, is not higher interest rates. It’s rapidly rising interest rates, and we are now going to test this theory.
POST: We see prices going up quickly, we see constraints in supply. Barry Cohen, with boots on the ground, what do you see happening to the market for single-family homes?
BARRY COHEN: Well, this is unprecedented. We are inventory challenged. We have not seen a slow inventory in two decades. January started off very low with just over 2,000 listings. But when you look at the sales and what was consumed and what’s coming back on the market, you’re finding now that you have a listing inventory of less than one month. And what that means to the buyers, the term we always use is less than one month means that if no new listings came on the market, we’d be sold out in three weeks. Now, of course, new listings come on the market. That’s not the case, but Toronto is not used to one month of listing. So prices are going to continue to rise. Buyers are challenged. They’re facing now the threat of higher interest rates. They’re scrambling to buy, and it’s not going to look good for buyers in the short term because they have to qualify at much higher rates.
MICHAEL KALLES: I was just going to say quickly, there’s a great concept my kids taught me, it’s called FOMO, fear of missing out. And we’re seeing that right now in the real estate market because, when the Bank of Canada did not increase interest rates, it got people of the mindset, “Hey, boy, I don’t wanna miss out. I wanna qualify now. I wanna get in before the rates do go up.” And I did a quick number in my mind. You know, if the average price of a home is $2 million and there’s a 75 basis point increase in interest rates, if the market even went up 10 per cent, that means 12 months from now, a buyer’s looking at a home instead of $2 million, at $2.2 million and an increase of payments of an extra $20,000. And if it’s a central core, single-family detached home, that’s $3 million. So now, it’s $3.3 million. And when these buyers pay an inflated price today, it sets the floor for the future. So, a buyer can say, “Well, you know, that house next door sold for $3 million three months ago.” Well, that house is gone and so was the one that just sold for $3.3 million. That’s the new floor and it goes up from there.” So it’s just buyers who are desperate to get into the market. And as Barry said very well, the supply is at an all-time short, and it’s basic microeconomics. Major demand and very short supply are driving the prices up.
POST: Great. Thanks. Jennifer Keesmaat, you have your hand up. Go ahead.
JENNIFER KEESMAAT: Well, I was just going to really pick up on the point that Michael made linking together both Benjamin’s comments and Barry’s comments, which is, when you take the conversation about potentially rising interest rates and then you link that together with a lack of supply, you take those two things and you put them together, and what do you get? You get FOMO, and the whole cycle starts to convulse on itself, and you get this crazy dynamic that we see today. And really, one of the challenges here that’s underlying all of this is having a shortage of supply. And the shortage of supply, the conversation has to keep coming back to that, and we’ve been talking about that for a couple of years in the context of this roundtable. But this challenge of a shortage of supply is what makes us vulnerable in this moment in history when you have supply challenges, when you have interest rates potentially going up. We actually should be in a situation if we want everyone to be housed, if we want to continue to have incredibly aggressive immigration in this country — which we’re on the cusp of seeing coming out of the pandemic — we actually should be in a position where we’re trying to overachieve on the amount of housing that we’re providing. And I think you could argue, it was a moment in the past, probably 60, 70 years where we did that. And so we have this incredible reckoning that’s happening and we very quickly have to increase the amount of available housing across the entire country.
BENJAMIN: Yeah. If I may address two quick things, first of all, the supply issue, of course, all of us, we know about the supply story, so there’s no need to repeat that. But I think that the point here is that for the first time, and that’s a good thing, governments at all levels are starting to talk about supply as opposed to demand. That’s a good thing. We are starting to move in the right direction. Two other things happen. First of all, we have to realize that what happened during the pandemic is not normal. You cannot see prices rising by 40 per cent in two years and continue to go like nothing happened. What we have seen here is something that we haven’t seen before. We have seen a situation in which home buyers got the benefit of a recession because of the extremely low interest rates without the cost of a recession.…We have never seen anything like that.
Usually, when interest rates go down, it is because of the fact that the unemployment rate goes up and everybody is impacted. But most homebuyers and potential homebuyers, their job was there. They were Zooming. Their income was there because it was asymmetrical. We all know the story. So this is something that will disappear the minute interest rates go up, and therefore, we borrowed a lot of activity from the future. We have to realize that. People accelerated front-loaded activity. It’s happening now, as well as people starting to realize that interest rates are rising, and we see this nonlinear relationship between interest rates and activity. It’s happening now as we talk. That will come to an end in the second half of the year. So a lot of activity is being borrowed from the future. That’s why I believe that this market will slow down in the second half of the year, and that will be a very, very good thing.
We need to slow down.
POST: Thanks. Hilary?
HILARY FARR: I think I’m probably the least informed in how the financial machinations turn away behind the scenes. It’s just not my area, but.… So, as a financial layman, I have to ask a question that may sound idiotic. But why, when prices are so temptingly high for homeowners that could completely change a life by selling now at the top of the market, why is the supply so low and has been so consistently low?
BENJAMIN: Well, the answer is that because you have to live somewhere.
HILARY: But people do downsize. I understand that.
BENJAMIN: Some people do that and they move elsewhere. And they actually do that. The numbers are big, but at the same time, people believe the prices will continue to rise. So why do it now if you can do it a year from now. At the same time, most people don’t want to downsize. So that’s the reason. But I believe that supply will rise over the next year or so as people start realizing that maybe this trajectory of prices will not continue.
POST: It’s a great question and we’re gonna come back to talk more about supply later in the discussion. Brian?
BRIAN GLUCKSTEIN: Well, I was in line with Hilary’s question where we find … when talking about supply, we find that people aren’t moving and the cost to move laterally or down is as much as the house they live in. So they have this incredible house, and then they look at a condominium, and they’re shocked when they see the condominium is the same price as their house. And they’re like, “Why am I giving up my house for this?” And then people aren’t upgrading because the cost to go to the next level is so significant. They’d rather renovate the house and just stay where they are because it used to be, if you had a house for $1 million, if you went to $1.3 million, it was a significantly different house. Now, if you have a house for $1 million, you have to go to a $2 million house to make a significant difference. So people are saying, “I’m not going. I’m just going to stay where I am and renovate the house.” So we’re seeing a lot of people just stalled where they are and saying, “I’m just staying put because I don’t have that many options.” And then that just compounds, I think, this whole supply issue.
POST: Our next question is about what the government could be doing to create more affordable housing. Brad Lamb couldn’t join us this year, but I interviewed him and he suggested the answer is deregulation coupled with increased density. Jennifer?
JENNIFER: Well, it’s kind of an ironic comment because, you know, we’ve actually built a significant amount of housing over the course of the past 10 years, and prices have gone nowhere but up. There’s no example in the world where affordable housing has been secured simply by building more housing. It’s only ever secured by having very specific programs and policies in place that result in the specific building of affordable housing. The example I’d love to use is New York City because we think of New York City as this great bastion of capitalism, which I guess it is. But New York City works because there’s so many rent-controlled apartments in New York City. There’s a tremendous amount of affordable housing in New York City that has been either built as affordable housing or secured as affordable housing. So it’s been delinked from whatever is happening in the market. So I would say, you know, we’ve been through this process, really, since 1970, when we stopped building any kind of social housing and we stopped building co-ops. That kind of ended more toward the middle of the ’80s, and we really assumed that all housing needs would be captured through market home ownership. That was really the assumption. Whereas prior to that, we were building a much broader band of types of housing. We had affordable rental housing, we had market rental housing, we had co-operatives, we had community land trust. It was really a diverse suite of different housing types that appealed to different income levels and people who had different needs at different stages of their life.
We sort of stopped that, and we only built housing for a really significant period of time. And now, we’re backpedalling. You know, I agree with Benjamin’s comment that this is the first time that we actually have all levels of government talking about the importance of more housing supply that’s significant. But there’s another piece to layer on to that, which is we also need to be building housing that is affordable and that will stay affordable in perpetuity. You know, kind of like all of our favourite characters on Friends. You know, they were living the life in New York City because of a rent-controlled apartment. That’s not a new idea, that there needs to be housing that is separated from the market for young people, for newcomers, for people who are in sectors where they’re never going to make a wage that’s going to be able to respond to a tremendous market demand for housing, which typically exists in cities. So, you know, it’s not a hard thing to fix really. You need public policy that will drive forward affordable housing in the development process and it can easily be delivered in partnership with private sector partners.
POST: We can go to Jeanhy and then Brian.
JEANHY SHIM: Yeah. I mean, we know decades ago, as Jennifer said, the government used to supply all the affordable housing needs. It was then downloaded onto the private sector and provincial governments and municipal governments. And I think what we’re seeing here is that, you know, it’s not capturing all of the affordable housing needs. We have to always ask ourselves, when we say the words “affordable housing,” it’s who’s affordability are we talking about?
And the private sector and the private development community, and that’s the world I come from, has a role to play. And the government has seized on that and there’s inclusionary zoning and other kinds of tools and carrots and sticks that they’re using to incentivize and to compel the private sector to deliver affordable housing, but we have to remember that it’s only kind of a certain segment.
It’s kind of what I call the least affordable definition of affordable housing, according to the CMHC definitions. So we can’t forget that the affordable housing crisis is much broader. That’s a legitimate need and the private sector will kind of fill that end of the spectrum, but we can’t forget about, especially on the renting side. And that’s where I find that, in the affordable housing discussion, there’s a lot of focus on affordable ownership and for, you know, people who can afford kind of slightly higher affordable rents. But the real crisis that we have yet to tackle is the deep affordable side, which no one has really cracked that, not yet.
I know with myself and our team, we’re kind of not satisfied with the current solutions. They’re just not enough. And that’s where we’re looking forward. I think there’s a lot of opportunities, but the private sector still certainly has a role to play.
POST: Brian, please go ahead.
BRIAN: Well, a lot of what we’ve seen over the last number of years, and we’ve been involved in some of the largest developments in the GTA, is that we’re building enormous amounts of units, but they’re not family-oriented units. They’re small units. You know, it satisfies a market that can afford them and that wants to live in 500 square feet or 600 square feet, and some of them are even two bedrooms at 600 square feet. That is not a family residence.
Also, it’s not secure living. It’s not secure housing because, you know, with the prices going up, the owner might say, you know what, I’m going to cash out. I’m just going to sell this. So you don’t have secure rental stock in that. And everybody says, well, we’re building all these condos and they’re all rentals. You know, all these buildings are rentals so that’s not really secure housing. But we worked on a project that was launched as a condominium. It stopped and it was relaunched as a rental building. The building is almost finished. And if it’s purpose-built rentals, small units, some larger units, but the rents are so high that it’s very specific by a renter, and is not going to help housing.
I mean, purpose-built rentals now are luxury rentals. They are not affordable rentals, and they are not big rentals. Even their biggest units are not big units. So could you fit a family in? Maybe, but it would not be great living.
POST: Let’s move on to Michael Kalles, and then we can go to Barry.
MICHAEL K.: One thing we should focus on is that in the city of Toronto, there was 9.8 billion worth of land sales in 2021, a record, and there’s 272,000 units built in the GTA. And by the way, the 10-year average is around 215,000, so things are moving in the right direction. The problem is it’s not moving fast enough. With immigration numbers, people are shocked to hear that Canada had over 400,000 new immigrants during the pandemic in 2021, again, driving up the demand.
BARRY: I don’t know if it was Jennifer years ago who talked about condos, maybe dedicating a level floor to a school, you know, so you can bring families into these condos, right? Was that right, Jennifer? I think so, but I never saw that happen.
JENNIFER: It’s happening. It’s happening.
BARRY: OK, great. Good, good, good. And so maybe, you know…
JENNIFER: On the waterfront.
BARRY: There you go. Good. So maybe with these office towers that are vacant, maybe there’ll be some conversions into residential platforms and things like that.
BENJAMIN: Two points. First of all, regarding supply: So yes, we know that we have to build more if it’s a public, private or PPP. One issue that we have with supply, and it’s becoming a major issue, is labour. We simply cannot find people. Good luck finding a plumber.
Speak to any developer, they will tell you we cannot find people. So it’s not just completion. It’s how long it takes to complete a project. It takes much longer because we don’t have the people. Brings me to immigration: Yes, we got 400,000 new immigrants, but 70 per cent of them came from where? Where did they come from? From Canada. Seventy percent of new Canadians arrived from Canada because they were in Canada already. There were students, They were non-permanent residents. For them, it was a change in status, not a change of address.
So that’s something that we have to realize, and the goal is to keep this ratio of people arriving to Canada from Canada relatively high. And that’s actually something that will increase their employability because they’re young, they are students, they’re educated, they speak the language, they have the job experience, all this business. So it’s actually positive for the housing market.
But one thing is, if you look at how many people arrive, 400,000, how many of them are in construction? How many of them are trade? Zero. So we have to fine-tune the skillset of new immigrants, not to be just computer engineers, but also construction workers and trades, because we desperately need them. By the way, it’s also the case for nurses. We need nurses like oxygen. We got zero new nurses from 400,000 new immigrants. Another point.
POST: With such an active market, what does the federal government need to do, particularly in terms of interest rates to cool off the market? Michele, what do you think?
MICHELE ROMANOW: I think that there were rate hikes that were supposed to be coming this quarter and next quarter. I think, given the recent news about Ukraine and Russia, that might be held off another quarter. I think Canada often follows the U.S., and it looks like the feds are going to hold the rates again for another quarter in the U.S., or at least that’s the rumours right now. I can’t see another way to cool down this market.
I think people made some really good points around, I mean, if Canada was the most locked-down place, you really only had your home to be in. And so, the idea of trading down or actually trading at all or leaving your home during a period where you literally couldn’t go to a restaurant in January of this year, it was just, I’m not sure that was realistic. And so I think this is going to be a combination of seeing how Canada is going to treat COVID regulations going forward. I think rate hikes will certainly cool down the market. They’re going to move very slowly. So they probably won’t do very much.
And then I’m surprised that we are still seeing the level of price increases in the low supply, even though we have seen two behaviors that I think I’ve seen in the tech industry. The first is that many people have moved. They’ve moved out of Toronto, they’ve moved to other places, they’ve moved into suburbs, they’ve moved into other countries. I literally now have … I had a team that was 100 per cent based in Toronto and many of those people have left.
And the second factor that is going to be here is this idea of the great resignation. Many people have resigned from their jobs, but they didn’t stop working. They actually became [business] founders. And so, it will be interesting to see where they end up going because they will largely have control over where they live versus an employer historically dictating them. But I think on the rates issue, I think we might have another quarter or two to see this, and then I think it will still be slow.
Home prices around the world
POST: I’m curious about the great resignation you bring up, as we still see the Toronto market booming. How can we understand that?
MICHELE: So you think when people resign, they don’t wanna live in a city anymore? Is that kind of the assumption?
BENJAMIN: Yes. I think that this business of people fleeing Toronto, the Toronto refugees, I think it’s much ado about nothing quite frankly. I think that, if you look at the numbers, only five per cent of the activity was actually more than 200 kilometers away from Toronto. So this is not really a big story, and it’s starting to reverse because all those people that moved, they realize that, you know what, their employers actually want them two or three days a week in the office. The IT sector is an exception, but the whole economy is not just IT. It’s much more than that.
Now, second, interest rates. Very exciting. Of course, it is exciting. So let’s talk about interest rates. And I think that the Bank of Canada will move. They will move next week. They will move in, you know, early March because they have no choice. They have no choice because inflation is way too high, and they cannot not do something about it. Even with Ukraine and what’s happening with Russia, they’re going to raise interest rates. The only question is how quickly they will raise interest rates because they have to protect their reputation.
And remember, at the end of the day, because people are talking about inflation of 10 per cent, 15 per cent, and this is very important for people who care about mortgage rates, this is not about inflation. This is about the cost that it’ll take to bring inflation back to two per cent in terms of higher interest rates. For 50 years, the Bank of Canada and the feds were building their reputation, their capability as inflation fighters. They’re not going to toss it away. They will do whatever it takes. The hope is that it’ll not take too much in a way that we will derail the housing market. That’s where we are.
JEANHY: I wonder how much impact this interest rate increase is going to have. Normally, it does, obviously. You know, we’re going to have the rush of people who want to get in before rates go up, but, to Benjamin’s point, I mean, it’s not going to go up a point overnight. It should go slowly, but you kind of wonder, it may take a bit of froth off the top of the market, but if you think about kind of who has been buying, what’s been driving this, certainly on the condo market pre-construction investors, there’s a lot of money out there, people who perhaps saved money because they couldn’t travel and spend money during COVID. And Benjamin and CIBC did that great study on the gifting. And it’s incredible the percentage of people who are buying, first-time buyers and move-up buyers, and the size of the gifts that they’re getting from their parents who are anxious for them to get in.
And perhaps even if rates go up, like I said, that always impacts affordability, but, you know, if you’ve got your parents who are kind of baby boomers who are saying, “I remember paying 18 per cent interest. So whether it’s three per cent or four per cent, it’s still relatively affordable.” And there is that perception that prices are just going to continue to increase. So it’ll be interesting to see the impact.
Certainly, there will be. And I think that governments here. I mean, they’re kind of limited in their tools. They can impose foreign buyer taxes, and they always seem to focus on the demand side. But a lot of the demand is driven by demographics. You know, we are all aging, kids want to move out of their parent’s homes. Never mind immigration and people moving in. So there are a lot of reasons why demand is always going to be there because people need to be housed. So I think the government should really focus more.
You asked a question about regulations, I really focus on the supply side. What can they do to unblock supply? In Ontario, we had the task force come up with a bunch of suggestions, and I would just add on there that, how can we stimulate more of the affordable rental housing construction as well. But yeah, I guess it’ll be an interesting year to see what happens.
BENJAMIN: If I can just say one thing on that, because that’s important, for just one second. You’re absolutely right. If interest rates go up slowly, the market can take it. It will not be 20 per cent a year. It will go down to something normal, stable because this market is extremely strong when it comes to the fundamentals. However, if you have a monetary policy error and you raise interest rates way too quickly, you cause a recession, and the recession can lead to some pressure in the housing market because of the unemployment rate. So that’s more or less where we are. But you are absolutely right: if interests go up very, very slowly, even if they go up 200, 300 business points, the market can take it, and that would be a good thing.
BARRY: So we keep talking about supply and immigration quotas, but there’s this significant wealth transference as referenced by the baby boomers. They’re passing millions off to their kids, and I think that’s what’s fuelling the market, right? And even, you know, I talk about somebody who bought their home, a professional plumber bought his home for $35,000 in the ’70s, now has a house where $2.5 million can give each child a quarter-million dollars to buy a house. So, I mean, that’s fuelling it too.
And you also have to look forward. We’ve been in quarantine. What about all the people that got … the immigrants that got taken out by that? And now we’ve lifted the quarantine, that’s your next flood of people returning to the market. So we’ve got to think quick about how to supply this market,
and I think it’s just happening too slow at all levels.
POST: Now that we’re through the first two years of the pandemic, what is the best way for homeowners to add value to their properties in 2022?
MICHAEL LONDON: I think, overall, just to add value to your property is just looking at classic design, neutral timeless, I think just to add impact, a little bit of a wow. You want, when potential purchasers, homebuyers, come to look at your home, that it has to trigger curiosity.
Just things that are different will tend to add value to the space.
What we’re doing now with our clients is we’re adding minor renovations as well. And I think that minor renovations, when it comes to the impact, all of that as a whole will trigger curiosity and raise the value of your home.
HILARY: I would say that, if you are renovating to sell, you have to take a very hard look at the home in which you live because the simplest things like grubby grout is enough to put the buyer off. That’s a simple little thing. But a non-functioning kitchen, a non-functioning bathroom, that you’ve put up with for the last 12 years, because it’s very easy to get used to whatever it is, you will also not be able to get the value out of your home. And those are major renovations.
Those are the renovations that will take your house from having multiple offers and multiple buyers, potentially, if you have a well-updated kitchen and bathroom, and it will change your life as the people living within those four walls. If you just want to put lipstick on the house, I won’t call it a pig, but if you have lived with a house that has become dingy and rundown, you won’t fool the average buyer. I just don’t think it’s the way to go.
I also think that you have to look ahead and embrace what has happened with the way we live in our houses, which we’ve all touched upon on different levels with COVID. I think that is going to be a specter in our lives that’s not going to go away.
POST: Odeen, go ahead.
ODEEN ECCLESTON: To echo Hilary’s sentiment, I agree, function is key, and then as Michael London mentioned, impact can also improve value. And then from a practicality and pragmatic standpoint, to increase value right now, buyers, to get into the market, a lot of them are relying on secondary suites. They’re relying on income from basements or even some people are even doing loft extensions. Just anything to get whether it be in-laws in to pool their resources or to actually get extra income from a student or from a tenant.
HILARY: Can I just say one more thing? Right now as.… Oh, I think it was Benjamin who was talking about it, the real problem with finding contractors and people who will actually do the work for you dependably and actually see it, just even see it from beginning to end is so difficult right now.
For example, the danger you can run into is that you will find somebody, and they will probably start the job and they may or may not finish the job, and it may not even be their fault. It may be that the plumber just simply has gone that they were depending on.
BRIAN: I am finding that it’s become a nightmare as far as renovations and building. It has just become impossible. The stress level on the homeowners, we try to minimize it to sort of hide the disasters behind the scenes, but everything from the trades to the products, everything, you can’t get a refrigerator, you can’t get fabric, you can’t get tile. You really want to hold on to the relationships you have.
POST: We’re going to have to move on to the next question. Odeen, I wanted to ask you about those ideas of housing migration and urban spread. What are you seeing outside of the Toronto area?
ODEEN: Well, I wanted to speak a little bit. I don’t think I’ve heard much of the perspective of first-time homebuyers that don’t have the privilege of bank of Mom and Dad. And you know, the purchasers — or wouldn’t be purchasers that don’t have their foot in the door yet — because I think a lot of them are watching and we need to represent them here.
And what we’re seeing is that, although they would love to be in the metropolis closer to where they work, they simply don’t have that option. And it’s interesting because over the past 14 years, I’ve seen the homebuying experience go from sort of generally excitable and this fun experience to now it’s almost like foreboding. It’s almost like we have to prepare.…
But, yeah, so as a result, yes, people are…especially first-time home-buyers, the only solution a lot of them have is to move as far away as they can kind of qualify. But even then, it’s been a terrible struggle the past couple of years where, as I said, it went from an excitable process to now it’s either kind of, frankly, just like a frustrating process or to the point where some people are giving up.
And they’re giving up not only on Toronto. They’re giving up on the GTA and that’s … you know, I think Benjamin mentioned that it’s only five per cent of purchasers moving 200 kilometres outside of Toronto. But within our brokers, we’ve seen quite a few people just decide, “You know what? The GTA is no longer for me. It’s out of my affordability. It’s out of what I envisioned my adulthood to look like.”
So, they are opting for Prince Edward Island and for Calgary and the other places where they can kind of live that Canadian dream. And a lot of them are able to do that, again, because of remote work. And then actually, as Michele said, because they’ve decided to just endeavour into their own sort of entrepreneurial endeavours where they can start startups.
So, back to your point: yes, the 905 is a solution for some, but it still isn’t sort of the end all, be all for the people who can’t afford
MICHAEL K.: Hey, just a quick point, and that is that, you know, I spend a big part of my week online with our international affiliates, and the story of Toronto is the story of every city, small and large: low supply, major demand. So, Michele, I liked what you said, and it’s so true.
Today, you’re hearing about people going to Florida etc., but when things were really locked down and, you know, a car was your really only … your number one form of transportation, people were going outside of Toronto and working remote.
We actually opened an office in Prince Edward County because of the demand there. And what’s really unique is when you look at prices in Toronto, they’re being dwarfed by price increases outside of the city. Just a quick statistic: So I’m speaking to our Chicago affiliate. Guelph is now twice the price, on average, of Chicago. Guelph. I mean, just … so it’s just incredible what’s happening around the world. It’s not just the city of Toronto. It’s all over the world.
JENNIFER: When my parents bought their first home back in 1970, that home cost two times my dad’s salary. Now, my dad at the time was an entry-level blue-collar worker, and he was able to buy a home because his home was two times the annual salary. And his salary was actually an average salary in 1970. Today, it’s multiples.
It’s getting up to 16 times the average salary to buy a home. Well, it just holds to reason that the average person coming out of school, moving into this country from another country or even from another province is not going to be able to access housing.
So, we really … when we talk about … you know, I talk a lot about supply — and my work right now is focused on, specifically, building affordable rental supply — but we also have to talk of this challenge of how we’ve made it very easy to treat housing like a financial tool and a financial asset instead of treating housing as a home.
And if we assume that every home is going to have a family in it — and, you know, a dinner table at night where homework is spread out and kids are eating their dinner and chit-chatting — instead of sitting empty, then we need to look at things like capital gains taxes, and we need to look at other ways that, currently, we actually incentivize people to use real estate as a financial tool. And I’ll just say, you’re crazy not to, in this market, to look at housing in that way because it’s proving to be incredibly lucrative. But the fact that it’s incredibly lucrative is tied to the fact that so many people cannot even dream of accessing a home. And if I think we go back, and we think back to the vision that we have of our country, I think the vision of our country isn’t that two per cent of the population gets stinking rich off housing. I think we’re a bit bigger than that. We want to be a country where people can come and work hard and build a life and, you know, be able to meet their needs rather than worrying about shelter. But we’ve sort of incentivized that by making housing a really powerful financial mechanism for generating wealth instead of treating housing as a home, which is that old, very naive approach that I learned in planning school to how you plan for housing supply.
And in that work, 20 years ago when I was doing my master’s in planning, no one was saying, “Well, hold on a minute. People might start parking their money in houses and not even living there.” That wasn’t part of the projection process, and that’s part of why we have this incredible problem on our hands right now. So I do think we have to really tackle that issue as a country.
POST: Talking about housing as an investment, Brian, which segment of the market do you see as having the best returns right now?
BRIAN: I don’t think there’s a bad location anywhere. So you don’t have to be a genius to make money in real estate, it appears, today. One of the things I was, you know, I was thinking when Jennifer was speaking is that people would be shocked if they knew how many homes are empty most of the year and condos are empty most of the year. You can drive through neighbourhoods and you would be shocked at the percentage of homes and condos of people that are at their cottage, people that are in Florida. They may not own in Florida. They may be renting in Florida, but they are not here.
And there is so much inventory that is just sitting here empty. I have three properties. I haven’t been to my apartment in New York in two years because of COVID. So that’s a big complaint in New York that they’re talking about that and how to deal with that. You could throw a dart at a map and you would make money if you held onto it for the next few years. So there’s no bad area.
POST: Do you think we should start thinking about interest rates going up? Do you see a risk in any segment of the market that might be particularly difficult?
BRIAN: You know, I remember when I was so excited when the interest rate on my first house went down to nine per cent. I was so excited. It was 11 per cent, it went to nine per cent. I thought I had struck … like, I couldn’t believe that it was only nine per cent. Now, that interest rate, it’s, like, zero.
So, from that standpoint, I really don’t see interest rates slowing anything down. I just think our market is so strong. This city is so strong, and there’s this appetite of risk that people are investing probably much more than they should be spending on houses. They’re going into multiple bidding situations bidding much more than they ever should have.
POST: With the run-up in housing prices in the U.S. in ’05–’06, many people said, “maybe my income is uncertain, but it’s OK because, if I lose my job, I can sell my home.” And that didn’t turn out so well. Benjamin, do you have thoughts on whether there’s a risk of that happening here?
BENJAMIN: The short answer is no, because the current situation is not even remotely close to the subprime crisis that we have seen in the U.S. Back then it was the creative imagination of American bankers that came up with all those mortgages. Here we have stress test, we have all kinds of other things that clearly are a factor that will protect you from that.
Having said that, I agree with the point that was made about too much investment. And I’m sensing, I’m sensing that some of the recent increase in investment activity is more speculative than before. I’m starting to sense it from talking to people in the market. And I worry about it because those people will be the first to sell when interests rise or there is any issue.
We have to remember that the significant segment of investors are doing it not for the money. They are doing it for their kids, really. We did focus groups and people were telling me, “you know what? I have a 10-year-old. I want him or her to have a chance to live in Toronto 10 years from now. I am buying now, although I am in a negative cash flow situation.” Many of them are. And that’s fine. And they are right to suggest so because, quite frankly, 10 years from now, Toronto will be less affordable, not more affordable.
Having said that, I’m sensing that there is some speculation. I totally agree that some people are overinvested in too many properties with modest income. I worry about it. This is not the U.S. in 2007, but it’s something that will increase the sensitivity of this market to higher interest rates.
POST: Great. Let’s go over to Barry.
BARRY: I agree with Benjamin. You know, it will come to an end, but I think it won’t be long-lasting because you have all these forces, lack of supply, and if you can go back to the correction that I think Benjamin referenced, even it was in ’89, I think, real estate fell 28 per cent. Who would’ve thought that, right?
But that was an economical correction. Everything since then was just intervention, media, Y2K, 2006. We thought things were going to go the other way. We’re U.S.’s little sister. The mortgage rules, I was in favour of that. Keeps us safe.
Anyway, onward and on: immigration, what was the foreign buyer tax? But these are, like, just temporary stops. We’re still dealing with the supply issues. I mean, look at these investors. When this correction does come as, again, Benjamin talked about, that there’s too much speculation. They’re buying houses with five per cent and 10 per cent down, and they’re not … they don’t know what we know: that real estate can fall 28 per cent. You know, that’s the stuff that sinks the boat.
So, as long as people are safe investing and not … I don’t think we’re at the end of this. As long as you’re safely investing, I think real estate is the best game in town.