Developer Jennifer Keesmaat

New rate hike could cause T.O. to lose a generation, says top developer

 The Bank of Canada raised the interest rate 25 basis points to 5 per cent on Wednesday. That follows a previous rate hike of 25 basis points on June 7 after Toronto’s housing market began bouncing back sooner than expected in the spring. Former city chief planner and Markee Developments founder Jennifer Keesmaat tells us why it could lead to us losing a generation of renters in this city.

How will the recent rate hike impact the rental market?

When rates go up, it becomes really difficult to borrow money to build new housing. A significant amount of the pressure on any development project is government fees and the cost of borrowing. So this is really bad news in terms of being able to borrow the money to go through the construction period to build new rental housing. 

What about people waiting to buy?

You essentially have more and more people deferring access into home ownership. Every time the rate goes up, the cost of borrowing goes up and their monthly payment goes up. You get more renters who say, “I’m going to wait it out for rates to go down [to buy a house].” That would be fine if we had an oversupply of rental housing, but we have a shortage. More people staying in the rental market drives up rent.  

People have referred to gen Z as the “boomerang” (moving back in with parents) generation. Do you see that happening?

My daughter just graduated from a master’s program, and she’s moving back home. Even if she wanted to move into a house with a bunch of friends, all of her friends are feeling like they should wait it out and stay home as well. To do everything right, to work exceptionally hard and then realize entry-level housing is completely out of reach — it’s an incredible risk to the city. If newcomers and young people look at this city and say, “It’s too expensive, I don’t have a chance of getting a foothold,” you’re going to see the vibrancy of the city drain away.

So what happens next?

We didn’t take advantage of the low interest rate environment as we should have five years ago to build a significant amount of housing that targets people who are entry level in their job, young people, newcomers. We’re on the cusp of losing a generation in this city. It’s a government problem. They are providing access to the land and  to the financing. We do not have a free economy when it comes to housing. It is a highly regulated industry, as it should be, but not to the point of dehousing people.

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