Relief is Coming – The Awakening of Supply!

Published on 6th December 2018

I have never been one to think that constant whining and complaining about a topic will make anything go away. However, when there is enough media attention on a particular subject matter, then there will be enough eyeballs on the issue for someone to eventually step in and address the matter.

The Movement is Starting – This is exactly what is happening with the supply issue in Toronto right now. We’re slowly getting media attention and traction on that matter – slowly, but surely. Rather than finding new ways to suppress prices or rental rates, our governing authorities must focus on building more homes for the hundreds of thousands of people immigrating to the GTA every year. The city must get creative with incentivizing the private sector to build more homes. Removing rent control from new homes after Nov 15th, 2018 was a good start.

Most people already know there is no money from the government to build more housing. The Toronto Community Housing Corporation (TCHC) is significantly backed up with applicants. During election time, every government platform talks about “building more affordable housing,” but in reality, this hasn’t been put into action in two decades.

Bring on the Stats – Condo investors have been responsible for 70%+ of high-density supply in the last 20 years. Take a look at the graph below.

source: Bullpen Consulting

Purpose-Built Rentals – The orange in the graph above represents purpose-built rental apartments. Keep in mind, those numbers don’t include the purpose-built rental buildings that were converted into condos afterwards in 2017. When we see these corporations moving into the purpose-built rental market, it tells us that there is more opportunity in the market. If major for-profit businesses are doing it, why aren’t we, as individual investors, getting into this market as well?

Strategically Timed Announcements – This past week, we saw two major corporations announce their plans for new purpose-built rental buildings. These corporations are The University of Toronto and Google.

This announcement comes two weeks after the removal of rent control… coincidence? Hmm… I don’t think so.

The “Four Corners” of U of T – The University of Toronto has been putting out some major headlines about real estate this year. It doesn’t surprise me that they are trying to capitalize on their downtown Toronto real estate. Their “Four Corners” strategy is all about “building non-academic spaces” (i.e., high-rise density student rentals). This is very smart of them to do because many condos have basically been converted into student rentals all around the St. George campus area.

Seeing Green – They can already see the profits written all over the walls. “We anticipate being able to generate financial returns for the institution that can be used toward future academic investments” – Scott Mabury (VP of Operations). Yes, Scott did say that the money would go towards “academic investments” but don’t be fooled because remember, universities are also for-profit businesses.

No Rent Control, Baby! The University of Toronto is setting an ambitious goal of $50 million in revenue per year by 2023. This target is considered realistic because when I was in school, on-campus residence was much more expensive than a house with 5 rooms down the street!

Google Bringing the Cool – The second announcement came from Google’s Sidewalk Labs. The draft site plan (basically the initial concept) has been submitted. At first glance, this site plan looks very good and way COOL! Below is a quick snippet of what the site would look like.

source: Sidewalk Labs November 2018 Draft Site Plan

There are 5 proposed sites, for a total of 12 buildings between Lower Sherbourne St. and Cherry St. Sidenote: My clients who bought at Great Gulf’s Monde condo are going to be SO happy!

If you want to review the full draft site plan: CLICK HERE to DOWNLOAD

93% of the proposed buildings will be residential, which should greatly increase the lack of supply that we have at the moment.

source: Sidewalk Labs November 2018 Draft Site Plan

source: Sidewalk Labs November 2018 Draft Site Plan

Breaking Down the Sites – For all of these sites, it looks like there will be a combination of purpose-built rental and shared ownership buildings – a condo/rental hybrid if you will. 40% of the residential properties will have “below market” rent, with half of that (20%) being for the “middle-income” class and the other half (20%) being for “deep affordability for low-income” residents. So I suppose the other 60% will be for the “high-income” class.

This all sounds great but perhaps this Toronto market has trained me to look at pretty infographics with a bit more cynicism. The definition of “below-market” rent is subjective to each person’s own finances. When Google creates 3,900 IT jobs in this area, I doubt “market rent” will be that low, especially since there is no rent control to govern it.

Remember, similar to UofT, Google is also a for-profit company, so the subsidized rental rates will come from somewhere. There is nothing that is completely free in this world because someone is paying for it – some way and somehow.

The Wrap – Regardless of my skepticism, Google’s design, impact, and increased density by East Harbourfront will continue making Toronto a world class city. Go Toronto Go!

Needless to say, it’s a great time to be an investor. If you haven’t invested in any properties yet, it’s never too late to start. But remember, prices are climbing each day, whether you believe it or not!

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