Month: July 2021

The price of lumber has declined and a prominent Toronto-based real estate development firm believes it could boost the construction of housing, albeit modestly.

Still, in a city plagued by years-long chronic undersupply of housing, additional housing units, however meagre, are welcome.

“As soon as we start to stabilize our costs, then we make a decision to release the next 30 or 40 houses of a phase,” said Scott McLellan, senior vice president of Plaza Corp. “Once costs come down, or at least stabilize, then you see more supply come onto the market from developers because they’re comfortable. The way costs stabilize is, with more sawmills opening back up, building inventories will go up and prices will come down.”

The cost of most building materials spiked shortly after the onset of the pandemic in March 2020 because, in addition to halted production, there were transportation complications. Steel mills, too, were temporarily offline, resulting in higher prices for builders, but the cost of lumber was the outlier.

“Lumber was $40,000 for a 3,000 sq ft house, and then it more than doubled to $90-100,000,” said McLellan. “Builders were locking in numbers, which got passed on to purchasers. I don’t think house prices will ever come down—you can’t drop prices because nobody could get a proper appraisal or mortgage.”

Lumber and steel mill shutdowns invariably caused prices surges, although nothing rose as high as the former, however, prices have tapered since the economy began reopening. John Miolla, vice president of operations at Koler Builders, noted that the increase in home renovations, which began shortly after the pandemic hit, likely contributed to the exorbitant price of lumber, but he anticipates prices to normalize by next year. In fact, prices were down by 45% in June from a month earlier.

“Production is up and demand is sliding a little bit,” he said. “I’m predicting a return to pre-pandemic pricing at the end of the year, or possibly into 2022.”

Housing prices certainly won’t decrease just because material costs are gradually declining. Preponderantly, tight market conditions are responsible for significant home price growth, and in addition to market fundamentals, namely population growth, prices will keep escalating, although a brief lull is anticipated this summer as people begin travelling again and enjoying summer activities. But considering how high the price of lumber jumped, then dropped, McLellan believes the fluctuation will manifest in relatively static home prices.

“The cost of lumber coming down will cause home prices to moderate a bit; they won’t go up as drastically,” he said. “Remember, other costs, like la labour, transportation and steel are still high.”

Extended construction hours, in large part, have enabled our industry to continue working safely throughout the COVID-19 pandemic to build essential infrastructure and much-needed new housing.

The move has given builders leeway to stagger shifts and therefore limit the number of construction workers at gathering points on a worksite, such as at a hoist. With fewer workers on-site at any given time, it has been much easier for them to maintain physical distancing during COVID.

This must be allowed to continue, especially with the more transmissible Delta variant a growing threat. We are not out of the woods yet with COVID and builders must have the tools to ensure worksites remain safe. Extended construction hours enable that to happen.

There is also another very good reason: we are squarely in the midst of a housing crisis. There is simply not enough housing being built. And, with the federal government poised to bring in 401,000 immigrants this year and another 411,000 in 2022, the situation is only going to get worse.

We are under-producing to the tune of 12,000 housing units a year here in Ontario. Scotiabank economist Jean-François Perrault suggested in a report recently that Canada’s housing-to-population ratio is the lowest of any G7 nation, at 471 homes per 1,000 residents. To match the average ratio of the G7, his report noted that Canada would need an additional 1.8 million homes. To put this gap in perspective, we have averaged 188,000 home completions a year for the last decade.

The shortage has certainly contributed to the high cost of housing. A recent survey from RBC found that more than one-third of Canadians between ages 18 and 40 no longer believe they will ever be able to own a home.

Modernizing the approvals process and implementing a standardized e-permitting system would help, but we clearly need to do everything in our power to ensure that housing construction is not impeded.

In spring 2020, construction work was deemed essential in Ontario and the province suspended existing noise bylaws to allow construction sites to operate from 6 a.m. to 10 p.m., seven days a week. Builders generally don’t work Sundays and mostly work from 6:30 a.m. to 4 p.m., with scaled-down construction such as concrete finishing and deliveries in the late afternoon and evenings.

The regulation is in effect until October 7 and has helped accelerate construction projects and enabled employers to take the necessary steps to protect workers. Toronto City Council has voted to ask the province to repeal the regulation that allows extended hours. However, this is taking a short-sighted view of our critical housing situation. We are in a crisis and COVID will likely be with us for some time yet.

Mike Moffatt, an assistant professor in the business, economics and public policy group at Ivey Business School, recently penned a blog on Medium, an open digital writing platform for thought leaders, that indicated Ontario should have built an additional 100,000 homes over the past four years to keep up with household formation.

Between 1976 and 2011, home completions in Ontario were in relative balance with the number of new households formed, but since the population started growing in 2015-16 the number has fallen short, he wrote.

Over the last four years, on average, there have been 27,000 fewer homes built each year than is likely needed, he stated.

Equally disturbing, Moffatt noted that many households were likely not formed, simply because young people had to put their plans on hold because they didn’t have the money to afford a home.

He stated it’s inexcusable what we’re doing to our young, simply because we refuse to build more housing.

It is imperative that we pull out all the stops to build more housing—and that means keeping extended construction work hours in place, at least for the foreseeable future.

We are in a perfect storm just now. COVID is still with us, we desperately need new housing for the anticipated influx of new immigrants, and the cost of housing is only exacerbating the problem.

Clearly, we still have much work to do.

Richard Lyall, president of RESCON, has represented the building industry in Ontario since 1991. Contact him at [email protected]

Behrooz Davani is a realtor with Royal LePage Altitude in Montreal who has been fielding what he says is an unusually high number of phone calls from Ontarians thinking about moving to the French-speaking metropolis.

“Comparing the volume of calls I get from Ontario, I’d say I’m getting 30-40% more than the same period last year, which was when Montreal had briefly reopened from lockdown,” he said. “The price of real estate is one thing, but Montreal is generally a very affordable city, and compared to Toronto, where I visit a lot, the cost of living in Montreal is more affordable. Montreal has good universities, good nightlife, and big companies are moving here, so there are a lot of job openings and there’s a lot of potential.”

That Davani’s phone rings with Ontario area codes more this year than in 2020 could be explained by real estate prices surging in Canada’s most populous province. According to a new poll from the Ontario Real Estate Association (OREA), 46% of prospective homebuyers under 45 have considered or are considering leaving the province to buy a home, while 33% of people under the age of 29 expressed similar sentiments. The poll also found that 56% of buyers aren’t sure they can purchase a home in their desired communities.

Tim Hudak, OREA’s CEO, says there could be economic ramifications to Ontario losing homebuyers whose search for affordable homes leads them out of the province.

“The lack of housing supply is leading many to look outside the province for their first homes and that will make it difficult to retain and attract talent in Ontario in the near future,” said Hudak. “The government of Ontario’s More Homes, More Choice Act is an excellent first step but if we want to reverse this brain drain, municipalities also need to deliver by opening up more housing opportunities.”

Sixty-eight percent of respondents believe the Ontario government could intervene with policies that support housing affordability in the province.

“The affordability crisis continues to crush the dream of homeownership for many Ontarians and this has been intensified by the economic impact of the pandemic,” continued Hudak. “Governments need to act if we want to create future generations of homeowners and that starts with pro-growth policies that could bring affordability closer to first-time homebuyers and address the supply shortage.”

There are indications that Ontarians are already leaving the province, albeit not necessarily because of expensive housing. Allan Asplin, a broker with Judy Lindsay Team Realty in Winnipeg, noted that there were 19 sales of homes over $1 million in the city in all of 2020, and 47 so far this year.

“A lot of young people leave Winnipeg to go to Toronto and Vancouver where they have their careers but they come back here. I’ve already seen that recently with three couples,” he said. “They’re able to sell their house in Vancouver or Toronto, which are nice average houses in those cities, and they come back with $1 million or $2 million and buy some of the nicest houses in Winnipeg.”

The aggregate price of a Canadian home will jump by 16% year-over-year in Q4-2021 amid voracious demand, according to Royal LePage’s House Price Survey.

The aggregate price of a home in the country is expected to reach $771,500 by the last quarter of the year, and while appreciation will slow, demand will remain elevated because foreign students, newcomers and investors will have arrived. In Q2-2021, the aggregate price of a Canadian home jumped by 25.3% year-over-year to $727,000.

Greater Toronto Area

The aggregate price of a home in Canada’s largest metropolitan region increased by 18.2% year-over-year last quarter to $1,035,000, with the single-family detached segment rising by 28.2% to $1,301,000, and condos increasing by 8.6% to $630,000. In the City of Toronto, the aggregate price of a home rose by 8.3% year-over-year in Q2-2021 to $1,115,000, with single-family detached homes increasing by 14.8% to $1,550,000 and condos climbing by 5.8% to $695,000.

Royal LePage attributes the exorbitant valuation increases to a “chronic housing supply shortage,” for which there’s no solution in sight. Although market activity is expected to be slow during the summer, in-person learning in post-secondary institutions, and the renewals of tourism and immigration will conspire to push demand, and by extension prices, skyward. The report anticipates downtown Toronto will return to its pre-pandemic vibrancy, but it also warns that City Council’s intention to raise the municipal land transfer tax for purchases over $2 million could aggravate the shortage of housing inventory.

Royal LePage forecasts the aggregate price of a home in the GTA will rise by 14.5% year-over-year in Q4-2021.

Greater Montreal Area

The second-largest metropolitan area in Canada saw home prices rise by 21.7% last quarter over Q2-2020 to $514,000. Single-family detached homes in Montreal increased by 25.5% in Q2-2021 to $559,000, while condos rose by 14.1% to $405,000. Montreal Centre’s aggregate home price rose by 14.3% year-over-year in Q2-2021 to $643,000, with the median price of a single-family detached home surging by 24.3% to $1,050,000, and the condos increasing by 9.3% to $500,500.

While the rate of appreciation will remain high through 2021, Royal LePage believes prices have already peaked. One reason is, thanks to the spiking COVID-19 vaccination rate, Montrealers have resumed travelling and generally enjoying their summers. The report also stated that prospective first-time homebuyers appear to have taken a break in the hopes that competition won’t be as ferocious in six to 12 months. Royal LePage forecasts that the aggregate price of a home in the region will increase by 17.5% year-over-year in Q4-2021.

Greater Vancouver Area

The aggregate price of a home in Canada’s most expensive metropolitan area rose by 19.6% year-over-year to $1,202,500 in the second quarter of 2021, with single-family detached homes rising by 24.9% to $1,625,000 and condos rising by 9.4% to $700,000. In the City of Vancouver, the aggregate price of a home increased by 11.5% to $1,305,000, with single-family detached homes going up by 14.6% to $2,350,000 and condos climbing by 4.4% to $774,000.

In the metro region, inventory appears to be increasing and demand moderating, although that is likely a confluence of buyer fatigue and people enjoying their summers. Nevertheless, it remains a seller’s market, the report noted, with fierce competition among buyers. Demand is especially strong in the single-family detached market, where move-up buyers are desperately trying to climb the housing ladder.

Royal LePage forecasts that the aggregate price of a home in the Greater Vancouver Area will rise by 15% year-over-year in Q4-2021.

Student housing is big business globally, but in Canada there’s a gap in the market, and with colleges and universities across the country slated to reopen in September, there are no lingering questions about demand.

“Historically, we have done all our pre-leasing between January and April for the following September school year. This year it’s been quite different because, as you may recall, April was a disaster across Canada with no vaccines in sight and getting hit by the third wave, so leasing was at a standstill with nobody committing. Starting in May it’s been a total three-sixty and what we’re seeing now is students who were waiting on the sidelines to see what was going to happen know schools will reopen. Almost every college and university across Canada has announced they’re going to reopen,” said Sanjil Shah, managing partner of Alignvest Student Housing. “We’ve been doing robust activity since the first week of May, doing 80-100 leases per week in our portfolio.”

As a global asset, purpose-built student accommodations is worth $200 billion, with $15-20 billion invested every year, but Shah says that institutional investors find Canada a difficult country in which to scale investment. They would prefer investing upwards of $3-4 million in a platform that has infrastructure, processes, people and an operating business rather than purchasing buildings individually. However, it would be well worth finding ways to scale, says Shah, considering that Alignvest Student Housing, which is valued at $700 million, had 90% occupancy across its portfolio during the pandemic.

“Student housing trades at a discount, or higher cap rate, than multifamily for a couple of reasons: lack of institutional capital, so less competition, because there are very few buyers for these assets, and secondly, it’s not passive real estate by any stretch of imagination. Multifamily real estate is so rich and cap rates so low because it’s passive real estate and as close to investing in a bond as you can get,” he said. “Student housing is anything but that. We have 50% annual turnover of our beds and it all happens on the exact same day—September 1 is make or break day in this industry. It’s not like having a multifamily building because if your bed is vacant on September 1, a student has found somewhere else to live and you will be vacant for the next 12 months. To really optimize leasing and management, you have to have eyes on your business to fill your beds. We have put in place infrastructure and processes and we can optimize returns.”

Alignvest Student Housing’s portfolio reflects tenants’ evolving tastes—gone are the days when a single-family home was rented out by the bedroom, and there’s scant desire to share dormitory-style rooms with upwards of 20 people sharing a single bathroom.

“Those types of accommodations are feeling the brunt of COVID-19, with kids not wanting to live there anymore. There’s been a flight to quality, by which I mean students are looking for better accommodations this year than they have in past years,” said Shah. “Private bedrooms are a must—nobody wants to share a bedroom anymore and 99% of our bedrooms are privately occupied, with en-suite bathrooms highly desirable. Eighty-percent of our bathrooms have no more than two kids sharing them, and we’re seeing pretty robust demand for those types of configurations.”

The Bank of Canada maintained its target overnight rate at its effective lower bound of 0.25%. It tapered its quantitative easing bond-buying program for the third time to net purchases of Government of Canada (GoC) bonds of $2 billion per week.

Bank of Canada ‘on the vanguard’ of unwinding stimulus

The Bank of Canada raised its inflation forecast in the newly released July Monetary Policy Report (MPR), making it one of the most hawkish central banks in the world. The Bank announced its third action to reduce its emergency bond-buying stimulus program by one-third. The central bank was among the first from the advanced economies to shift to a less expansionary policy last April when it accelerated the timetable for a possible interest-rate increase and pared back its bond purchases. In today’s press release, the Bank announced it would adjust its quantitative easing (QE) program again to a target pace of $2 billion per week of Government of Canada bond purchases—down $1 billion from its prior target of $3 billion per week. This puts upward pressure on bond yields, all other things constant. No doubt, the federal government’s funding of the enormous COVID-related budget deficits has been abetted by the central bank’s bond-buying.

The pace of purchases of Canadian government bonds was as high as $5 billion last year. The central bank acquired a net $320 billion of the securities since the start of the COVID-19 pandemic. The bank owns about 44% of outstanding Canadian government bonds.

The Bank of Canada has said it wants to stop adding to its holdings of government bonds before it turns its attention to debating rate increases. Still, officials chose not to accelerate the projected timeline for a possible hike today.

In holding the overnight rate at the effective lower bound of .25%, the Governing Council reaffirmed its “extraordinary forward guidance” that the Canadian economy still has considerable excess capacity. The recovery continues to require extraordinary monetary policy support. “We remain committed to holding the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2% inflation target is sustainably achieved,” the central bank said in the policy statement. In the Bank’s July projection, this happens sometime in the second half of 2022.

Swaps trading suggests investors are fully pricing in a rate hike over the next 12 months and a total of four over the next two years, which would leave Canada with one of the highest policy rates among advanced economies. This puts the Bank of Canada ahead of the Fed in raising interest rates. Chair Powell told Congress today that the U.S. economy isn’t ready for bond tapering. “Reaching the standard of ‘substantial further progress’ is still a ways off,” he said in prepared remarks. In the U.S., investors aren’t pricing in any rate hike over the next year and only two over the next two years.

July monetary policy report

The Bank revised its forecast for Canadian GDP growth this year from 6.5% in the April MPR to 6% because of the more restrictive third-wave pandemic lockdown in the second quarter. Growth is now expected to pick up strongly in the third quarter of this year. Consumer confidence has returned to pre-pandemic levels, and a high share of the eligible population is vaccinated. As the economy reopens, consumption is expected to lead the rebound, increasing spending on services such as transportation, recreation, and food and accommodation.

Housing resales have moderated from historically high levels but remain elevated (chart below). Other areas of housing activity—such as new construction and renovation—remain strong, supported by high disposable incomes, low borrowing rates and the pandemic-related desire for more living space.

CPI inflation boosted by temporary factors

The Bank revised up its inflation forecast for this year but asserted once again that inflation would return to 2% in 2022. This is a controversial call consistent with central-bank mantras around the world. The BoC said, “Three sets of factors are leading to this temporary strength. First, gasoline prices have risen from very low levels a year ago and are above their pre-pandemic levels, lifting inflation. Second, other prices that had fallen last year with plummeting demand are now recovering with the reopening of the economy and the release of pent-up demand. Third, supply constraints, including shipping bottlenecks and the global shortage of semiconductors, are pushing up the prices of goods such as motor vehicles.

The BoC expects CPI inflation to ease by the start of 2022 as the temporary factors related to the pandemic fade. Economic slack becomes the primary factor influencing the projection for inflation dynamics thereafter. The uncertainty around the outlook for the output gap and inflation remains high. Because of this, the estimated timing for when slack is absorbed is highly imprecise. In the projection, this occurs sometime in the second half of 2022. After declining to 2% during 2022, inflation is expected to rise modestly in 2023 as the economy moves into excess demand. The excess demand and resultant increase in inflation to above target are expected to be temporary. They are a consequence of Governing Council’s commitment to keeping the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2% inflation target is sustainably achieved.

Inflation is expected to return toward the target in 2024. The projection is consistent with medium- and long-term inflation expectations remaining well-anchored at the 2% target. Both businesses and consumers view price pressures as elevated in the near term. A large majority of respondents to the summer 2021 Business Outlook Survey now expect inflation to be above 2% on average over the next two years. Nonetheless, firms view higher commodity prices, supply chain bottlenecks, policy stimulus and the release of pent-up demand as largely temporary factors boosting inflation higher in the near term.

Bottom line

Only time will tell if the Bank of Canada is correct in believing that inflation pressures are temporary. Financial markets will remain sensitive to incoming data, but for now, bond markets seem willing to accept their view. The 5-year GoC bond yield has edged down from its recent peak of 1% posted on June 28th to a current level of .936%. As well, the Canadian dollar has weakened a bit, to US$0.7993, since the release this morning of the BoC policy statement. The loonie, however, remains among the strongest currencies this year vis a vis the US dollar.

This morning, Statistics Canada released the June 2021 Labour Force Survey showing employment rose 230,700 (1.2%) in June, rebounding from a cumulative decline over the previous two months of 275,000. Total hours worked were little changed. The national unemployment rate fell 0.4 percentage points to 7.8%.

Jobs continue to swing back and forth as the various COVID waves drive lockdowns and reopenings. Hopefully, we’re in the last of the reopenings. Services accounted for all of the gains. Hospitality jobs were the biggest gainer, as expected, adding 101,000 positions, but they remain well below pre-virus levels. Restrictions are expected to continue easing through the summer, which should mean more solid gains over the next couple of months. Other sectors seeing a boost from the reopening were retail/wholesale (+78,000), education (+26,000) and health care (+20.500). Goods sectors were down across the board, with losses concentrated in construction (-23,000) and manufacturing (-12,000).

Beyond the headline increase, one of the bigger stories in this report is the sharp 0.6 ppt rise in the participation rate to 65.2%. That’s the largest increase in a year and leaves the rate 3-4 ticks away from pre-COVID levels. Compare that to the U.S., where the participation rate is still nearly 2 ppts lower than in early 2020. The rise in the participation rate limited the decline in the jobless rate to 0.4 ppts to 7.8%, still some wood to chop there. The rising participation rate should alleviate some concerns about widespread labour shortages.

The bulk of the gains were in pandemic-exposed sectors, like retail, food and accommodation, that got hit most by the new containment measures. Employment in accommodation and food services was up 101,000. The retail sector added 75,000 jobs.

Increasing vaccination rates and falling COVID-19 case counts have allowed the country to finally re-open restaurants, bars and retail stores after months of closures. Ontario began allowing patio dining earlier this month, and several cities in Quebec have further relaxed restrictions, allowing indoor dining for the first time this year.

With the June gains, Canada has recovered 2.65 million of the 3 million jobs lost at the height of the pandemic last year. The nation created 263,900 part-time jobs, with full-time employment down 33,200.

Employment growth in June was entirely in part-time work and concentrated among youth aged 15 to 24, primarily young women. Increases were greatest in accommodation and food services and retail trade, consistent with the lifting or easing public health restrictions affecting these industries in late May and early June in many jurisdictions.

The number of employed people working less than half their usual hours fell by 276,000 (-19.3%) in June. Total hours worked were little changed and were 4.0% below their pre-pandemic level.

The employment increase in June was in part-time work, which rose by 264,000 (+8.0%) following combined losses of 132,000 over the previous two months. The overall level of part-time employment was essentially the same as in February 2020, before the COVID-19 pandemic. Increases in the month were driven by accommodation and food services and retail trade—two industries where part-time workers represent an above-average proportion of employment—and were concentrated among youth.

After falling by 143,000 over the previous two months, full-time work was little changed in June and was 336,000 (-2.2%) lower than its pre-pandemic level.

Gains were driven by private-sector employees, while self-employment declines.

The number of private-sector employees rose by 251,000 (+2.1%) in June, following two monthly declines. As of June, the number of private-sector employees was 2.5% lower (-313,000) than in February 2020.

In the public sector, employment rose by 43,000 (+1.1%) in June, bringing it to 180,000 (+4.6%) above pre-pandemic levels. Employment in this sector has trended up following the initial wave of the pandemic, particularly driven by increases in health care and social assistance, public administration, and educational services.

The number of self-employed workers fell by 63,000 (-2.3%) in June and was down 7.2% (-207,000) compared with February 2020. Self-employment is a broad category that includes workers in various situations, including working owners of incorporated or unincorporated businesses and independent contractors. Compared with June 2019, declines in the number of self-employed were widespread across multiple industries and were concentrated among the self-employed with paid help.

The employment rate remains below pre-pandemic levels.

To fully understand current and emerging labour market trends, it is essential to consider employment change against the backdrop of population change, which totalled 1.1% (+334,000) between February 2020 and June 2021. To keep pace with this population growth and maintain a stable employment rate—that is, employment as a proportion of the population aged 15 and over—employment would have had to grow by 203,000. Instead, total employment was 340,000 lower in June than in February 2020, and the employment rate was 1.7 percentage points lower (60.1% compared with 61.8%). “

Number of Canadians who worked from home drops by nearly 400,000

Among Canadians who worked at least half their usual hours in June, the number who worked from home fell by nearly 400,000 to 4.7 million. For 2.6 million of these people, working from home represented an adaptation to the COVID-19 pandemic, as this was not their usual work location. At the same time, the number of people working at locations other than home rose by approximately 700,000 to 12.3 million.

Almost one-third (31.4%) of workers aged 25 to 54 and more than one-quarter (27.2%) of those aged 55 and older worked from home in June. Due to their concentration in industries where working from home is less feasible, such as accommodation and food services, a far smaller proportion of youth aged 15 to 24 (12.9%) did so.

Regionally, Ontario and Quebec led the way higher, though B.C. and Nova Scotia had solid increases as well. Interestingly, even with restrictions easing through most of the country, only five provinces reported job gains.

Bottom Line

The jobs report is the last major piece of economic data before next week’s Bank of Canada policy decision, where it’s expected to continue paring back its stimulus efforts. The Bank of Canada is among the first from advanced economies to shift to a less expansionary policy, having already cut its purchases of Canadian government bonds to $3 billion weekly from a peak of $5 billion last year.

Analysts anticipate that will come down to C$2 billion per week at the July 14 meeting before eventually falling to a weekly pace of about C$1 billion by early next year. In addition to the bond tapering, the market has priced in at least one interest rate hike by this time next year.

Canada’s economy remains 340,000 jobs shy of pre-pandemic levels. The unemployment rate was below 6% before the pandemic.

With vaccination rates rising and restrictions easing, economists are predicting a strong rebound in the second half. According to a Bloomberg News survey of economists earlier this month, Canada’s expansion is seen accelerating to an annualized pace of 9.1% in the third quarter, with a 6% gain in the final three months of 2021. Consumer and business confidence regarding the outlook has recently hit record highs.

The Canadian Real Estate Association reported a 38% year-over-year increase in housing prices in May, and while it would appear investors are sitting on a sure thing, the reality of rising material and labour costs has made it difficult for supply to keep apace with voracious demand.

Rising cost of materials

According to Riz Dhanji, president of RAD Marketing, which has worked on iconic developments like the Shangri-La and 1 Delisle, the cost of materials as well as political sanctions and regulations are pushing the price of development higher.

In the steel industry, production is nowhere near pre-pandemic levels, and between scarcity and panic buying, prices hit a 20-year high.Even humble concrete has been hampered by supply chain backlogs and breakdowns, and that in turn has slowed construction during the current housing boom.

Effects of the new inclusionary zoning regulation

As of January 2022 in Toronto, new building sites will be mandated to offer 3-10% of units at below-market rental prices. As Dhanji puts it: if a one-bedroom unit rents for $2,100 per month, the city is saying, based on low-middle averages, the max you can charge for the affordable units is 30% of their gross-servicing ratio. This means if you’re charging $2,100 a month, you have to be able to offer the 3-10% of your units at $1,550 a month. This puts the burden of costs on the developers and the market-rate tenants, asking them to subsidize the lower priced units. Even in a growing development boom, these regulations may chill development projects within the GTA.

Labour shortage

Labour costs are already rising due to the shortage of trained tradespeople, a trend that is likely to continue with more retirements on the horizon than there are new apprentices each year. With trained workers spread thin, construction slows down and budgets increase.

The fate of development in Ontario

Despite these chilling effects, all is not lost.

“COVID has proven that even amidst lockdown—for 15 months—our real estate market has still flourished,” said Kirin Singh, CEO of ROI Developments Inc. “We’re still not seeing the effects of reopening the economy post-COVID, and once that happens? Prices will continue to soar.”

According to Singh, in the next five years, we could see condo valuation increase by 5-10% as the market evens out, and in new homes, it could be as high as 8-10%, although developers may still feel the pinch of rising costs.

The way Singh sees it, the new crop of homeowners will want more flexibility and remote work opportunities, accelerating trends catalyzed by COVID and the need for tech workers. She’s banking on luxury apartments with office space and room for kids as working from home continues to be popular among millennials and zoomers alike. Tech jobs are going to be an invaluable part of Canada’s economy over the coming years, and other types of remote work are following hard on their heels.

Investors are going to have to keep their eyes on labour and material costs over the next five years, but once the floodgates of demand open? The real estate market is going nowhere but up.

An upcoming webinar will explore why flipping condo assignments is a relatively simple way to invest in real estate: in addition to forgoing the hassle of taking out a mortgage—and of course, dealing with tenants—it’s a pure appreciation play.

“You’re buying real estate in the form of a contract and you get all of the appreciation you’d get from buying real estate, but you haven’t actually bought it,” said Ryan Coyle, co-founder of Connect.ca Realty, which will be hosting the webinar on July 22 from 2-3 PM.

“You put down a deposit for a contract and you get all the leverage of owning a property and all the appreciation without any mortgage payments. When you flip the contract, you make a lot of money because the contract’s appreciated.”

Most developments only require a mortgage preapproval letter, which is much less onerous to obtain than an actual mortgage, and the condo preconstruction segment of the investment market proffers investors the opportunity to purchase multiple properties, the appreciation on all of which they can ride without having to secure financing, like they would on the resale market.

“I’ve used this strategy often,” said Coyle, a seasoned investor. “Condos are coming up for completion almost every year, and because they’re staggered that way, we can sell the assignment and have that extra income every year.”

“By assigning the contract to a buyer, you cross your name off the contract and add the buyer’s name, and they take on all the responsibilities, including closing costs and taking out the mortgage. They also pay you back your deposit plus your profit on closing.”

There are some potential hurdles to flipping assignments, namely tax implications that could be heavy if the assignor doesn’t offload it the right way. Coyle noted that the webinar will teach viewers how to avoid such a tax burden.

“Flipped assignments are treated as sophisticated investments, so it’s a full income tax versus capital gains. An accountant will be on our webinar to explain this and how to make a good business out of assignment flipping. If you do it through a corporation, you pay 12.2% tax, which is lower than capital gains.”

The best time to flip an assignment is right before closing so that no money is left on the table, added Coyle.

“You don’t want to sell it too early; you want to sell it closer to completion otherwise you leave a lot of money on the table, at which point the developer will allow it. Typically, investors will sell their assignment to another investor or to an end-user who really wants to live at the desirable development where you’ve purchased your assignment.”

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Rental demand for houses in Ontario is through the roof, but given the exorbitant price points to buy such dwellings, do the numbers make sense for investors?

According to Claude Boiron, a real estate broker, author, university instructor and founder of Boiron Group, investors who can secure single-family homes outside of the MLS will have a better time carrying the investment.

“For the most part, any single-family home investor I know of, if they’re buying off of the MLS they’re duplexing the property, which means they’re legally adding a basement suite to make the numbers work, or they’re buying off-market from other real estate investors,” he said. “They also wholesale, which is the practice of buying a property privately and before closing they assign it to an investor for a higher price.

“I like to look at properties that have been on market for more than 15 days, and in this market that means they tried to sell on an offer presentation and failed or they overpriced it and now it’s lingering on the market. People assume there’s something wrong with a property that’s listed that long, but it might be a misstep with marketing. If the seller has already bought another property and they have a drop-dead date they have to sell this property by, that’s another good way to secure a single-family home.”

Boiron says there are myriad reasons homeowners become desperate to offload properties. He recounted a story in which a homeowner hadn’t made a mortgage payment in three months and a bailiff was coming to change the locks, so the homeowner sold the home to an investor at a price the latter found favourable.

“There are all kinds of reasons. A hoarder, for example, doesn’t want 100 people in their home for viewings. They’d rather leave $100,000-200,000 on the table than have people in their house because it’d be embarrassing. It sounds unbelievable, but I’m in that world and I promise you it’s true.”

Of course, the closer to Toronto the house is, the more difficult it will be to carry, despite voracious rental demand. However, registering on buyer lists is an effective way to find these properties, and possibly deals as well, within the GTA or without, added Boiron.

Out in Windsor, rental demand for houses is very strong, according to Brady Thrasher, a broker with RE/MAX Preferred, who noted that there’s also a burgeoning market for “executive rentals” in the city.

“We’ve seen an increase in demand. It’s not normal to see a house rent for $5,000-6,000, but you will see them because of ongoing infrastructure projects like the new bridge and hospital, so companies relocate to the city and look for that kind of interim housing for employees like engineers and planners,” said Thrasher. “The rental houses we mostly see in Windsor will be townhouses that earn investors $1,500-1,600 a month, but a single-family detached rental will go for $1,800-2,500 a month. Demand is very strong for these.”

In Peterborough, duplexing bungalows can also earn investors hefty returns, says Stephanie Yates, a sales agent with Century 21 United.

“People will buy bungalows with side entrances and convert the basement into an apartment and rent that out in addition to the main level,” she said. “Some people are even doing student housing where they buy houses and rent out the rooms. I had a nice listing in Peterborough with seven or eight bedrooms and they all could have been rented out for $600 a month each.”