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POST CITY: Welcome to our 11th an­nual Real Es­tate Round­table. I’m Ron John­son, ed­i­tor of Post City Mag­a­zines. This year we have as­sem­bled our most dis­tin­guished panel yet. Mr. Tal, as one of the coun­try’s top econ­o­mists, give this round­table a sense of where the Toronto real es­tate mar­ket is right now.

BEN­JAMIN TAL: Well, I think that it’s chal­leng­ing. It’s a very chal­leng­ing mar­ket now. In fact, this is the big­gest test since 2008. We have too many things hap­pen­ing at the same time. We have in­ter­est rates ris­ing. We have the Of­fice of the Su­per­in­ten­dent of Fi­nan­cial In­sti­tu­tions (OSFI), the 200 ba­sis points qual­i­fi­ca­tion rate [the new stress test], which is a big deal. We have Trump, which is a ma­jor is­sue. So, clearly, I think that we are fac­ing the most sig­nif­i­cant chal­lenge since 2008.

I don’t think that the num­ber one is­sue is in­ter­est rates. I think that in­ter­est rates will be ris­ing very, very slowly. The num­ber one is­sue is OSFI. The num­ber one is­sue is the qual­i­fi­ca­tion rate. About 12 per cent of peo­ple will not qual­ify, given the new reg­u­la­tions. I think that will im­pact the mar­ket. It’s al­ready im­pact­ing it. We are see­ing an af­ford­abil­ity cri­sis hap­pen­ing, and clearly the rental mar­ket is not there be­cause of the fact that we don’t have pur­pose-built rental ac­tiv­ity hap­pen­ing. Rent con­trol is part of it. So clearly this mar­ket is be­ing chal­lenged.

POST CITY: Barry Co­hen, you’ve got boots on the ground as one of the top real­tors in the GTA. Is this in line with what you’re see­ing?

BARRY CO­HEN: I think the pub­lic is more sen­si­tive to what they see and what they hear, and the me­dia plays a large part in our mar­ket­place. So there’s a lot of wait and see go­ing on, but to­day the Toronto Real Es­tate Board came out with the stats, and they talked in terms of ac­tiv­ity down 30 per cent, and the av­er­age price be­ing down. But ev­ery­thing is in com­par­i­son to last year, which was kind of an out­lier, nom­i­nally. So we are see­ing, in some ar­eas within two miles of here, mul­ti­ple of­fers in the $2 mil­lion range.

TIM HUDAK: I think that an im­por­tant les­son for gov­ern­ment right now is just to pump the brakes. There has been a con­sid­er­able pile on, as Ben­jamin talked about, from OSFI to higher in­ter­est rates, to new taxes at a pro­vin­cial level, higher land trans­fer tax rates, and the im­pact is that it’s caus­ing fewer peo­ple to be able to achieve that dream of home own­er­ship. So one clear les­son for the gov­ern­ment, for the time be­ing — don’t do any more dam­age. Step back.

JEN­NIFER KEESMAAT: These con­ver­sa­tions al­ways strike me as funny, be­cause a year ago we were talk­ing about how the mar­ket was over­heat­ing, prices were out of con­trol, we needed to slow things down. Now things are slow­ing down, and ev­ery­one’s say­ing, “Oh, God, things are slow­ing down. There’s this in­cred­i­ble risk. Why are things slow­ing down?”

Last year the con­ver­sa­tion was about adding sup­ply, adding more units. There’s 52,000 more units in the res­i­den­tial pipe­line in the city of Toronto than there were a year ago. There’s al­most 300,000 units over­all that are ap­proved and not yet built. The chal­lenge is, when a whole se­ries of pol­icy mea­sures are im­ple­mented at once, it’s dif­fi­cult to know what is ac­tu­ally hav­ing an im­pact. PAUL MIKLAS: For the 52,000 units you’re re­fer­ring to, are they all con­dos? KEESMAAT: They’re a com­bi­na­tion of con­dos. I think 89 per cent are, in fact, con­dos.

POST CITY: Brad Lamb, the condo mar­ket is still hot and out­pac­ing sin­gle de­tached homes. Can we ex­pect more of the same this year in the condo mar­ket specif­i­cally?

BRAD LAMB: We’re not see­ing, I think, any­thing that we’ve just dis­cussed in terms of neg­a­tive mar­ket­places. In­cred­i­bly strong: a new de­vel­op­ment to­day in Toronto, and it doesn’t mat­ter if it’s Mis­sis­sauga or Scar­bor­ough, North York or down­town, is typ­i­cally be­ing sold in 24 hours. So there’s ab­so­lutely no is­sues in the de­vel­op­ment busi­ness.

The av­er­age price now down­town for a new launch is $1,200 a square foot. That’s the av­er­age, and you’re lucky to get that. In the re­sell mar­ket, we’re see­ing in­creases in the last six months of around 15 per cent in prices. Maybe 20. We’re see­ing mul­ti­ples on al­most every sale. The is­sue we have is sup­ply. It still re­mains sup­ply. 52,000 new con­do­mini­ums could be sold in six months down­town.

POST CITY: Ms. Romanow.

MICHELE ROMANOW: You know, un­em­ploy­ment is low to­day. Fac­to­ries are at ca­pac­ity. The economy is largely do­ing well, and so the only way to kind of pre­vent this in­fla­tion is go­ing to be for in­ter­est rates to rise. I think prob­a­bly, yes, we can talk about OSFI and for­eign buy­ers and what’s gone in to pro­duce this lit­tle cool, but I think, you know, we have to be look­ing at go­ing into a 40-year pe­riod of ris­ing in­ter­est rates, not fall­ing in­ter­est rates.

TAL: So we are much more sen­si­tive to the risk of higher in­ter­est rates, and what the Bank of Canada is telling us is that maybe the dis­ease is also the cure. Namely, the in­creased sen­si­tiv­ity to higher rates will pre­vent in­ter­est rates from ris­ing to the sky. Also, the struc­ture of the debt mar­ket in Canada is that it takes a lot of time for it to ac­tu­ally get the full im­pact. For the first year, only 20 per cent of Cana­di­ans paid one cent more. Next year, even if in­ter­est rates go up, only 30 per cent will pay more.

It’s a very grad­ual process, the only risk is that the Bank of Canada would like to see the change very quickly, and they will start rais­ing in­ter­est rates too quickly. The peak in in­ter­est rates this cy­cle will be much lower than the pre­vi­ous peak.

DANIELLE BRYK: Peo­ple are buy­ing smaller. Cer­tainly I’m see­ing that from a de­sign per­spec­tive. There’s a true ap­pre­ci­a­tion for small space de­sign, and for me, the peo­ple that are most af­fected by this real es­tate mar­ket are those ones that are try­ing to get in there, peo­ple who may want to raise a fam­ily in a condo. I think there’s a very huge lack of fam­ily-sized con­dos and apart­ments in Toronto, un­like every other ma­jor city across the world, where peo­ple do raise fam­i­lies in apart­ments. I think we need to, A, in­crease that sup­ply, and B, I think we need to have a mind shift around this stigma on rais­ing fam­i­lies in an apart­ment.

KEESMAAT: Well, I’m happy to pick up on that point. At the City of Toronto, we’ve had an ini­tia­tive un­der­way called Grow­ing Up Ver­ti­cal. We learned that fam­i­lies are al­ready liv­ing in con­dos. They just have nowhere to park their strollers, for ex­am­ple, so they’re putting them in the bath­tub. They have no ameni­ties for chil­dren in the condo.

The amaz­ing thing about that ex­er­cise was how the in­dus­try re­sponded. De­vel­op­ers like Tridel be­came very in­volved, wanted to pi­lot the guide­lines and have now de­signed new build­ings that have craft rooms and play rooms and ameni­ties and spa­ces par­tic­u­larly for park­ing strollers. So I think part of it is about a cul­tural shift that we’re go­ing through as a city right now, and we can either push against that or we can em­brace it. TAL: So, Brad, do you see de­mand ris­ing for fam­ily units?

LAMB: So this is not gonna hap­pen. The rea­son for it is that the process from buy­ing a prop­erty as a de­vel­oper to fin­ish­ing it off is seven years now. You of­ten put it to mar­ket within a year of buy­ing it. So it’s a sixyear process. So how many fam­i­lies are gonna buy a condo and wait for six years? No­body.

MARYAM MANSOURI HURST: As Brad men­tioned, the prices right now are be­tween $1,000 to $1,200 a square foot. Let’s put that into per­spec­tive. That’s $600,000 for a one-bed­room condo in the city. With the new in­ter­est rates and the stress tests, who can af­ford a two-bed­room unit for a cou­ple and their chil­dren?

BRIAN GLUCK­STEIN: Well, it can’t be the two bed­rooms that are be­ing pro­duced now be­cause they’re re­ally not fam­ily spa­ces.


GLUCK­STEIN: They are tiny, tiny spa­ces. There’s no place for toys. There’s no place for a din­ing room ta­ble. There’s no stor­age. So you would have to build 1,000 feet, and that’s a $1,300 or $1,400 for a mil­lion three or a mil­lion four. And you’ve just blown them out of the mar­ket again. TAL: So we have a sup­ply is­sue, given pre­fer- ences. We did a lot of fo­cus groups, and many fam­i­lies still want to live in this, you know, nice house with the back­yard. So that’s why you have “try un­til you qual­ify,” yeah? Peo­ple go to Hamil­ton and Bar­rie and all kinds of other places be­cause that’s ba­si­cally the only thing they can af­ford.

I’m not sure that cur­rent poli­cies are help­ing. I think that the rent con­trol was not the right pol­icy. I was beg­ging the gov­ern­ment to do at least rent [in­creases], you know, in­fla­tion plus two be­cause many de­vel­op­ers are telling me, “Give me three per cent, four per cent rate of in­fla­tion and I’m build­ing pur­pose-built rentals.” We’re not get­ting this as well. So the only thing that can re­lease the pres­sure is rent. We have to change the state of mind of many peo­ple: that if you are 35 years old, you are mar­ried, you have two kids and you are rent­ing, noth­ing is wrong with you. If we are able to do that, then we can find some sort of a so­lu­tion with mod­i­fy­ing rent con­trol.

LAMB: Phase two is com­ing, by the way. You’ve just seen phase one. Phase two is now a reg­istry where all land­lords have to reg­is­ter their prop­er­ties with the prov­ince. So in the cur­rent leg­is­la­tion, if you own an apart­ment build­ing and a ten­ant moves, and they’ve been there 20 years and they’re pay­ing $800 and the mar­ket is $1,500, you can charge $1,500 on an empty apart­ment. That’s the rules as of now. This leg­is­la­tion [a pri­vate mem­ber’s bill put for­ward by Peter Tabuns, MPP for Toronto-Dan­forth, called Bill 144] has gone through first read­ing at the leg­is­la­ture: that you can only raise an empty apart­ment now by that amount al­lowed by the prov­ince, which will be two per cent or in that range. So that’s just gonna ab­so­lutely de­stroy the rental in­dus­try. That’s com­ing.

TAL: You know, what all this means is that if you think that this city is un­af­ford­able now, you wait. This is just the be­gin­ning.

POST CITY: So if you’re look­ing for your first home right now, where would you look for value in Toronto, a condo first or house?

GLUCK­STEIN: I would say the pe­riph­ery of the city. The Junc­tion or, you know, way east or way west. There are a lot of ar­eas in the city that have great stock of houses that are not the most de­sir­able neigh­bour­hoods right now, but are go­ing to be quite de­sir­able and al­most un­af­ford­able within the next decade.

POST CITY: Jen­nifer?

KEESMAAT: An area like We­ston, I think, is a hid­den gem. It’s a 15-minute ride on the UP Ex­press or the GO train to get down­town. So it has ex­cel­lent tran­sit ac­cess, ex­cel­lent parks. There’s a com­bi­na­tion of rental. There’s some new de­vel­op­ment that’s been ap­proved. There’s also sin­gle fam­ily. So it’s a great com­bi­na­tion. There’s a new cul­tural hub that’s be­ing built in that area.

I would also say look in the ar­eas around the SmartTrack sta­tions be­cause those ar­eas tend to be very low den­sity.

There will be new de­vel­op­ment, and those are ar­eas where you’re go­ing to see the ac­cess to the rest of the city flip on a dime once those SmartTrack sta­tions are open. The tran­sit ac­cess will in­crease sig­nif­i­cantly. LAMB: I would say Scar­bor­ough. POST CITY: Be­cause of the sub­way? LAMB: The sub­way, and also it’s in­cred­i­bly, in­cred­i­bly cheap.

BRYK: I live in the east end, and it’s very un­tapped.… You’re right. Scar­bor­ough, like, just out­side of the city lim­its, un­tapped. A lot of land, of­ten. Great lit­tle com­mu­ni­ties start­ing up, where all these young fam­i­lies have been go­ing. You can see the de­vel­op­ment even on Kingston Road with the cafés go­ing in and all of the dif­fer­ent things. It’s got a re­ally nice vibe. POST CITY: OK. Michael?

MICHAEL KALLES: Not look­ing at the starter homes, but look­ing at the cen­tral core, I think what dis­tin­guishes Toronto from the east­ern seaboard, cities like Bos­ton, Chicago, New York, is the abil­ity to be in a sin­gle-fam­ily de­tached home, be it in For­est Hill, Bri­dle Path, Rosedale, and to be in down­town in 15 to 20 min­utes … that just doesn’t ex­ist in these cities, so I’m quite bullish on these ar­eas.

ROMANOW: I think I am with Danielle on the east end. I think even closer to the wa­ter. I’m re­ally ex­cited about what Google has done in mak­ing a huge in­vest­ment in smart cities, with the sup­port of the city. I think there is so much around the wa­ter that we haven’t used that could be a great as­set.

MIKLAS: I think if I’ve got $600,000 or $800,000 to spend, your choice is either live in the city or go out to Pick­er­ing or Oshawa. I think it re­ally comes down to what the peo­ple want. I mean, do you want to live the condo life? It’s per­son­ally not for me. I would rather take a train ride to go to a place like Oshawa and be able to buy a 35-foot lot that’s 100 feet deep and have a 2,500-square­foot home, where I could raise a fam­ily.

POST CITY: Now, we’ve heard anec­do­tally that, in Toronto, mort­gage re­newals are in jeop­ardy with some of the ris­ing in­ter­est rates. How bad could it get for peo­ple who have overex­tended and bought at the mar­ket peak a year ago? Mr. Hudak?

HUDAK: Well, look, I think that the stress test is go­ing to hurt new Cana­di­ans, mil­len­ni­als and those of mod­est in­come the most. The fed­eral gov­ern­ment talks a lot about help­ing the mid­dle class and those who as­pire to join it. This pol­icy is work­ing in the com­plete op­po­site di­rec­tion.

TAL: There is one de­riv­a­tive of this pol­icy, which I’m con­cerned about, and that’s al­ter­na­tive lenders. You see, 12 per cent of peo­ple will not qual­ify based on what we are talk­ing about. But never un­der­es­ti­mate the cre­ative imag­i­na­tion of Cana­dian bor­row­ers. They will come up with some­thing. This some­thing, in part, is go­ing to be al­ter­na­tive lenders. We al­ready see busi­ness with credit unions ris­ing be­cause they are not part of the the reg­u­la­tions.

The other is­sue is pri­vate lenders: mort­gage in­vest­ment cor­po­ra­tions. Their busi­ness is boom­ing. They are al­ready 10 per cent of the mar­ket. Al­ready in terms of trans­ac­tions, on its way to 15 per cent. So the is­sue is that we are trans­fer­ring risk from the reg­u­lated seg­ment of the mar­ket to the un­reg­u­lated seg­ment of the mar­ket. We are trans­fer­ring risk from where there is light to where it’s dark. This means that the un­reg­u­lated seg­ment of the mar­ket will be larger and larger. So when some­thing bad hap­pens, we are blinded by it.

CO­HEN: I still be­lieve that, while in the short­term there will be fewer sales be­cause of the stress test, in the long-term there will be as much and more, be­cause I think Brad and Maryam are go­ing to just con­tinue to build smaller units, be­cause if I can’t have a house this big, I'll have a condo this big.

HUDAK: So the sur­prise out­come of the stress test is putting ex­tra­or­di­nary pres­sure on rental mar­kets, which means that low­in­come fam­i­lies can­not find rental spa­ces, and it lim­its sup­ply. So about 50,000 peo­ple will no longer qual­ify to buy a home be­cause of a stress test, the two-point in­crease in the rates. That means they’re stay­ing in rental hous­ing. When you com­bine that with the new rent con­trols and lack of new sup­ply, that means low-in­come [peo­ple], those in risk of be­com­ing home­less, kids try­ing to get a place of their own, they’re go­ing to be SOL.

TAL: I think it’s time to talk about debt. Our debt-to-in­come ra­tio is 171. You know, dur­ing the re­ces­sion our debt-in­come ra­tio went down from 140 to 171.

There are two sep­a­rate parts to the debt story. One is peo­ple in their 30s, in their 40s. They are ac­tu­ally ex­tremely re­spon­si­ble. They have been us­ing pre­pay­ment at a rate we’ve never seen be­fore. Their mo­ti­va­tions have been go­ing down. In many ways, many Cana­di­ans de­serve credit for not tak­ing credit. The main is­sue is those young fam­i­lies that are still blinded by the af­ford­abil­ity mi­rage tak­ing those ex­tremely large mort­gages to buy a low-rise, and that’s where the vul­ner­a­bil­ity is.

The is­sue is not peo­ple de­fault­ing, by the way. The is­sue is that, if you start pay­ing too much to­ward debt when rent starts ris­ing, you pay less to con­sump­tion. You do that, I do that, so you have a re­ces­sion, a re­ces­sion leads to higher in­ter­est rates, higher in­ter­est rates lead to a higher un­em­ploy­ment rate, the higher un­em­ploy­ment rate leads to de­fault.

There will be re­ces­sions, and prices will go down in a re­ces­sion. In­ter­est rates will have an im­pact, and the mar­ket will slow down, if not this year, the year af­ter. The cy­cle is not dead.

LAMB: I think we need to fo­cus now on giv­ing peo­ple or hav­ing peo­ple un­der­stand that rental is OK, and that we’re gonna shift from an 80 per cent owned, 20 per cent rental to a 90 per cent rental and a 10 per cent owned. The 10 per cent owned is gonna be owned by wealthy peo­ple, just like Paris and Lon­don and New York. That’s OK. As long as the peo­ple who rent do other things with their money. They don’t spend it all, then they can have a good life. BRYK: I think there’s ac­tu­ally still a ton of room in Toronto to in­crease the den­sity in our low-rises. So talk­ing about New York, no­body lives in a full brown­stone any­more. So even some of my clients now are con­vert­ing their sin­gle-fam­ily dwellings into high­end mul­ti­ple-fam­ily dwellings, and I think that’s a re­ally nice mar­ket to tap into. Even with multi­gen­er­a­tional fam­i­lies, you’re talk­ing about kids still liv­ing with their par­ents. Ac­tu­ally, there’s a lot of ben­e­fit to that. So if there’s a way to kind of con­vert our hous­ing to ac­com­mo­date that, too, I think we ben­e­fit in so many ways. HUDAK: I mean, we’re a long way from New York City or Paris. It makes us feel good to say we are close, but we are a long way away from that. Gov­ern­ment should in­vest in in­fra­struc­ture to en­able more hous­ing, whether that’s tran­sit, wa­ter, sewer or roads. JOE OLIVER: The rea­son that peo­ple are opt­ing for apart­ment build­ings down­town is not be­cause they nec­es­sar­ily want to plunk their fam­ily in an apart­ment build­ing. It’s that they can’t af­ford a sin­gle­fam­ily dwelling, and they find it in­tol­er­a­ble to com­mute for an hour and a half when the pub­lic trans­porta­tion isn’t a good al­ter­na­tive, when there aren’t trains and sub­ways get­ting there. We need to ad­dress the sup­ply. That’s gotta be at the ab­so­lute top pri­or­ity. Look at the Green­belt. We have 1.8 mil­lion acres, five per cent of that, 90,000 acres. I un­der­stand it can ac­com­mo­date a half a mil­lion mixed de­vel­op­ment res­i­dences, hous­ing one and a half mil­lion peo­ple. This is po­ten­tially sig­nif­i­cant.

MIKLAS: Un­for­tu­nately, Joe, it’s so ex­pen­sive. By the time you buy the land, put the in­fra­struc­ture in place, set up to sell cer­tain homes, you’re eas­ily, like, if you’re talk­ing about the Green­belt just north of Toronto, you’re gonna start pro­duc­ing town­homes around, oh, what, 1,800 square feet or even 1,200 square feet? You’re gonna be at $800,000 to $900,000.

POST CITY: In the mid­town area of Toronto, more than 200 prop­er­ties, a lot of two­s­torey main street store­fronts, have been added to the city’s her­itage reg­is­ter. What im­pact could that have?

LAMB: It’s a dis­as­ter. In the past there’s been some flex­i­bil­ity in tak­ing truly his­toric build­ings and mov­ing them around the site, some fa­cadism for build­ings that per­haps have mostly a fa­cade that’s his­toric and not the whole build­ing. That’s gone. This is dra­co­nian. It’s gonna shut down de­vel­op­ment in a mean­ing­ful way in the west precinct, which is, like, from Uni­ver­sity to Bathurst to Queen, down to Front Street. It’s hor­ri­ble, and they’ve also ex­tended it to the east side.

Most landown­ers are at the On­tario Mu­nic­i­pal Board (OMB) fight­ing it. It’s gonna be a very long, ex­pen­sive bat­tle. But it’s not good for the city.

KEESMAAT: Well, I dis­agree. I don’t think it’s a dis­as­ter. Not even close.

Within the area that you’ve [Post City] ref­er­enced on Yonge Street, there’s a de­vel­op­ment by Rock­port, Postal Sta­tion K. The his­toric postal sta­tion is pro­tected, and you can walk out there to­day and see the 32storey tower that is be­ing built on top of it. The her­itage build­ing was in­te­grated into the de­vel­op­ment. So this idea that pro­tect­ing her­itage freezes de­vel­op­ment is sim­ply not the Toronto story. Look at Yonge Street. We have a her­itage con­ser­va­tion dis­trict (HCD) along the his­toric Yonge Street, and we have 30-, 40-, 50-, 60-storey build­ings that are in­te­grat­ing her­itage as­sets into the build­ing and, as a re­sult, creat­ing a re­ally unique place.

So it’s not a dis­as­ter. We, in fact, are see­ing many of the best de­vel­op­ments in the city are sites where there is a her­itage build­ing. LAMB: That’s just not true. That’s not true.

KEESMAAT: It doesn’t freeze it. It just means that, as a de­vel­oper, you’re re­quired to work with that her­itage build­ing and in­cor­po­rate it in some way into your project.

Right in the King-Spad­ina precinct, which Brad is ref­er­enc­ing with re­spect to the new HCD, one of the best build­ings in that precinct is the build­ing by Al­lied, on the cor­ner of Rich­mond and Peter, a her­itage build­ing in­te­grated right into an of­fice com­plex. What’s so amaz­ing about that build­ing was that it wasn’t des­ig­nated. It wasn’t even listed. Al­lied looked at the as­set and said, “Hey, we can cre­ate a re­ally unique project and a re­ally unique of­fice build­ing on this site if we in­te­grate the her­itage build­ing.”

LAMB: Lis­ten, Jen­nifer, the HCD just was en­acted. So you’re talk­ing about things that hap­pened years ago. Years ago it was dra­co­nian but not ter­ri­ble. This new HCD that I think you’re partly be­hind, it is ter­ri­ble. I live it every day, and I talk to de­vel­op­ers every day on this level, hon­estly, where we’re talk­ing about what the city is do­ing to us, and you’re wrong about that. It is shut­ting down de­vel­op­ment.

I own mul­ti­ple build­ings around the city that are not de­vel­opable any­more, pe­riod. There are sites that are now be­nign. We can’t de­velop them, be­cause we have to keep the en­tire struc­ture in­tact. We can’t build on top of it. We can’t put sup­port sys­tems through the his­toric prop­erty.

BRYK: Just from a strictly de­sign per­spec­tive, I can’t speak to the de­vel­op­ment or the fi­nan­cial im­pli­ca­tions of it, but pre­serv­ing those ma­te­ri­als is so in­cred­i­bly im­por­tant for long-term value. I think it’s such a shame if we can’t come to some kind of a com­pro­mise where you can de­velop while main­tain­ing that fa­cade.

GLUCK­STEIN: I think Toronto has a big prob­lem from a de­sign stand­point. I re­ally think that Toronto is not be­com­ing a more beau­ti­ful city. I think that we are shap­ing the en­tire city for­ever in the last two decades and not for the bet­ter. I think we are putting up build­ings that are un­der­whelm­ing at best, are overly con­sis­tent, and we are go­ing to be liv­ing with these for a very long time.

There doesn’t seem to be an in­cen­tive to re­ally push the en­ve­lope among most de­vel­op­ers, and un­for­tu­nately Toronto is go­ing to pay the price.

KEESMAAT: If we go to Paris or, I just came back from Vi­enna, the vast ma­jor­ity of the build­ings are back­ground build­ings. Dubai is the op­po­site. Dubai is a city where every sin­gle build­ing is dif­fer­ent, and I ac­tu­ally, es­thet­i­cally, find that very ugly.

If all your build­ings are dif­fer­ent, you ac­tu­ally get a loud chorus. Most build­ings in a city ought to be back­ground build­ings.

TAL: I just want to raise a ques­tion and hear what you [Brad] have to say. The changes to the OMB, how big a deal is it? LAMB: It is the sin­gle big­gest dis­as­ter. You know — KEESMAAT: Brad you said that was her­itage. Her­itage was the sin­gle big­gest dis­as­ter —

LAMB: Her­itage is num­ber two be­cause her­itage only af­fects cer­tain neigh­bour­hoods in Toronto, not all sites. What peo­ple don’t un­der­stand is that some­times the city plan­ning de­part­ment agrees with the de­vel­op­ment and the lo­cal coun­cil­lor doesn’t, and it ends up at the OMB to be dis­cussed. Now, with­out the OMB, the lord and master is the coun­cil­lor, and the peo­ple that pup­pet master him are the ratepay­ers. It’s now en­tirely up to ratepay­ers to de­cide what they see in the neigh­bour­hood. GLUCK­STEIN: Why shouldn’t ratepay­ers have a say in their neigh­bour­hood? LAMB: Well, be­cause ratepay­ers aren’t pro­fes­sion­als.

GLUCK­STEIN: It’s their neigh­bour­hood. They’re the ones that are gonna be there af­ter that de­vel­op­ment.

LAMB: I’m gonna tell you why: be­cause what most ratepay­ers do is work for a liv­ing. Maybe they’re in­te­rior de­sign­ers, doc­tors, lawyers. They could be politi­cians. They don’t know any­thing about de­vel­op­ment. GLUCK­STEIN: Are you say­ing they should have no say in their neigh­bor­hood? LAMB: I’m say­ing they should have the same say they had be­fore. They had a say. GLUCK­STEIN: But the OMB rub­ber­stamped ev­ery­thing. LAMB: That’s ab­so­lutely not true. GLUCK­STEIN: It hap­pened a lot in my neigh­bour­hood. LAMB: Only be­cause you dis­agreed with the de­vel­op­ments.

GLUCK­STEIN: No, I’m in­volved in many of the de­vel­op­ments. I’m in­volved in so many de­vel­op­ments in this city. So I’m not against de­vel­op­ment.

LAMB: OK. I’ve lived with the OMB for the last 10 years, and I’ll tell you, the OMB, I’ve lost there and I’ve won there, and the OMB is very fair. They are very fair. POST CITY: But there is a tri­bunal that's be­ing set up to re­place the OMB.

LAMB: It’s use­less. They do not have the same man­date to over­rule. It’s a much weaker board.

MANSOURI HURST: So the is­sue with the tri­bunal that’s been cre­ated is, if you have op­po­si­tion at the city level and then you have an ap­peal, you’re ba­si­cally go­ing back to the same level of a board again. Ver­sus some­thing more de­tached, look­ing at it from a more ra­tio­nal, ev­i­dence-based per­spec­tive.

POST CITY: The for­eign buy­ers tax was a big point of con­tention at last year’s round­table. None­the­less, it hap­pened. Mr. Hudak, did it have the de­sired ef­fect on the lo­cal mar­ket?

HUDAK: In the short-term, it was a psy­cho­log­i­cal im­pact that took some of the froth out of the mar­ket­place. But it doesn’t have a long-term im­pact of con­se­quence. The most dam­ag­ing pol­icy in the Fair Hous­ing Plan was rent con­trols, be­cause it’s gonna pun­ish low-in­come se­niors, peo­ple with dis­abil­i­ties, young peo­ple the most.

CO­HEN: There are so many loop­holes. My ex­pe­ri­ence with my buy­ers is that one out of 10 even talk about the tax. In the case of Chi­nese peo­ple mi­grat­ing, they are putting it through friends, or other fam­ily mem­bers [who have al­ready set­tled here]. So I re­ally think 90 per cent of it is not be­ing picked up, and I think that they are look­ing at it as just the cost of im­mi­grat­ing.

LAMB: I would say that tax is ir­rel­e­vant. Peo­ple are very smart in terms of avoid­ing that tax. I think it’s … well, as Tim said, it has a psy­cho­log­i­cal ef­fect. No one we talk to says any­thing about it, but rent con­trol is ab­so­lutely the big thing that needs to change be­cause with rent con­trols in place we are gonna have a real cri­sis of rents. We’re see­ing rents rise 25 per cent a year right now. KEESMAAT: Isn’t that an ar­gu­ment for rent con­trol?

LAMB: No. It’s for more rentals. The amount of prop­er­ties cur­rently for rent in the condo mar­ket down­town right now is around 1,200. Last year there were 1,800. Eigh­teen hun­dred was a dis­as­ter last year. It’s 1,200 now. We’ve added all these new con­dos that have been ap­proved.

So what’s hap­pen­ing is, two things are hap­pen­ing. Small-time in­vestors are sell­ing the units through the mar­ket to end users be­cause they don’t like rent con­trols.

So our clients are choos­ing to sell units in­stead of keep­ing them. So the rent con­trol, the rental prod­uct, is get­ting less and less and less. Rather than hold­ing for 10 years, they’re hold­ing for four or five.

It’s a ter­ri­ble pol­icy. It needs to change or we're gonna have a real cri­sis on our hands.

KEESMAAT: Is it a bad thing if in­vestors are sell­ing their prop­er­ties that they were pre­vi­ously rent­ing to an end user? I’m not sure that’s a bad thing. It can pro­vide sta­bil­ity in a build­ing in the com­mu­nity to ac­tu­ally have peo­ple who own the unit liv­ing there. But what it does point out is that us­ing con­dos as a de facto rental mar­ket and rental sup­ply is a poor way to pro­vide rental in a city. LAMB: Ab­so­lutely.

KEESMAAT: So pur­pose-built rental is a bet­ter way to do it. When rent con­trol was in­tro­duced at the city, we had a whole va­ri­ety of ap­pli­ca­tions for rental build­ings that were go­ing through the ap­provals process, and so we did some re­con­nais­sance with the de­vel­op­ers who were bring­ing these build­ings for­ward, to de­ter­mine whether or not they were go­ing to con­tinue to pur­sue that build­ing as a rental build­ing or if the rent con­trol was dis­in­cen­tive to do­ing so.

One of the key things we learned was that of all the projects at that time — so this was about a year ago and there were 23 projects un­der de­vel­op­ment — all of them, ex­cept for one, were con­tin­u­ing. As long as the de­vel­oper can set the point of en­try into the mar­ket and gets that point of en­try right, in terms of set­ting the base price, rent con­trol is not that dif­fer­ent from what an an­nual escalation will be.

It isn’t de­sir­able in a rental build­ing to have huge in­creases in rent be­cause you cre­ate tur­moil within the build­ing. You gen­er­ate va­can­cies, which has a cost as­so­ci­ated with it.

So, gen­er­ally, pur­pose-built rental build­ings, re­gard­less of rent con­trol, seek to have a very sta­ble pop­u­la­tion and do not have dra­matic in­creases in rent like you see in condo build­ings, where it might be an in­vestor who owns one or five units.

TAL: There is a win-win sit­u­a­tion if we just do in­fla­tion plus two. Then it’s sim­ple. Then you have rent con­trol. You don’t have this crazy landowner that is dou­bling over the course of break­fast, and you al­low builders to build. So all those peo­ple at the mar­gin will en­ter the mar­ket. We can do that and call it rent con­trol, pro­tect the ten­ants and still have af­ford­able rental in these mar­kets.

KEESMAAT: But it’s im­por­tant to dis­tin­guish that those crazy in­creases were not in pur­pose-built rental build­ings. They were in­vestors who were boot­ing out a ten­ant and get­ting a new ten­ant in at a higher rate. It was not in pur­pose-built rentals where that prob­lem ex­isted, to your point. LAMB: Sorry, just quickly. In pur­pose-built rentals, land­lords do raise rents by the max amount they can to keep the ten­ant in place. That’s their busi­ness plan.

GLUCK­STEIN: Yeah. The is­sue is, like Brad is say­ing, if you are go­ing to say af­ter four years or five years, “You know it doesn’t make sense. I’m gonna sell it,” there’s no se­cu­rity for a ten­ant. If they’re in a pur­pose­built build­ing, if they want to stay there for the rest of their life and they want to be a ten­ant, they make that their home. But with that un­cer­tainty, is your land­lord gonna sell it in a year be­cause the mar­ket’s go­ing up? There is no sta­bil­ity to rent­ing.

TAL: The fu­ture of de­mand is fam­i­lies. They want sta­bil­ity. The fu­ture of de­mand is all the peo­ple down­siz­ing. They want sta­bil­ity. We need pur­pose-built.

POST CITY: It’s time for our look ahead. What con­fi­dence do you have in the mar­ket? Would you rec­om­mend to your own chil­dren to buy a house now?

GLUCK­STEIN: Yes. They should buy if they’re not plan­ning on flip­ping it or if it’s not some­thing that they want to make money off of. If they want it as their home, ab­so­lutely buy it. Why not? You’re gonna be in there for 10 or 15 years or 20 years and raise a fam­ily in it. Ab­so­lutely buy a home.

BRYK: I just don’t see a slow­down in a mar­ket. I don’t see it slow­ing down as long as our pop­u­la­tion con­tin­ues to in­crease the way it has. So ab­so­lutely, if you can af­ford to, I say go for it. POST CITY: But de­tached homes sales dropped, what, 18 per cent?

BRYK: But not in our neigh­bour­hood. I think it’s on the out­skirts, ac­tu­ally. In the core, I haven’t seen a drop at all. CO­HEN: I think what got hurt was the young buyer that was buy­ing the $800,000 house and then ar­rived to an of­fer pre­sen­ta­tion. There were nine of­fers, and they ended up pay­ing a mil­lion two. They thought they were val­i­dated by the eight losers. Then the agent said, “Don’t for­get, your $600,000 town­house might be worth $800,000 or $900,000 by the time you close,” and then, you know, six months later it wasn’t the case. Now they were short. The ap­praiser ap­praised the house for $300,000 less, the town­house for $100,000 more, and now they had to make up the $300,000, and they didn’t have the re­sources.

MIKLAS: If it were my kids look­ing for a home right now, the thing I’d em­pha­size to them is just buy a great piece of prop­erty. Buy some­thing with a garbage house on it, kind of work your way through it. But when the op­por­tu­nity comes, try to be in the core that you can dig the house down and re­build some­thing and have some value be­hind it. POST CITY: Where do you see the mar­ket go­ing in the next 12 months?

CO­HEN: It might get a lit­tle worse be­fore it gets bet­ter, but we al­ready are in a slow­down. So your re­cov­ery might be more April through July than what your ex­pec­ta­tion is of the spring mar­ket. But I think by next year, we’ll look back and say we fin­ished off where we started. May have a one per cent to two per cent price in­crease.

LAMB: In the city proper, prices are ris­ing now. I’m not see­ing any­thing in the city, even $5 mil­lion houses are sell­ing for more than they were last year. So I think prices in the core are just gonna con­tinue to rise, un­til there’s a re­ces­sion. TAL: I think that the shock of higher in­ter­est rates and reg­u­la­tion will have an im­pact on the mar­ket. I think it will be a mod­est slow­down or ba­si­cally stay­ing flat. I don’t think this is sus­tain­able. I think that the mar­ket will ad­just, and if I’m look­ing at the long-term tra­jec­tory, I think that the di­rec­tion is very clear, given all the forces we dis­cussed to­day. So I sug­gest a short-term slow­down. I will not panic. This is not the real thing. There will be an­other shock prob­a­bly two or three years from now when we face the next re­ces­sion. There will be a re­ces­sion. You will see prices go­ing down prob­a­bly then, and then I will be a buyer in this en­vi­ron­ment.


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