Cover story: 10th an­nual real es­tate roundtable

North York Post - - Contents -


Bank econ­o­mists and mar­ket ex­perts are call­ing this mar­ket a bub­ble af­ter the re­cent 22 per cent in­crease. What is the state of the GTA real es­tate mar­ket right now?


This re­minds me a lot of the mid-’80s or the late ’80s, and the mar­ket is on fire, as ev­ery­body knows — up 22 per cent is im­pres­sive in one year. We sold our house last sum­mer when three of the four flew the coop, and not un­like most buy­ers, we thought we were just down­siz­ing. Now we’re ac­tu­ally look­ing at an up­size be­cause we can’t find any­thing to down­size to. So it’s a con­cern. I have a new com­pas­sion for to­day’s buy­ers.


I don’t find it help­ful to call the mar­ket a bub­ble be­cause no­body here is call­ing for it to pop. In my per­spec­tive, the term “froth” is more ap­pro­pri­ate be­cause you have un­der­ly­ing fun­da­men­tals that re­main solid on un­em­ploy­ment, pop­u­la­tion growth, credit met­rics. And then you have some form of spec­u­la­tion or some type of be­havioural eco­nomics driv­ing prices a lit­tle bit higher or faster than they would be oth­er­wise. And I think that’s a bet­ter way to frame it.


You know, when I was [chief economist] at Mer­rill [from 2002 to 2009], I started call­ing for the hous­ing col­lapse in 2005. So I was early by about two years. But I re­mem­ber that I called it a bub­ble in my re­ports, and it got peo­ple very up­set. But the thing about bub­bles, bub­bles do pop and this bub­ble will pop. And the ques­tion is, how do you de­fine the bub­ble? And I would say that any­thing that is at least two stan­dard de­vi­a­tions above any his­tor­i­cal norm, if you don’t call it a bub­ble, you’re be­ing disin­gen­u­ous.

And when we have a sit­u­a­tion in the GTA where now it takes 10 years of, say, me­dian fam­ily in­come to buy a typ­i­cal sin­gle de­tached home, this time last year it was more like seven years. We haven’t seen this be­fore. It’s more than dou­ble what it is in the rest of the coun­try. Home prices are about 30 per cent above what any eco­nomic model will tell you where “they should be.” So it is a bub­ble, and if we do ac­knowl­edge that bub­bles have this his­tory to pop, it’s just im­pos­si­ble to time. When it does pop, it’s go­ing to have some se­ri­ous im­pli­ca­tions for the econ­omy and the fi­nan­cial mar­kets.


So coun­ter­point: The as­sump­tion be­hind a bub­ble pop­ping is that de­mand will de­crease. The bub­ble doesn’t pop if de­mand doesn’t de­crease. So from my per­spec­tive, you need to put Toronto in a global con­text. Toronto, at this mo­ment, is emerg­ing as po­lit­i­cally sta­ble, as a beacon of open­ness for peo­ple all over the world, and as a re­sult we’re see­ing im­mi­gra­tion in­crease.

The in­ter­est in the city, just over the past six months, has in­creased ex­po­nen­tially on a global stage. So if that’s some­thing that’s go­ing to change then, yes, we’re at risk of a pop. But if that’s some­thing that’s not go­ing to change, if this is our new re­al­ity, if we are now emerg­ing for the first time in his­tory to be on par with places like London and Paris and New York — which by the way, ev­ery­one’s been talk­ing about how they’re go­ing to pop for 50 years, and the pop hasn’t hap­pened be­cause their de­sir­abil­ity on a global scale has con­tin­ued to be un­prece­dented [— then Toronto won’t pop in the near fu­ture].


I think talk­ing about the bub­ble is en­ter­tain­ing on the fi­nan­cial pages, but it’s not go­ing to help the mil­len­nial gen­er­a­tion and the is­sues around sup­ply. I agree with Jen­nifer, there are very strong rea­sons why de­mand is in­creas­ing. Toronto is a great place to live. Our econ­omy is much stronger rel­a­tive to the rest of Canada. We’re at­tract­ing 80,000 im­mi­grants per year. We have low sus­tained mort­gage rates, and we’ve got a new gen­er­a­tion, a larger co­hort, com­ing in with the “Bank of Mom and Dad” back­ing them up, so you see a big de­mand in­crease.


What about the boomer that doesn’t want to move from their home? I see re­port af­ter re­port where they want to stay. They’d like to con­tinue liv­ing their life there, but on the other side of it, you do have that Bank of Mom and Dad, and we’re see­ing many fam­i­lies say, OK, I’m go­ing to gift that es­tate just that much sooner, so that their kids can stay in Toronto.


There is a se­ri­ous so­cial and, there­fore, po­lit­i­cal prob­lem. And that is that most mil­len­ni­als can’t get into the mar­ket with­out very sig­nif­i­cant parental sup­port. And we’re not talk­ing about $50,000 or $100,000. They need re­ally sig­nif­i­cant money, which most fam­i­lies don’t have, par­tic­u­larly if they have sev­eral kids. So they’re faced with a num­ber of un­palat­able al­ter­na­tives. They ei­ther stay in rental ac­com­mo­da­tions; they go into a minis­cule condo; they have a very long commute; and they move out of the city.

If you just took five per cent of the Green­belt, the Green­belt is 1.8 mil­lion acres, five per cent is 90,000 acres. If you lib­er­ated that for de­vel­op­ment in a 10-year pe­riod, you can house 1.5 mil­lion peo­ple in half a mil­lion res­i­dences. And no one would no­tice it other than the fa­nat­ics, who view this land that McGuinty set aside as some­how sacro­sanct.

The other as­pect is that this is very sit­u­a­tional. It’s re­ally Toronto now. It used to be Toronto, Cal­gary and Van­cou­ver. And for two to­tally dif­fer­ent rea­sons, it’s now just Toronto.


I’m try­ing to ac­quire 10 acres in Pick­er­ing right now, and they’re ask­ing $1 mil­lion to $1.1 mil­lion per acre. So when you men­tioned the mil­len­ni­als now trav­el­ling out­side of the city to go to cheaper pric­ing, as a de­vel­oper-builder, I’m look­ing at it think­ing, “This is ridicu­lous. What do I have to bring this [Pick­er­ing] town­house to the mar­ket for?”

Or you go to another site out in Markham, for ex­am­ple, go back about 18 months, and you

could buy an acre of prop­erty for about $1.4 mil­lion.To­day, to buy that same piece of prop­erty, you’re at $2.1 mil­lion.

There­fore, you’re in­tro­duc­ing a 2,000square-foot town­house at some­where be­tween $1.2 mil­lion to $1.4 mil­lion.

SEAN COOPER: I see two main is­sues that are re­ally driv­ing up prices. First of all, a lack of sup­ply. If you look for a house in a neigh­bour­hood, and there’s just one or two prop­er­ties avail­able, it’s go­ing to end up in a bid­ding war. And that just drives the price higher. Another area I see driv­ing it is the Bank of Mom and Dad. And what’s wor­ri­some for me is that I’m not 100 per cent sure that peo­ple have a ton of money to give to their chil­dren. They’re prob­a­bly tak­ing out home eq­uity lines of credit. And what if in­ter­est rates are higher in the fu­ture?

BRIAN GLUCK­STEIN: It’s go­ing to be a com­plete shift in the ex­pec­ta­tion of how you live. Young peo­ple in New York don’t think they’re go­ing to have a house. Young peo­ple in London don’t think they’re go­ing to have a house. They live in apart­ments.They raise chil­dren in apart­ments, whether they’re ren­tals or con­do­mini­ums. And that’s the ex­pec­ta­tion. The ex­pec­ta­tion is just go to a big­ger apart­ment and a big­ger apart­ment. So the whole con­cept of own­ing a house is not go­ing to be avail­able for these peo­ple. HU­DAK: I don’t buy that. Man­hat­tan is an is­land. London has been around for a thou­sand years. As Joe said, there is a lot of land. We’ve cre­ated our own ar­ti­fi­cial bar­ri­ers.

GLUCK­STEIN: But they don’t want to live in the sub­urbs. A lot of young peo­ple don’t want to live in Pick­er­ing and Bar­rie. They want to live in the city where they grew up, where their jobs are and where their so­cial life is. I look at the kids that work in my of­fice. They don’t want to live in Pick­er­ing. They don’t want to commute from Bar­rie.They want to live in the city. They would like to live in Lea­side and Les­lieville. They would like to live in those ar­eas.

MICHAEL KALLES: Can I talk about con­do­mini­ums? Eight years ago, I was in a sales meet­ing, and our sales­peo­ple were very up­tight about the num­ber of tow­ers that were com­ing out of the ground. They said, “Oh my God, we’re go­ing to have a glut of sup­ply again.” I said, “Watch out. We’re go­ing to have a short­age.” So in Jan­uary, I just looked at my num­bers, Jan­uary of 2015. We had 15 weeks’ sup­ply of con­dos. Jan­uary of ’16, we had five weeks’ sup­ply. I agree with Brian. I think ex­pec­ta­tions are go­ing to change. Peo­ple who want to live in the core, younger mil­len­ni­als, will have to ac­cept con­do­minium liv­ing as the so­lu­tion.

MIKLAS: They don’t ac­tu­ally want to be strapped with a huge mort­gage ei­ther. They don’t want to go through what we went through as far as pay­ing the mort­gage out.

KEESMAAT: But there’s a shift in gen­er­a­tional think­ing here and we should be cau­tious not to im­pose our own think­ing and our own val­ues. And we should ac­tu­ally look to this gen­er­a­tion. The down­town is grow­ing four times faster than the re­gion as a whole. This tipped for the first time a cou­ple years ago. It’s be­cause of the astro­nom­i­cal de­mand for con­dos in the down­town. We’re build­ing more con­dos in the down­town than we ever have in the past. And yet we have a short­age of sup­ply be­cause the de­mand is very high.

Two years ago, we un­der­took a study in our condo com­mu­ni­ties to as­sess qual­ity of life, to iden­tify the needs of condo com­mu­ni­ties. And we were as­tounded to dis­cover young peo­ple liv­ing in con­dos who raised as their num­ber one is­sue that they want to raise their fam­ily in a condo and that the con­dos need bet­ter ameni­ties, and they need bet­ter schools in the down­town be­cause they don’t want to leave the down­town to raise a fam­ily.

We also dis­cov­ered that there is a mini baby boom hap­pen­ing in down­town Toronto in con­dos to­day. You can tell if you look at the stroller park­ing in con­dos. These are kids that grew up with a long commute. These are kids that grew up in Markham, in Scar­bor­ough, in Rich­mond Hill. And they’re say­ing: It’s not worth it to me. I would rather live in a smaller space. I would rather walk to work. ROSEN­BERG: I’ve got to go back and re­tort to a cou­ple of things that were said.

BRIAN GLUCK­STEIN SE­BAS­TIAN CLOVIS TIM HU­DAK Host, HGTV Canada CEO, On­tario Real Es­tate As­so­ci­a­tion Prin­ci­pal of Gluck­steinDe­sign PA­TRI­CIA LOVETT-REID BRAD LAMB JOE OLIVER De­vel­oper, Lamb De­vel­op­ment Corp. For­mer Fi­nance Min­is­ter of Canada Chief Fi­nan­cial Com­men­ta­tor, CTV News

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