Thornhill Post - - Table Of Contents -

Toronto’s top real es­tate ex­perts dis­cuss the state of the mar­ket and what the fu­ture holds

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.

Well, I think that BEN­JAMIN TAL: 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.

KEESMAAT: These JEN­NIFER 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?

They’re a com­bi­na­tion of conKEESMAAT: dos. 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?

We’re not see­ing, I think, anyBRAD LAMB: thing 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.

Well, I’m happy to pick up on KEESMAAT: 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.

As MARYAM MAN­SOURI HURST: 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?

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


They are tiny, tiny spa­ces. GLUCKSTEIN: 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.

You know, what all this means is that if TAL: 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?

I would say the GLUCKSTEIN: 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?

An area like We­ston, I think, is KEESMAAT: 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.

I live in the east end, and it’s very unBRYK: tapped.… 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?

Not look­ing MICHAEL KALLES: 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.

I think I am with Danielle on RO­MANOW: 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.

I think if I’ve got $600,000 or MIKLAS: $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.

So the sur­prise out­come HU­DAK: 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.

I think it’s time to talk about debt. Our TAL: 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.

I think we need to fo­cus now on givLAMB: ing 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. I mean, we’re a long way from HU­DAK: 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. The rea­son that JOE OLIVER: 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.

Un­for­tu­nately, Joe, it’s MIKLAS: 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?

It’s a dis­as­ter. In the past there’s been LAMB: 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.

Well, I dis­agree. I don’t think it’s KEESMAAT: 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.

It doesn’t freeze it. It just means KEESMAAT: 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.

Just from a strictly de­sign BRYK: 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.

If we go to Paris or, I just came KEESMAAT: 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.

I just want to raise a ques­tion and hear TAL: 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 —

Her­itage is num­ber two LAMB: 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.

Why shouldn’t ratepay­ers GLUCKSTEIN: have a say in their neigh­bour­hood? LAMB: Well, be­cause ratepay­ers aren’t pro­fes­sion­als.

It’s their neigh­bour­hood. GLUCKSTEIN: 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? I’m say­ing they should have the LAMB: same say they had be­fore. They had a say. But the OMB rub­berGLUCKSTEIN: stamped ev­ery­thing. LAMB: That’s ab­so­lutely not true.

It hap­pened a lot in my GLUCKSTEIN: neigh­bour­hood.

Only be­cause you dis­agreed with the LAMB: de­vel­op­ments.

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

OK. I’ve lived with the OMB for the LAMB: 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.

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

So the is­sue MAN­SOURI HURST: 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?

In the short-term, it was a psy­choHUDAK: log­i­cal 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.

There are so many CO­HEN: 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.

I would say that tax is ir­rel­e­vant. PeoLAMB: ple 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.

Is it a bad thing if KEESMAAT: 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.

So pur­pose-built rental is a KEESMAAT: 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.

There is a win-win sit­u­a­tion if we just TAL: 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.

But it’s im­por­tant to dis­tinKEESMAAT: guish 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.

Yeah. The is­sue is, like Brad GLUCKSTEIN: 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?

Yes. They should GLUCKSTEIN: 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?

But not in our neigh­bour­hood. I BRYK: think it’s on the out­skirts, ac­tu­ally. In the core, I haven’t seen a drop at all.

I think what got hurt was the CO­HEN: 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.

If it were my kids look­ing for a MIKLAS: 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?

It might get a lit­tle worse be­fore it CO­HEN: 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.

In the city proper, prices are ris­ing LAMB: 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. I think that the shock TAL: 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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