With a new detached house now selling for an average price of $1.25 million and condos going for around $750 per square foot in Toronto, there was a consensus among the panellists that prices will continue to rise over the next few years as interest rates remain low, supply remains constrained and people want to live in a city gaining in international prominence.
“Rising home and condo prices have put pressure on affordability in Canada, which plays perfectly into what we do, which is provide affordable rental housing,” said Daniel Drimmer, president and chief executive officer of Starlight Investments Ltd., which has more than $7 billion in assets under management.
Starlight has about 400 properties in Canada and the United States comprised of about 34,000 apartment units and four million square feet of office space.
Toronto, Vancouver and Victoria, as well as cities within a 45-minute drive of them, are the focus of the company’s portfolio in Canada, where it has a value-add strategy and is involved in infill development to add density to its existing properties.
“We’re essentially full, we’ve had great rent growth and we find that there’s tremendous demand,” said Drimmer.
Starlight is also in 11 American Sun Belt cities, where it’s buying new assets from merchant developers.
It owns and manages about 20,000 rental apartment units in Canada and another 2,000 in American Sun Belt cities. It acquires and renovates older apartment buildings to add value while intensifying its own properties by constructing new buildings with bigger units and added amenities.
“Rental has become a viable long-term option now and people want to rent,” he said. “They don’t necessarily want to own a house as an investment.”
“The economics associated with those purpose-built rental apartments are looking a lot more attractive,” said panel co-moderator Calvin Younger, the senior vice-president and head of real estate finance for CIBC Capital Markets.
Younger added that Toronto apartment rents are continuing to rise. The current average is around $2.77 per square foot, with new units going for up to $3.50 per square foot.
None of the panelists thought introducing new rent control legislation in Ontario would be a good solution to ease the affordable housing crisis in the GTA.
Menkes Developments high-rise residential president Alan Menkes and Bizzarri both called the introduction of rent controls more than 40 years ago “a disaster” that essentially put a halt to new purpose-built apartment construction until recently.
Menkes said there are about 5,000 purpose-built rental units under construction in close to 20 projects that might satisfy some of the demand. He noted, however, that it can take three or four years to deliver a building through approvals, construction and getting to market.
Drimmer pointed out that rent controls still apply to apartments built before 1991 in Ontario. He said new controls would be counter-productive, slow down new construction and negatively impact Starlight’s purpose-built rental strategy.
Menkes hasn’t built purpose-built rental apartments for several years, as it focused on the condominium, office, industrial and mixed-use sectors. The GTA rental market has drawn much of its supply from condos over the past 25 years and Menkes said, depending on the building, 25 to 50 per cent of owners rent their units out.
Menkes said the City of Toronto has now mandated 10 per cent of new condo units must have three bedrooms to accommodate families, and his company is constructing a more family-oriented condo building near Eglinton Avenue and Mount Pleasant Road.
“People need that transition from the time they’re without a child to with a child for a certain amount of time. Whether that’s five years or eight years, it gives them a breathing space to be able to accumulate a little bit more capital until they eventually buy a home.
“They need a little bit more time. We’re providing more facilities for young families and bigger units.”
Mattamy Homes builds about 7,000 houses a year — with about two-thirds of those in the GTA, Ottawa, Calgary and Edmonton, and the rest in five American Sun Belt cities. Chief operating officer Brian Johnston said neither foreign investors nor developers hoarding land were major factors in increasing home prices in the GTA.
Mattamy has implemented a policy asking buyers for 20 per cent of the purchase price of a house up front to make sure they’re committed to the deal. It also doesn’t deal with outside brokers representing foreign buyers who don’t plan to reside in the house they’re looking to buy, according to Johnston.
Mattamy had long been established in Canada when it entered the U.S. after its housing market collapsed in the latter part of the last decade. Developers have to act quickly south of the border, where the approvals process is much quicker.
While there’s no shortage of housing development opportunities, Johnston said, “You have to work a lot harder to find the right community and the right location and the right presentation because the competition is much more intense than it is here.”