The state of multi-family real estate in Canada

Clayton Jarvis
Mortgage Broker News

If any readers are friendly with commercial real estate junkies, they’ll already have heard an earful about how industrial and multi-family properties are where the smart money is being spent by CRE investors. But with unemployment still over 10 percent in August, and rents in some of Canada’s tightest markets showing signs of softening, investors eyeing the multi-family space for the first time may feel there’s reason for worry.

Not so, says Geoff McTait, executive director of origination for Timbercreek in Canada.

“The underlying fundamentals of this market are exceptionally strong here in Canada,” he says. “We continue to see a significant shortfall in terms of new supply meeting demand. That remains true, even once things normalize post-COVID.”

McTait does, however, acknowledge that the pandemic has thrown the tiniest of wrenches into the gears of the multi-family space in the form of increased vacancies and falling rents.

He says the rise in vacancies that Timbercreek has been tracking could be tied to several issues: a significant drop in immigration, an increase in the number of renters taking on roommates to cover their expenses, or unemployed apartment dwellers returning home. 

“I think a lot of people are moving home,” he says.

The same factors are contributing to an overall softening in rents, which has made for some tasty headline fodder in Toronto and Vancouver. But McTait feels rents, like housing prices, could see significant growth once the economy levels out, immigration returns to normal levels and those renters who moved home temporarily are ready to get back out on their own.

“Normalization will occur,” he says. “Demand will return, which will put pressure back on pricing. And I think you’ll continue to see a shortage on the new supply side of things coming to the market.”

Where’s the demand? Follow the jobs

With densification being the order of the day in most space-starved metropolitan areas and smaller buildings being economically unfeasible for most developers, McTait says much of the future demand will be for mid- to high rises, even outside major urban areas.

But he is less convinced by the concept of the urban exodus many market hounds have been touting since the beginning of COVID-19. He says most people will still want to live within an hour or so of their employers in case they need to commute part-time or access their offices.

“The suggestion that people will go to rural locations is a nice idea at this point in time – certainly it’s more affordable – but I don’t think it’s necessarily a solution nor practical in the long-term,” he says. “Employment opportunities will continue to dictate where people live and how they live, and that will continue despite the fact that we have this new potential to work from home.”

It’s little surprise, then, that McTait identifies areas like the GTA, Greater Vancouver, and Greater Montreal as markets poised for strong growth in the multi-family sector. But surging secondary markets like Hamilton, Quebec City, and Kitchener-Waterloo will also attract attention thanks to their affordability, strong employment environments and continued population growth.

Even multi-family markets in Canada’s more problematic economies, like Calgary and Edmonton, have “pleasantly surprised” McTait. There may not be a slew of demand for new properties in these cities, but current demand levels are strong enough to support the existing inventory.

“Multi-family, more broadly, is really the one asset class that we’ve seen over time, from primary, secondary, even into tertiary markets, where you do, in general, see strong demand, even in the tougher markets,” where vacancy ranges from three to seven percent, he says.

And Timbercreek isn’t the only company bullish on the future of multi-family real estate in Canada. In its recent Multi-Family Market Update for Victoria, BC, Colliers International said multi-family properties continue to outperform many other asset types.

“This sustained performance leads many to believe that the asset class will weather the storm of the crisis and thrive in the recovery,” reads the report.

Copyright © 2020 Key Media

New CMHC initiative to focus on rapid creation of new housing supply

Ephraim Vecina
Mortgage Broker News

The Canada Mortgage and Housing Corporation has announced its new Rapid Housing Initiative (RHI), which is intended to address urgent housing needs and stimulate further economic recovery through the rapid creation of new housing units.

Complementing the National Housing Strategy, the $1-billion RHI will cover the construction of modular housing, the acquisition of land, and the conversion of existing buildings to housing supply.

CMHC said that RHI funding will be available to municipal and provincial governments, as well as non-profits and organizations concerned with Indigenous peoples’ welfare.

Touting its “human rights-based approach” to creating new housing, especially during the current pandemic, the CMHC said that the RHI will particularly benefit the vulnerable sectors of society, including women and children fleeing violence, seniors, veterans, people with disabilities, racialized groups including Black Canadians, recent immigrants/refugees, and many others.

“We know that Canadians experiencing homelessness are at heightened risk of contracting COVID-19. That’s why it is so important that we continue to ensure that communities have the resources they need to support those who are experiencing homelessness,” said Adam Vaughan, Parliamentary Secretary to the Minister of Families, Children and Social Development.

Aside from this major investment, the federal government will be granting a $236.7 million tranche through Reaching Home: Canada’s Homelessness Strategy. This will be on top of the $157.5 million announced in April 2020 to help communities nationwide address the immediate impact of the pandemic.

“With the Rapid Housing Initiative, our Government is moving quickly to provide more affordable housing to keep our vulnerable populations safe, to fight the virus over the long-term, and to support Canada’s economic recovery,” said Ahmed Hussen, Minister of Families, Children and Social Development and minister responsible for CMHC.

Copyright © 2020 Key Media

Ontario implements moratorium on residential rent prices

Ephraim Vecina
Mortgage Broker News

The Ontario government has announced that it will be freezing the province’s residential rent prices throughout 2021.
Premier Doug Ford said late last week that Ontario’s roughly 1.7 million renters will benefit from manageable rent prices from Jan. 1 to Dec. 31 next year if the Helping Tenants and Small Businesses Act gets passed.
Among the act’s chief provisions is that residential and commercial rent increases will be capped at 1.5%, CTVNews.ca reported.
“This is a difficult period for everyone, especially for families who are struggling right now,” Ford said. “The last thing I want any family to worry about right now is whether or not they can afford to stay in their homes.”
The act will also extend Ontario’s commercial eviction ban, which was in place from May 1 to Aug. 31 this year, to as far as Oct. 30.
“We won’t rest until every person, every business, every community can get back on their feet,” Ford said.
Earlier this month, the provincial government said that it is working with the federal administration to implement an upgraded Canada Emergency Commercial Rent Assistance (CECRA) program. According to industry organizations, more than 20,000 landlords in Ontario – affecting approximately 44,500 commercial tenants – had applied for CECRA as of late August.

Copyright © 2020 Key Media

Number of Canadians without support “disturbingly high” once CERB ends

Ephraim Vecina
Mortgage Broker News

Short-term real estate prices in Canada to be “flat to ten percent lower” ? LowestRates.ca CEO

Clayton Jarvis
Mortgage Broker News

According to a recent report by mortgage comparison site LowestRates.ca, the rocket the Canadian real estate market has been strapped to for the past four months will soon be subject to the multiple gravities of COVID-19: High unemployment, low immigration, and borrower uncertainty.

“It’s impossible to know what’s going to happen, but we do think there is going to be some form of drop, largely due to the end of mortgage deferrals,” LowestRates’ CEO Justin Thouin told Mortgage Broker News. “There are close to 800,000 households in Canada deferring their mortgage payments, and one has to assume that a certain percentage of those people, due to unemployment, low GDP, coronavirus, etc., are going to be forced to sell their homes because they’re not going to be able to afford to pay their mortgages.”

The report makes reference to the Canada Mortgage and Housing Corporation’s much ballyhooed prediction that home prices could fall 18 percent because of the pandemic, as well as to Toronto Regional Real Estate Board chief market analyst Jason Mercer’s projection that prices in Toronto could increase by approximately 10 percent in 2020. Thouin says his team’s take resides somewhere in between.

“We’re a little bit less bearish than the CMHC, but a little bit more so than people like Jason Mercer,” he says.

Thouin says Canada’s plummeting immigration numbers and currently high unemployment should, along with the exhaustion of the pent-up demand that was such a driver of this summer’s rollicking buying activity, will all play their part in stifling demand. But with the amount of supply still impossibly low in most active Canadian markets, prices can only fall so far before buyers waiting on the sidelines see an opportunity and pounce on it.

“It all comes down to supply and demand, and I think that’s why you’re not going to see a precipitous crash and you’re not going to see a crash to the levels that CMHC is predicting,” he says, adding that prices will be “flat to ten percent lower, in our mind.”

Samantha Brookes, CEO of Mortgages of Canada, says in the report that the level of purchasing power buyers enjoyed in the summer could see a significant drop-off in October.

“Most pre-approvals will expire by the end of September,” Brookes told LowestRates, “so you’re still going to see high numbers for July, August and September. At the end of September, when all of those pre-approvals are done, the numbers will start dropping and a second wave should be here. October’s going to be the telling factor.”

Thouin isn’t so sure. He says a more buyer-friendly stress test and historically low interest rates should draw enough people into the market to make up for the drop in the number of pre-approvals.

And those interest rates won’t be moving any time soon.

“I don’t think you’re going to see higher mortgage rates for two to three years,” Thouin says. He feels the same timeframe applies to fixed rates, too.

Thouin is often asked by consumers if, in today’s low-rate climate, they should be opting for a fixed or variable mortgage. He says there’s currently no wrong answer.

“Right now, you flip a coin and you’re good one way or the other.”

Copyright © 2020 Key Media

Scotiabank: Millennials hopeful about buying homes despite COVID-19

Ephraim Vecina
The Vancouver Sun

Compared to other demographics, Canadian millennials are more optimistic about purchasing a home during the COVID-19 pandemic, according to a new survey by the Bank of Nova Scotia.

The 2020 Scotiabank Housing Poll found that around 18% of young Canadians in the 18-34 age range have “accelerated their plans” to buy their next homes or investment properties. However, roughly 32% of them said that they will only make their purchases once property prices drop.

Scotiabank said that these intentions are mainly driven by lower interest rates. Approximately 68% of those planning to buy will be using their savings, while 42% will be using the equity from their primary homes.

Millennials were also more optimistic (36%) about home price declines within the next 12 months, compared to 24% of those in the 35-54 age cohort and 17% of those older than 55 years old.

Additionally, better purchasing power fed into a greater appetite for renovations, with around 26% of Canadians considering major reworks in their current homes.

“The pandemic has caused many Canadians to turn their living rooms into classrooms, their dining rooms into offices, and their basements into home gyms,” said John Webster, head of real estate secured lending at Scotiabank. “This is motivating many to consider investing more in their current homes or re-evaluating their living spaces altogether.”

Copyright © 2020 Key Media

East Vancouver tenants threatened with eviction by indebted developer

Ephraim Vecina
Mortgage Broker News

Tenants in East Vancouver are being pushed out to make way for a residential project, but the developer is allegedly saddled with hundreds of millions in unpaid loans.

Renters in the area’s Connacher House and The Carolina apartments are facing the threat of eviction, after developer PortLiving began purchasing properties in the vicinity starting 2018.

Among PortLiving’s plans for its upcoming six-storey Midtown Heritage residential building is to refurbish The Carolina and relocate the Conacher House to an area previously occupied by a soon to be demolished depot, News 1130 reported.

But the Vancouver Tenants Union said that PortLiving is adhering to just the “bare minimum” of the city’s tenant welfare policies.

“We’re in the middle of a pandemic. There’s no rush to get these tenants out,” said Vince Tao, a member of the union’s steering committee. “What we want, really, is PortLiving to come to the table and give these tenants extra time.”

PortLiving said that it has “worked very hard with these tenants on solutions,” and that it has offered tenants six months’ worth of free rent. The developer also said that it has provided referrals to help them relocate.

But doubts about the developer’s ability to follow through on its promises are strong: Less than half a year ago, PortLiving founder Macario Reyes said in a sworn affidavit that the company did not have the ability to pay more than $400 million in loans. The document also pointed to an estimated $46 million owed to CMLS Financial and Aviva Insurance.

Nelia and Wilfredo Guevarra, both residents of The Carolina for more than 24 years, said that they have received a letter to vacate the property by the end of September. They also said that the developer has threatened them with a court bailiff “to enforce the eviction if necessary” – a move that the couple called “inhuman” considering the prevailing COVID-19 pandemic.

Business tenants were not left unscathed. Andrew Lee, owner of the nearby Mt. Pleasant Return-It Depot, said that PortLiving has ignored his requests for a grace period while he’s setting up his new location.

“I’ve tried to really work with them and tried to be reasonable; I thought they were reasonable,” Lee said. “It’s just really heartbreaking, and they have no mercy.”

Copyright © 2020 Key Media

A look at Mayor Kennedy Stewart’s plan for creating affordable homes in Vancouver

Clayton Jarvis
Mortgage Broker News

On Monday, Vancouver mayor Kennedy Stewart announced an ambitious plan intended to “make Vancouver affordable for the middle class.” The Making HOME (Home Options for Middle-income Earners) initiative would allow for a single-family home to be redeveloped into four smaller homes so long as one is reserved for households making $80,000 a year.

“The house would look like any other house, except it might have four front doors. Three for families that make around $150,000 a year (like two teachers, or an accountant and a tradesperson). And one door reserved for middle-income earners – forever,” reads the recently launched Making HOME website.

Stewart brought the plan to Vancouver city council on Wednesday. His proposed guidelines for rolling out Making HOME as a pilot project involving 100 lots in neighbourhoods zoned for single-family detached homes and duplexes are expected to be delivered to city council by the second quarter of 2021.

“I see a future where families are no longer pushed out of town because their only two options are a condo or a multi-million-dollar house,” Stewart said during a September 14 media briefing.

In his presentation to reporters, Stewart compared the scenario facing buyers in Vancouver today to that of a post-Making HOME environment. Whereas 2.5 percent of residents can currently afford to purchase a home in Vancouver (the average home price in East Van is about $1.4 million), he says Making HOME would make ownership attainable for 50 percent of local residents.

As Stewart explained, the owners of the three “market properties” would each need to earn $135,000 and provide a $110,000 down payment. The middle-income household, the one earning $80,000 a year, would need to provide a $65,000 down payment.

The homes in question won’t exactly be cheap. A case study by zoning-reform advocate Darrell Mussatto determined that three 924-square foot “market homes” on a four-home lot would sell for approximately $1.1 million each, with the remaining 900-square foot property selling for around $450,000.

Mixed reactions

Stewart’s plan has received somewhat mixed reviews. Canada Mortgage and Housing Corporation CEO Evan Siddall thanked Stewart for his “leadership on housing affordability” in a September 15 tweet.

“Densification is our most powerful tool to accelerate the supply of more affordable housing,” Siddall wrote. “This is exactly the kind of innovation our cities need.”

Abundant Housing Vancouver’s Jennifer Bradshaw told CBC that Stewart’s plan will help “some” Vancouverites, but she is concerned that it will ultimately fall short in its goal of providing affordable homes to half the city’s residents.

 “There just aren’t going to be enough available,” she said.

Pemberton Homes Oak Bay realtor Vanessa Roman applauds Stewart for his outside-the-box thinking, but she sees Making HOME as more of a “campaign ploy for the 2022 civic election, rather than a viable solution to increase housing affordability.”

Roman says the proposal’s primary shortcoming is not requiring a higher percentage of affordable homes per lot. In her eyes, the ratio of three market-value homes to one affordable unit (larger lots can house six homes so long as two are kept for middle-income earners) won’t inject enough affordable stock into the city’s housing supply.

“If Mayor Stewart actually wanted to help solve the problem, he would increase the minimum number of required affordable units from one to four, leaving only two units to be sold at market value,” she says. “This ratio means a majority of new units would be offered, and kept, at below market value, which helps to curb rapid increases in land value and increases housing affordability for middle-income earners in Vancouver.”

Copyright © 2020 Key Media

Kelowna condo tower looks like investor play

Frank O?Brien
Western Investor

Fed could keep rates near zero through 2023

Ryan Smith
other