Ontario Rental Market Overview - February 2017 Ted Tsiakopoulos - - PowerPoint PPT Presentation

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Ontario Rental Market Overview - February 2017 Ted Tsiakopoulos - - PowerPoint PPT Presentation

Jun 06, 2023 786 likes •1.04k views

Ontario Rental Market Overview - February 2017 Ted Tsiakopoulos Regional Economist, CMHC ttsiakop@cmhc.ca CANADA MORTGAGE AND HOUSING CORPORATION KEY TAKEAWAYS Ontario & BC Remain Tightest Rental Markets Tight Rental Markets in

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CANADA MORTGAGE AND HOUSING CORPORATION

Ontario Rental Market Overview - February 2017

Ted Tsiakopoulos Regional Economist, CMHC ttsiakop@cmhc.ca

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CANADA MORTGAGE AND HOUSING CORPORATION

  • Ontario & BC Remain Tightest Rental Markets
  • Tight Rental Markets in South – Cooler in North
  • Economy, Affordability, Immigration Add to Demand
  • Vacancy Rates Still Have Room To Fall - Rents Will Grow
  • Private Multi Unit Rental Investments Will Grow
  • Investors/Builders Should Keep Eye on Potential

Demand @ High End

  • National Housing Strategy & Other Policies To Play a

Pivotal Role

2

KEY TAKEAWAYS

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CANADA MORTGAGE AND HOUSING CORPORATION 3

BC & Ontario Remain Tightest Rental Markets

1.2 5.6 2.4 4.3 4.1 3.5 1.3 8.1 2.1 4.4 6.5 3.7 1 2 3 4 5 6 7 8 9 BC ALTA ONT QUE NFLD CAN 2015 2016

Source: CMHC Rental Market Survey Rental Apartment Vacancy Rates - Overall

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CANADA MORTGAGE AND HOUSING CORPORATION 4

Toronto, London, Ottawa Contribute Most To Vacancy Drop

1 2 3 4 5 6 2015 2016

Rental Apartment Vacancy Rates - Overall Source: CMHC Rental Market Survey

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CANADA MORTGAGE AND HOUSING CORPORATION 5

Southern Ontario Rents Grow Faster vs North & East

1 2 3 4 5 6 2015 2016

Source: CMHC Rental Market Survey Same Sample 2bed Apt Rent - % chg.

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CANADA MORTGAGE AND HOUSING CORPORATION 6

Younger University Towns Post Higher Turnover Rates

0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0

Turnover Rate by CMA Source: CMHC Rental Market Survey

*Poor quality data (suppressed)

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CANADA MORTGAGE AND HOUSING CORPORATION 7

Factors Impacting Ontario Vacancy Rates: 2015/16

FACTORS 2015 2016 Job Market/Economy U D Demographics U D Cost Gap (Own vs Rent) D D New Rental Supply U+ U NET EFFECT U D

D=Downward Pressure U=Upward Pressure N=Neutral

Source: CMHC Rental Market Survey, Statistics Canada

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CANADA MORTGAGE AND HOUSING CORPORATION 8

Downtrend in Rental Vacancy Rates Will Continue

0.5 1 1.5 2 2.5 3 3.5 4 4.5 2000 2002 2004 2006 2008 2010 2012 2014 2016

Source: CMHC Rental Market Survey, Ontario Rental Apartment Vacancy Rates - Overall

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CANADA MORTGAGE AND HOUSING CORPORATION 9

How Low Can Ontario Vacancy Rates Go?

2 4 6 8 10 12 Historical Hi Historical Low Fall 2016

Source: CMHC Rental Market Survey, Historical Annual Rental Apartment Vacancy Rates - Overall

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CANADA MORTGAGE AND HOUSING CORPORATION 10

Ontario Economy Will Be Among Growth Leaders But…

  • 1.5
  • 1
  • 0.5

0.5 1 1.5 2 2.5 3

  • 1.5
  • 1
  • 0.5

0.5 1 1.5 2 2.5 3 3.5 Employment(F) % chg. GDP (F) % chg.

BC ONT MAN

CAN

QUE SAS ALTA NFLD

Source: Statistics Canada Economic Accounts, Statistics Canada LFS, CMHC Mean Forecast (F) 2016-18

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CANADA MORTGAGE AND HOUSING CORPORATION

Best Years For Ontario Economy Likely Behind Us

11

Source: Statistics Canada Economic Accounts, Statistics Canada LFS, CMHC Forecast (f) 2016-18

…Will Grow At Slower Rate Especially vs Pre 2008

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CANADA MORTGAGE AND HOUSING CORPORATION 12

Lower Paying Jobs Leading – More Supportive of Rental Demand

Source: Statistics Canada

Year 2016 Job Growth % of Ontario Avg Earnings Part Time 1.5 Full Time 0.97 Total Services 2.1 98 Total Goods 1.6 110

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CANADA MORTGAGE AND HOUSING CORPORATION

International Migration Impacted By Global Conditions

13

50000 100000 150000 200000 250000 300000 350000

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016e

Source: Statistics Canada, CMHC Estimate(e) Net International Migration - CANADA

Recession Asian Currency Crisis Sept 911 Credit Crisis Syrian Refugees

International Migration Impacted By Global Factors

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CANADA MORTGAGE AND HOUSING CORPORATION 14

Some Millennial Finding Ownership Option Prohibitive

80 90 100 110 120 130 140 2000 2002 2004 2006 2008 2010 2012 2014 2016 rent

  • wn

Source: Statistics Canada, Bank of Canada, CMHC

Inflation adjusted rent and home ownership index (Year 2000=100) - ONTARIO

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CANADA MORTGAGE AND HOUSING CORPORATION

Affordability Erosion Encourages Spillover Demand to Neighbouring GTA Markets

Actual Income as % of Required Income to Purchase Average Resale Home – 2016

Source: Statistics Canada, CMHC calculation & estimates(e) based on 5yr mtg, 10% dp, 25 yr amortization

76 97 110 120 129 131 139 149 166 176

20 40 60 80 100 120 140 160 180 200

Toronto Oshawa Hamilton Barrie Guelph Kitchener London Ottawa Thunder Bay Windsor

More affordable (>100)

Especially in Less Affordable Markets in Ontario

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CANADA MORTGAGE AND HOUSING CORPORATION 16

Demand/Supply Balance Favours More Rental Investment

2000 4000 6000 8000 10000 12000 14000 16000 18000 20000 2006-11 2011-16 2016-2021 Rental Completions* New Rental Households

Source: CMHC Ontario Estimate 2011-21, Statistics Canada *Does not include condominiums completed and available for rent

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CANADA MORTGAGE AND HOUSING CORPORATION 17

Condominium Rentals – Biggest Source of New Rental

5 10 15 20 25 30 35 40 Hamilton Kitchener London Ottawa Toronto 2015 2016

Source: CMHC Rental Market Survey Percentage of Condominium Universe Held By Investors – Ontario

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CANADA MORTGAGE AND HOUSING CORPORATION 18

Growing Appetite for More Primary Rental Investment

2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

Source: CMHC Starts & Completions Survey Purpose-Built Rental Starts – Ontario

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CANADA MORTGAGE AND HOUSING CORPORATION 19

Purpose-Built Rental Starts Occurring Across The Province

36% 3% 10% 21% 12% 18%

% Share Distribution* of Rental Starts By CMA - 2016

Toronto Hamilton Ottawa Kitchener London Rest of Ont

Primary Rental Starts

Source: CMHC Rental Market Survey *may not add up to 100% due to rounding

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CANADA MORTGAGE AND HOUSING CORPORATION 20

Will These New Investments Be Absorbed?

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Hamilton Kitchener London Ottawa Toronto ONTARIO 2015e 2016e Required* median income to rent as % of actual median income - ALL UNITS

Source: CMHC RMS Survey, CMHC median renter income estimates(e), Statistics Canada

  • Assumes 32% affordability ratio for renters, 2bed apt units
  • Ratios <100=affordable, >100=unaffordable

120% 125% 130% 135% 140% 145% 150% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015e2016e

Required* median income to rent as % of actual median Income - NEW UNITS Completed - ONTARIO

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CANADA MORTGAGE AND HOUSING CORPORATION 21

Multi Unit Cap Rates Still Attractive in Low Interest Rate World

1 2 3 4 5 6 7 2007Q1 2009Q1 2011Q1 2013Q1 2015Q1 Tbill_3 5yr Cap Rates

Source: Bank of Canada, CBRE (Class A T

  • ronto Properties)

Selected Interest Rates %

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CANADA MORTGAGE AND HOUSING CORPORATION

Not Just About Returns – Real Estate Offers Stability

0.2 0.4 0.6 0.8 1 Residential REIT Multi Unit Rental Bonds Single Family & Condo Gold Stocks

Source: Altus, CREA, Bloomberg, CMHC calculation, Statistics Canada

*CV = Coefficient of Variation; CV close to 0 = low volatility; CV close to 1 = high volatility

Historical Volatility (CV)*

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CANADA MORTGAGE AND HOUSING CORPORATION 23

Risks To Ontario Rental Vacancy Rates/Rents – 2017/18

Risks Exerting Upward Pressure

  • Policy Uncertainty and/or Slower Global Growth
  • Elevated Household Debt
  • A Rental Supply Shock @ High End

Risks Exerting Downward Pressure

  • Stronger US Growth
  • Further Erosion of Affordability
  • Housing Imbalances Continue Growing
  • Stronger International Migration