Ontario Rental Market Study Results: Measuring the Supply Gap / - - PowerPoint PPT Presentation

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Ontario Rental Market Study Results: Measuring the Supply Gap / - - PowerPoint PPT Presentation

Mar 08, 2023 242 likes •588 views

Ontario Rental Market Study Results: Measuring the Supply Gap / Renovation Investment and the Role of Vacancy Decontrol AGENDA Measuring the Supply Gap Estimating Current Rental Demand in Ontario Drivers of Demand and Projections

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SLIDE 1

Ontario Rental Market Study Results:

Measuring the Supply Gap / Renovation Investment and the Role of Vacancy Decontrol

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SLIDE 2

AGENDA

Measuring the Supply Gap

  • Estimating Current Rental Demand in Ontario
  • Drivers of Demand and Projections
  • Supply Outlook: Purpose-built and Condo
  • Demand-Supply Gap

Survey of Purpose-built Renovation Expenditures

  • Estimating Total Value Invested Since 2012
  • Contribution to Ontario Economy
  • Amounts Spent Per Unit on Upgrades
  • Reasons for Investing in Renovations
  • Importance of Vacancy Decontrol
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SLIDE 3

THE ONTARIO RENTAL MARKET UNIVERSE

637,801 461,690 765,014 100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000 900,000 Purpose-built rental apartments Condominium apartments Other rented homes Rental Apartment Stock by Type Ontario: 2016 304,785 156,905

  • w ner-
  • ccupied

rented

Source: CMHC, 2016 Census, Statistics Canada

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SLIDE 4

RENTAL DEMAND EXCEEDING 20K UNITS PER YEAR

  • 10,000
  • 5,000

5,000 10,000 15,000 20,000 25,000 30,000 35,000 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Annual Net Change in Occupied Rental Stock Ontario: 2006 to 2016 Condo rental apts Purpose-built rental apts

Source: CMHC, Statistics Canada, Urbanation Inc.

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SLIDE 5

ECONOMIC FUNDAMENTALS SUPPORTING GROWTH IN RENTAL DEMAND

2.7% 0.7%

  • 5.0%
  • 4.0%
  • 3.0%
  • 2.0%
  • 1.0%

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% Real Annual GDP Growth Ontario vs. Rest of Canada: 2001 to 2016 Ontario Canada ex Ontario

Source: Statistics Canada, Ontario Ministry of Finance, Urbanation Inc.

0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 1990 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 2016 Unemployment Rate and Purpose-built Apartment Vacancy Rate Ontario: 1990 to 2016 Unemployment Rate (L) Vacancy Rate (R)

Source: Statistics Canada, CMHC, Urbanation Inc.

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SLIDE 6

JOB MARKET FOR NEW GRADS STILL IN RECOVERY

76% 77% 78% 79% 80% 81% 82% Employment Rate for 25 to 29 Aged Population Ontario: 2000 to 2016

Source: Statistics Canada, Urbanation Inc.

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SLIDE 7

RENTER HOUSEHOLD FORMATION DRIVEN BY UNDER 35 AGE GROUP

81% 52% 32% 25% 22% 22% 25% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 15-24 25-34 35-44 45-54 55-64 65-74 75+ Percentage of Households that Rent by Age Range Ontario: 2016

Source: 2016 Census, Statistics Canada

7% 23% 18% 18% 15% 10% 9% 0% 5% 10% 15% 20% 25% 15-24 25-34 35-44 45-54 55-64 65-74 75+ Distribution of Renter Households by Age Group Ontario: 2016

Source: 2016 Census, Statistics Canada

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SLIDE 8

POPULATION INFLOWS HIGHEST IN AT LEAST 25 YEARS

98,409 69,295 25,689

  • 75,000
  • 50,000
  • 25,000

25,000 50,000 75,000 100,000 125,000 150,000 175,000 1990 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 2016 2017 Annual Migration Flows Ontario: 1990 to 2017 Immigration Net non-permanent residents Net interprovincial migration

Source: Statistics Canada, Urbanation Inc.

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SLIDE 9
  • POP. GROWTH IN 25-34 AGE GROUP COMPOUNDED BY

AGING OF MILLENNIALS

  • 60,000
  • 40,000
  • 20,000

20,000 40,000 60,000 80,000 100,000 Annual Change in Population Aged 25 to 34 Ontario: 1973 to 2017

Source: Statistics Canada, Urbanation Inc.

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SLIDE 10

IN 10 YEARS, POP. AGED 35 TO 44 COULD BECOME HIGHEST SHARE OF RENTERS

  • 200,000
  • 100,000

100,000 200,000 300,000 400,000 500,000 600,000 15 to 24 25 to 34 35 to 44 45 to 54 55 to 64 65 years and

  • ver

Population Growth by Age Group and Projections Ontario: 2016 to 2026 2011-16 2016-21 2021-26

Source: Statistics Canada, Ontario Ministry of Finance, Urbanation Inc.

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SLIDE 11

OWNERSHIP RATE DROPS TO 15-YEAR LOW FOR HOUSEHOLDS UNDER 45

67.9% 71.2% 71.2% 68.0% 48.5% 53.8% 53.8% 48.2% 40.0% 45.0% 50.0% 55.0% 60.0% 65.0% 70.0% 75.0% 2001 2006 2011 2016 Homeownership Rates by Age Range Ontario: 2001 to 2016 35 to 44 25 to 34

Source: Statistics Canada

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SLIDE 12

OWNERSHIP AFFORDABILITY AT LOWEST SINCE 1991

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 1988 1989 1990 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 2016 YTD 2017 Mortgage Payment on Average Priced Resale as % of Household Income* Ontario: 1988 to 2017

*Mortgage pay ments based on av erage MLS price, 20% down pay ment, 25-y ear amortization, and discounted 5-y ear mortgage rates Source: Statistics Canada, Bank of Canada, CREA, Urbanation Inc.

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SLIDE 13

HOUSING DEMAND HAS SHIFTED TO CONDOS – OWNING & RENTING

$439,858 $1,123,917 $294,709 $703,470 $239,660 $511,747 $0 $200,000 $400,000 $600,000 $800,000 $1,000,000 $1,200,000 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 YTD 2017 Average Resale Prices by Housing Type Greater Toronto Area: 2006 to YTD 2017 Detached Semi/Row/Town Condo Apt

Source: TREB, Urbanation Inc.

  • Avg. home price:

$839,192

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SLIDE 14

AFFORDABILITY ADVANTAGE EMERGES FOR RENTING OVER BUYING CONDOS

$2,365 $2,023 $1,200 $1,400 $1,600 $1,800 $2,000 $2,200 $2,400 $2,600 Q1-11 Q2-11 Q3-11 Q4-11 Q1-12 Q2-12 Q3-12 Q4-12 Q1-13 Q2-13 Q3-13 Q4-13 Q1-14 Q2-14 Q3-14 Q4-14 Q1-15 Q2-15 Q3-15 Q4-15 Q1-16 Q2-16 Q3-16 Q4-16 Q1-17 Q2-17 Average Condo Ownership Cost versus Rent Greater Toronto Area: Q1-2011 to Q2-2017 Average Condo Ownership Cost* Average Condo Rent

*Based on 700 sf unit, average condo resale prices psf, 20% down payment, five-year discounted mortgage rates, 25-year amortization, includes condo fees and property taxes Source: Urbanation, TREB, Bank of Canada

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SLIDE 15

CONDO RENT GROWTH RISES INTO DOUBLE-DIGITS

10% $2.98 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 20.0% $2.00 $2.10 $2.20 $2.30 $2.40 $2.50 $2.60 $2.70 $2.80 $2.90 $3.00 Q1-11 Q2-11 Q3-11 Q4-11 Q1-12 Q2-12 Q3-12 Q4-12 Q1-13 Q2-13 Q3-13 Q4-13 Q1-14 Q2-14 Q3-14 Q4-14 Q1-15 Q2-15 Q3-15 Q4-15 Q1-16 Q2-16 Q3-16 Q4-16 Q1-17 Q2-17 Q3-17 Average Condo Apartment Rents PSF and Annual Change Greater Toronto Area: Q1-2011 to Q2-2017 Y/Y % Change

  • Avg. Rent PSF

Source: Urbanation Inc., TREB

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SLIDE 16

CONDO RENTAL COSTS JUMP BY OVER $200 AMID LOW SUPPLY

$229 18,811 5,000 10,000 15,000 20,000 25,000 30,000

  • $50

$0 $50 $100 $150 $200 $250 Q3-12 Q3-13 Q3-14 Q3-15 Q3-16 Q3-17 Annual Change in Average Monthly Rents and Annual Registrations Greater Toronto Area: 2012 to 2017, Q3 periods Annual Change: Average Monthly Rent Annual Level of New Registrations (units)

Source: Urbanation Inc., TREB/MLS

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SLIDE 17

CONDO DEVELOPMENT IS 4X RENTAL

51,260 12,487 10,000 20,000 30,000 40,000 50,000 60,000 70,000 1990 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 2016 Q2-17 Apartment Units Under Construction by Tenure Ontario: 1990 to Q2-2017, period-ending Condominium Apartments Purpose-built Apartments

Source: CMHC, Urbanation Inc.

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SLIDE 18

PER CAPITA RENTAL CONSTRUCTION IN TORONTO IS ONE OF LOWEST IN CANADA

3.19 2.12 1.19 1.03 0.98 0.71 0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 Vancouver Montreal Ottawa Edmonton Toronto Calgary Ratio of Rental Units Under Construction per 1,000 Population Major Markets: Q2-2017

Source: Statistics Canada, CMHC, Urbanation Inc.

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SLIDE 19

RISING % OF CONDOS USED AS RENTALS

18% 19% 20% 20% 22% 22% 26% 29% 30% 33% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Share of Condo Apartments Used as Rentals Greater Toronto Area: 2008 to 2016

Source: CMHC, Urbanation Inc.

=120K rentals in GTA

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SLIDE 20

VACANCY RATES HEADING BELOW 1%

1.4% 1.0% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Purpose-built Vacancy Rate Condo Vacancy Rate

Source: CMHC, Urbanation Inc.

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SLIDE 21

INVENTORY OF RENTAL PROPOSALS LEVELLING OFF

30,980 5,000 10,000 15,000 20,000 25,000 30,000 35,000 Q1-15 Q2-15 Q3-15 Q4-15 Q1-16 Q2-16 Q3-16 Q4-16 Q1-17 Q2-17 Q3-17 Inventory of Proposed Purpose-built Rentals Greater Toronto Area: Q1-2015 to Q3-2017

Source: Urbanation Inc.

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SLIDE 22

CONDO DELIVERIES TO BEGIN RISING NEXT YEAR

5,000 10,000 15,000 20,000 25,000 30,000 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Annual Condo Apartment Completions Greater Toronto Area: 2010 to 2021

Source: Urbanation Inc.

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SLIDE 23

SHARP DROP IN CAP RATES SHOULD SLOW CONDO INVESTMENT

4.1% 3.5% 4.0% 4.5% 5.0% 5.5% Q1-11 Q2-11 Q3-11 Q4-11 Q1-12 Q2-12 Q3-12 Q4-12 Q1-13 Q2-13 Q3-13 Q4-13 Q1-14 Q2-14 Q3-14 Q4-14 Q1-15 Q2-15 Q3-15 Q4-15 Q1-16 Q2-16 Q3-16 Q4-16 Q1-17 Q2-17 Condo Apartment Cap Rates* Greater Toronto Area: Q2-2011 to Q2-2017

Source: Urbanation Inc., TREB/MLS *Calculated as av erage rents net of condo f ees div ided by av erage resale prices

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SLIDE 24

UNIT MIX OF NEW CONDO SUPPLY STILL HEAVILY WEIGHTED IN 1B UNITS

4% 3% 25% 29% 35% 33% 24% 21% 11% 13% 1% 2% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Built since 2012 In Development Condo Apartment Unit Mixes by Project Status Greater Toronto Area: Q3-2017 3B 2B+D 2B 1B+D 1B Studio

Source: Urbanation Inc.

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SLIDE 25

PURPOSE-BUILT PROJECTS OFFER MORE DIVERSITY FOR SHIFTING DEMOGRAPHICS

8% 42% 42% 9% 3% 56% 39% 2% 0% 10% 20% 30% 40% 50% 60% Bachelor 1 Bedroom 2 Bedroom 3 Bedroom + Rental Apartment Unit Mix Greater Toronto Area Purpose-built Universe: 2016 Condo Leases: Q3-17

Source: Urbanation Inc.

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SLIDE 26

RENTAL SUPPLY SHORTFALL OF 6K UNITS PER YEAR PROJECTED FOR ONTARIO

5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Rental Apartment Demand vs. Supply Projections Ontario: 2016 to 2026 Demand-Supply Gap (units) Demand Projection Supply Projection (purpose-built and condo)

Source: Urbanation Inc.

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SLIDE 27

MEASURING RENOVATION INVESTMENT: PURPOSE-BUILT RENTAL UNIVERSE IN ONTARIO

42,693 81,687 90,978 279,830 142,613 Purpose-built Rental Apartment Universe by Building Size Ontario: 2016 3-5 Units 6-19 Units 20-49 Units 50-199 Units 200+ Units

Source: CMHC Housing Market Information Portal

131,815 407,310 65,800 32,876 Purpose-built Rental Apartment Universe by Period of Construction Ontario: 2016 Before 1960 1960 - 1979 1980 - 1999 2000 or Later

Source: CMHC Housing Market Information Portal

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SLIDE 28

OVER $5 BILLION INVESTED IN RENOVATION UPGRADES SINCE 2012

Average Value of Units (all) $177,716 Average Value of Units Built Pre 1992 $135,294 Total Estimated Value of Units Surveyed $86,539,972,730 Total Estimated Value of Units Built Pre 1992 Surveyed $62,096,250,636 Percentage of Units Renovated at $5,000 or more since 2012 77% Estimated Total Surveyed Units Renovated at $5,000 plus since 2012 375,875 Estimated Total Surveyed Units Built Pre 1992 Renovated at $5,000 plus since 2012 354,275 Average Value of Renovations per Unit Since 2012 $13,745 Estimated Total Value of Renovations at $5,000 plus since 2012 $5,166,551,016 Estimated Total Value of Renovations at $5,000 plus since 2012 for Units Built Pre 1992 $4,869,646,751 Total Estimated Value of Renovations of $5,000 Plus for Purpose-built Apartments Ontario: 2012 to 2016

Source: Urbanation Inc., FRPO, CM HC

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SLIDE 29

PURPOSE-BUILT RENTAL INVESTMENT A SIGNIFICANT CONTRIBUTOR TO ONTARIO ECONOMY

2016 2011-2016 Change Gross domestic product at market prices $798.5 $138.7 Gross fixed capital formation in residential structures $66.3 $20.3 Renovation expenditures* $24.4 $6.6 Ontario Nominal Gross Domestic Product, Expenditure Based In billions of dollars

*Data not released for Ontario. Estimated using national share. Source: Ontario Ministry of Fianance Urbanation, FRPO

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SLIDE 30

MOST INVESTMENTS ARE OVER $10K PER UNIT

38% 23% 17% 0% 5% 10% 15% 20% 25% 30% 35% 40% $5,000 to $10,000 $10,001 or $20,000 $20,001 or more Share of Surveyed Units by Renovation Investment per Unit since 2012 Ontario: 2017

Source: Urbanation Inc., FRPO

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SLIDE 31

REASONS FOR INVESTING IN UNIT UPGRADES

Rank Factor Average Score (1= highest 5= lowest) 1 Age/deteriorating quality 1.94 2 Rising achievable market rents at turnover 2.28 3 Competitive pressure: falling behind market standards 2.63 4 Low cost of borrow ing 3.94 5 Other 4.25 Factors Impacting Decision to Invest in Renovation Expenditures Purpose-built Rental Apartments in Ontario

Source: Urbanation Inc., FRPO

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SLIDE 32

RENTAL TURNOVER IS DECLINING

27% 21% 79% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Average - Past 12 months Increased Decreased Average Rate of Turnover Past 12 Months and Directional Change Ontario Purpose-built Rental Apartments: 2017

Source: Urbanation Inc., FRPO

Average Rate of Turnover Directional Change from a Year Ago

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SLIDE 33

IMPORTANCE OF VACANCY DECONTROL

53% 21% 16% 5% 5% Likelihood of Investing in Renovations in next 5 years Without Vacancy Decontrol Ontario Purpose-built Rental Apartments: 2017 Very Unlikely Somewhat Unlikely Still likely, but less so Very likely Unsure

Source: Urbanation Inc., FRPO

“

Vacancy decontrol is vital. It is like the hole in the lid

  • f the kettle, it helps relieve

the pressure put on us by aging buildings”

  • -FRPO member
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SLIDE 34

SUMMARY

  • Rental demand is projected to continue strengthening in

years ahead

  • Supply will face headwinds due to policy changes, condo

investors ability/willingness to hold

  • More pressure to be put on existing rental stock
  • Renovation expenditures will increase in importance