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 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 CANADA MORTGAGE AND HOUSING CORPORATION 2
BC & Ontario Remain Tightest Rental Markets Rental Apartment Vacancy Rates - Overall 9 8.1 8 6.5 7 5.6 6 5 4.4 4.3 4.1 3.7 3.5 4 2.4 3 2.1 2 1.3 1.2 1 0 BC ALTA ONT QUE NFLD CAN 2015 2016 Source: CMHC Rental Market Survey CANADA MORTGAGE AND HOUSING CORPORATION 3
Toronto, London, Ottawa Contribute Most To Vacancy Drop Rental Apartment Vacancy Rates - Overall 6 5 4 3 2 1 0 2015 2016 Source: CMHC Rental Market Survey CANADA MORTGAGE AND HOUSING CORPORATION 4
Southern Ontario Rents Grow Faster vs North & East Same Sample 2bed Apt Rent - % chg. 6 5 4 3 2 1 0 2015 2016 Source: CMHC Rental Market Survey CANADA MORTGAGE AND HOUSING CORPORATION 5
Younger University Towns Post Higher Turnover Rates Turnover Rate by CMA 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 Source: CMHC Rental Market Survey *Poor quality data (suppressed) CANADA MORTGAGE AND HOUSING CORPORATION 6
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 CANADA MORTGAGE AND HOUSING CORPORATION 7
Downtrend in Rental Vacancy Rates Will Continue Ontario Rental Apartment Vacancy Rates - Overall 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 2000 2002 2004 2006 2008 2010 2012 2014 2016 Source: CMHC Rental Market Survey, CANADA MORTGAGE AND HOUSING CORPORATION 8
How Low Can Ontario Vacancy Rates Go? Historical Annual Rental Apartment Vacancy Rates - Overall 12 10 Historical Hi Historical Low Fall 2016 8 6 4 2 0 Source: CMHC Rental Market Survey, CANADA MORTGAGE AND HOUSING CORPORATION 9
Ontario Economy Will Be Among Growth Leaders But… Employment(F) % chg. 3 BC 2.5 2 ONT 1.5 CAN MAN 1 SAS QUE 0.5 ALTA 0 -1.5 -1 -0.5 0 0.5 1 1.5 2 2.5 3 3.5 -0.5 NFLD GDP (F) % chg. -1 -1.5 Source: Statistics Canada Economic Accounts, Statistics Canada LFS, CMHC Mean Forecast (F) 2016-18 CANADA MORTGAGE AND HOUSING CORPORATION 10
…Will Grow At Slower Rate Especially vs Pre 2008 Best Years For Ontario Economy Likely Behind Us 11 Source: Statistics Canada Economic Accounts, Statistics Canada LFS, CMHC Forecast (f) 2016-18 CANADA MORTGAGE AND HOUSING CORPORATION
Lower Paying Jobs Leading – More Supportive of Rental Demand 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 Source: Statistics Canada CANADA MORTGAGE AND HOUSING CORPORATION 12
International Migration Impacted By Global Factors Syrian Net International Migration - CANADA International Migration Impacted By Global Conditions Refugees Credit 350000 Crisis Sept 911 300000 Asian 250000 Currency Recession 200000 Crisis 150000 100000 50000 0 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 13 Source: Statistics Canada, CMHC Estimate(e) CANADA MORTGAGE AND HOUSING CORPORATION
Some Millennial Finding Ownership Option Prohibitive Inflation adjusted rent and home ownership index (Year 2000=100) - ONTARIO 140 130 120 110 100 90 80 2000 2002 2004 2006 2008 2010 2012 2014 2016 rent own Source: Statistics Canada, Bank of Canada, CMHC CANADA MORTGAGE AND HOUSING CORPORATION 14
Especially in Less Affordable Markets in Ontario Actual Income as % of Required Income to Purchase Average Resale Home – 2016 Affordability Erosion Encourages Spillover Demand to Neighbouring GTA Markets Windsor 176 Thunder Bay 166 Ottawa 149 London 139 Kitchener 131 Guelph 129 Barrie 120 Hamilton 110 Oshawa 97 More affordable (>100) Toronto 76 0 20 40 60 80 100 120 140 160 180 200 Source: Statistics Canada, CMHC calculation & estimates(e) based on 5yr mtg, 10% dp, 25 yr amortization CANADA MORTGAGE AND HOUSING CORPORATION
Demand/Supply Balance Favours More Rental Investment 20000 Rental Completions* New Rental Households 18000 16000 14000 12000 10000 8000 6000 4000 2000 0 2006-11 2011-16 2016-2021 Source: CMHC Ontario Estimate 2011-21, Statistics Canada *Does not include condominiums completed and available for rent CANADA MORTGAGE AND HOUSING CORPORATION 16
Condominium Rentals – Biggest Source of New Rental Percentage of Condominium Universe Held By Investors – Ontario 40 2015 2016 35 30 25 20 15 10 5 0 Hamilton Kitchener London Ottawa Toronto Source: CMHC Rental Market Survey CANADA MORTGAGE AND HOUSING CORPORATION 17
Growing Appetite for More Primary Rental Investment Purpose-Built Rental Starts – Ontario 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Source: CMHC Starts & Completions Survey CANADA MORTGAGE AND HOUSING CORPORATION 18
Purpose-Built Rental Starts Occurring Across The Province % Share Distribution* of Rental Starts By CMA - 2016 Toronto Hamilton 18% Ottawa Primary 36% Kitchener Rental 12% London Starts Rest of Ont 3% 21% 10% Source: CMHC Rental Market Survey *may not add up to 100% due to rounding CANADA MORTGAGE AND HOUSING CORPORATION 19
Will These New Investments Be Absorbed? Required* median income to rent as % of actual median Required* median income to rent as % of actual median Income - NEW UNITS Completed - ONTARIO income - ALL UNITS 100% 150% 90% 80% 145% 70% 140% 60% 50% 135% 40% 130% 30% 20% 125% 10% 120% 0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015e2016e Hamilton Kitchener London Ottawa Toronto ONTARIO 2015e 2016e 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 CANADA MORTGAGE AND HOUSING CORPORATION 20
Multi Unit Cap Rates Still Attractive in Low Interest Rate World Selected Interest Rates % 7 6 Tbill_3 5yr Cap Rates 5 4 3 2 1 0 2007Q1 2009Q1 2011Q1 2013Q1 2015Q1 Source: Bank of Canada, CBRE (Class A T oronto Properties) CANADA MORTGAGE AND HOUSING CORPORATION 21
Not Just About Returns – Real Estate Offers Stability Historical Volatility (CV)* Stocks Gold Single Family & Condo Bonds Multi Unit Rental Residential REIT 0 0.2 0.4 0.6 0.8 1 Source: Altus, CREA, Bloomberg, CMHC calculation, Statistics Canada *CV = Coefficient of Variation; CV close to 0 = low volatility; CV close to 1 = high volatility CANADA MORTGAGE AND HOUSING CORPORATION
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 CANADA MORTGAGE AND HOUSING CORPORATION 23
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