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

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 • 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

THE ONTARIO RENTAL MARKET UNIVERSE Rental Apartment Stock by Type Ontario: 2016 900,000 765,014 800,000 700,000 637,801 600,000 461,690 500,000 400,000 156,905 rented 300,000 200,000 ow ner- 304,785 occupied 100,000 0 Purpose-built rental Condominium apartments Other rented homes apartments Source: CMHC, 2016 Census, Statistics Canada

RENTAL DEMAND EXCEEDING 20K UNITS PER YEAR Annual Net Change in Occupied Rental Stock Ontario: 2006 to 2016 35,000 Condo rental apts 30,000 Purpose-built rental apts 25,000 20,000 15,000 10,000 5,000 0 -5,000 -10,000 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: CMHC, Statistics Canada, Urbanation Inc.

ECONOMIC FUNDAMENTALS SUPPORTING GROWTH IN RENTAL DEMAND Real Annual GDP Growth Unemployment Rate and Purpose-built Apartment Vacancy Rate Ontario vs. Rest of Canada: 2001 to 2016 Ontario: 1990 to 2016 Ontario 14.0% 4.5% 5.0% Unemployment Rate (L) Canada ex Ontario 4.0% 4.0% 12.0% Vacancy Rate (R) 2.7% 3.5% 3.0% 10.0% 2.0% 3.0% 1.0% 8.0% 0.7% 2.5% 0.0% 2.0% 6.0% -1.0% 1.5% -2.0% 4.0% 1.0% -3.0% 2.0% 0.5% -4.0% -5.0% 0.0% 0.0% 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 Source: Statistics Canada, Ontario Ministry of Finance, Urbanation Inc. Source: Statistics Canada, CMHC, Urbanation Inc.

JOB MARKET FOR NEW GRADS STILL IN RECOVERY Employment Rate for 25 to 29 Aged Population Ontario: 2000 to 2016 82% 81% 80% 79% 78% 77% 76% Source: Statistics Canada, Urbanation Inc.

RENTER HOUSEHOLD FORMATION DRIVEN BY UNDER 35 AGE GROUP Distribution of Renter Households by Age Group Percentage of Households that Rent by Age Range Ontario: 2016 Ontario: 2016 90% 25% 81% 23% 80% 20% 70% 18% 18% 60% 15% 52% 15% 50% 10% 40% 9% 32% 10% 25% 25% 7% 30% 22% 22% 20% 5% 10% 0% 0% 15-24 25-34 35-44 45-54 55-64 65-74 75+ 15-24 25-34 35-44 45-54 55-64 65-74 75+ Source: 2016 Census, Statistics Canada Source: 2016 Census, Statistics Canada

POPULATION INFLOWS HIGHEST IN AT LEAST 25 YEARS Annual Migration Flows Ontario: 1990 to 2017 Immigration Net non-permanent residents 175,000 Net interprovincial migration 150,000 125,000 98,409 100,000 69,295 75,000 50,000 25,689 25,000 0 -25,000 -50,000 -75,000 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 Source: Statistics Canada, Urbanation Inc.

POP. GROWTH IN 25-34 AGE GROUP COMPOUNDED BY AGING OF MILLENNIALS Annual Change in Population Aged 25 to 34 Ontario: 1973 to 2017 100,000 80,000 60,000 40,000 20,000 0 -20,000 -40,000 -60,000 Source: Statistics Canada, Urbanation Inc.

IN 10 YEARS, POP. AGED 35 TO 44 COULD BECOME HIGHEST SHARE OF RENTERS Population Growth by Age Group and Projections Ontario: 2016 to 2026 600,000 500,000 2011-16 2016-21 2021-26 400,000 300,000 200,000 100,000 0 -100,000 -200,000 15 to 24 25 to 34 35 to 44 45 to 54 55 to 64 65 years and over Source: Statistics Canada, Ontario Ministry of Finance, Urbanation Inc.

OWNERSHIP RATE DROPS TO 15-YEAR LOW FOR HOUSEHOLDS UNDER 45 Homeownership Rates by Age Range Ontario: 2001 to 2016 75.0% 71.2% 71.2% 70.0% 68.0% 67.9% 65.0% 35 to 44 25 to 34 60.0% 53.8% 53.8% 55.0% 50.0% 48.2% 48.5% 45.0% 40.0% 2001 2006 2011 2016 Source: Statistics Canada

OWNERSHIP AFFORDABILITY AT LOWEST SINCE 1991 Mortgage Payment on Average Priced Resale as % of Household Income* Ontario: 1988 to 2017 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 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 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.

HOUSING DEMAND HAS SHIFTED TO CONDOS – OWNING & RENTING Average Resale Prices by Housing Type Greater Toronto Area: 2006 to YTD 2017 $1,200,000 $1,123,917 Detached $1,000,000 Avg. home price: Semi/Row/Town $839,192 $800,000 Condo Apt $703,470 $600,000 $439,858 $511,747 $400,000 $294,709 $200,000 $239,660 $0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 YTD 2017 Source: TREB, Urbanation Inc.

AFFORDABILITY ADVANTAGE EMERGES FOR RENTING OVER BUYING CONDOS Average Condo Ownership Cost versus Rent Greater Toronto Area: Q1-2011 to Q2-2017 $2,600 $2,365 $2,400 Average Condo Ownership Cost* $2,200 Average Condo Rent $2,023 $2,000 $1,800 $1,600 $1,400 $1,200 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 *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

CONDO RENT GROWTH RISES INTO DOUBLE-DIGITS Average Condo Apartment Rents PSF and Annual Change Greater Toronto Area: Q1-2011 to Q2-2017 $2.98 $3.00 20.0% $2.90 18.0% Y/Y % Change $2.80 16.0% Avg. Rent PSF $2.70 14.0% $2.60 12.0% 10% $2.50 10.0% $2.40 8.0% $2.30 6.0% $2.20 4.0% $2.10 2.0% $2.00 0.0% 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 Source: Urbanation Inc., TREB

CONDO RENTAL COSTS JUMP BY OVER $200 AMID LOW SUPPLY Annual Change in Average Monthly Rents and Annual Registrations Greater Toronto Area: 2012 to 2017, Q3 periods $250 30,000 Annual Change: Average Monthly Rent $229 Annual Level of New Registrations (units) $200 25,000 18,811 $150 20,000 $100 15,000 $50 10,000 $0 5,000 -$50 0 Q3-12 Q3-13 Q3-14 Q3-15 Q3-16 Q3-17 Source: Urbanation Inc., TREB/MLS

CONDO DEVELOPMENT IS 4X RENTAL Apartment Units Under Construction by Tenure Ontario: 1990 to Q2-2017, period-ending 70,000 60,000 Condominium Apartments 51,260 50,000 Purpose-built Apartments 40,000 30,000 20,000 12,487 10,000 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 Q2-17 Source: CMHC, Urbanation Inc.

PER CAPITA RENTAL CONSTRUCTION IN TORONTO IS ONE OF LOWEST IN CANADA Ratio of Rental Units Under Construction per 1,000 Population Major Markets: Q2-2017 3.50 3.19 3.00 2.50 2.12 2.00 1.50 1.19 1.03 0.98 1.00 0.71 0.50 0.00 Vancouver Montreal Ottawa Edmonton Toronto Calgary Source: Statistics Canada, CMHC, Urbanation Inc.

RISING % OF CONDOS USED AS RENTALS Share of Condo Apartments Used as Rentals Greater Toronto Area: 2008 to 2016 35.0% 33% =120K rentals in 30% GTA 29% 30.0% 26% 25.0% 22% 22% 20% 20% 19% 18% 20.0% 15.0% 10.0% 5.0% 0.0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: CMHC, Urbanation Inc.

VACANCY RATES HEADING BELOW 1% 4.0% Purpose-built Vacancy Rate 3.5% Condo Vacancy Rate 3.0% 2.5% 2.0% 1.5% 1.4% 1.0% 1.0% 0.5% 0.0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: CMHC, Urbanation Inc.

INVENTORY OF RENTAL PROPOSALS LEVELLING OFF Inventory of Proposed Purpose-built Rentals Greater Toronto Area: Q1-2015 to Q3-2017 35,000 30,980 30,000 25,000 20,000 15,000 10,000 5,000 0 Q1-15 Q2-15 Q3-15 Q4-15 Q1-16 Q2-16 Q3-16 Q4-16 Q1-17 Q2-17 Q3-17 Source: Urbanation Inc.

CONDO DELIVERIES TO BEGIN RISING NEXT YEAR Annual Condo Apartment Completions Greater Toronto Area: 2010 to 2021 30,000 25,000 20,000 15,000 10,000 5,000 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Source: Urbanation Inc.

SHARP DROP IN CAP RATES SHOULD SLOW CONDO INVESTMENT Condo Apartment Cap Rates* Greater Toronto Area: Q2-2011 to Q2-2017 5.5% 5.0% 4.5% 4.0% 4.1% 3.5% 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 Source: Urbanation Inc., TREB/MLS *Calculated as av erage rents net of condo f ees div ided by av erage resale prices

UNIT MIX OF NEW CONDO SUPPLY STILL HEAVILY WEIGHTED IN 1B UNITS Condo Apartment Unit Mixes by Project Status Greater Toronto Area: Q3-2017 100% 1% 2% 11% 13% 90% 3B 80% 24% 21% 2B+D 70% 2B 60% 1B+D 50% 33% 35% 1B 40% Studio 30% 20% 29% 25% 10% 4% 3% 0% Built since 2012 In Development Source: Urbanation Inc.