Ontario Rental Market Study Results: Measuring the Supply Gap / Renovation Investment and the Role of Vacancy Decontrol

Transcription

1 Ontario Rental Market Study Results: Measuring the Supply Gap / Renovation Investment and the Role of Vacancy Decontrol

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

3 THE ONTARIO RENTAL MARKET UNIVERSE Rental Apartment Stock by Type Ontario: , , , , , , , , , ,801 Purpose-built rental apartments 461, , ,785 rented ow neroccupied Condominium apartments Source: CMHC, 2016 Census, Statistics Canada 765,014 Other rented homes

4 RENTAL DEMAND EXCEEDING 20K UNITS PER YEAR Annual Net Change in Occupied Rental Stock Ontario: 2006 to ,000 30,000 25,000 Condo rental apts Purpose-built rental apts 20,000 15,000 10,000 5, ,000-10, Source: CMHC, Statistics Canada, Urbanation Inc.

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

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

7 RENTER HOUSEHOLD FORMATION DRIVEN BY UNDER 35 AGE GROUP Percentage of Households that Rent by Age Range Ontario: 2016 Distribution of Renter Households by Age Group Ontario: % 80% 70% 81% 25% 20% 23% 18% 18% 60% 50% 40% 30% 20% 10% 52% 32% 25% 22% 22% 25% 15% 10% 5% 7% 15% 10% 9% 0% % Source: 2016 Census, Statistics Canada Source: 2016 Census, Statistics Canada

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

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

10 IN 10 YEARS, POP. AGED 35 TO 44 COULD BECOME HIGHEST SHARE OF RENTERS 600,000 Population Growth by Age Group and Projections Ontario: 2016 to , , , , , , , to to to to to years and over Source: Statistics Canada, Ontario Ministry of Finance, Urbanation Inc.

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

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

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

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

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

16 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 Annual Change: Average Monthly Rent $229 30,000 $200 Annual Level of New Registrations (units) 25,000 $150 18,811 20,000 $100 15,000 $50 10,000 $0 5,000 -$50 Q3-12 Q3-13 Q3-14 Q3-15 Q3-16 Q3-17 Source: Urbanation Inc., TREB/MLS 0

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

18 PER CAPITA RENTAL CONSTRUCTION IN TORONTO IS ONE OF LOWEST IN CANADA Ratio of Rental Units Under Construction per 1,000 Population Major Markets: Q Vancouver Montreal Ottawa Edmonton Toronto Calgary Source: Statistics Canada, CMHC, Urbanation Inc.

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

20 VACANCY RATES HEADING BELOW 1% 4.0% 3.5% 3.0% Purpose-built Vacancy Rate Condo Vacancy Rate 2.5% 2.0% 1.5% 1.0% 1.4% 1.0% 0.5% 0.0% Source: CMHC, Urbanation Inc.

21 INVENTORY OF RENTAL PROPOSALS LEVELLING OFF Inventory of Proposed Purpose-built Rentals Greater Toronto Area: Q to Q ,000 30,000 30,980 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.

22 CONDO DELIVERIES TO BEGIN RISING NEXT YEAR 30,000 Annual Condo Apartment Completions Greater Toronto Area: 2010 to ,000 20,000 15,000 10,000 5, Source: Urbanation Inc.

23 SHARP DROP IN CAP RATES SHOULD SLOW CONDO INVESTMENT Condo Apartment Cap Rates* Greater Toronto Area: Q to Q % 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

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

25 PURPOSE-BUILT PROJECTS OFFER MORE DIVERSITY FOR SHIFTING DEMOGRAPHICS Rental Apartment Unit Mix Greater Toronto Area 60% 50% 40% 56% Purpose-built Universe: 2016 Condo Leases: Q % 42% 39% 30% 20% 10% 0% 8% 9% 3% 2% Bachelor 1 Bedroom 2 Bedroom 3 Bedroom + Source: Urbanation Inc.

26 RENTAL SUPPLY SHORTFALL OF 6K UNITS PER YEAR PROJECTED FOR ONTARIO Rental Apartment Demand vs. Supply Projections Ontario: 2016 to ,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Demand-Supply Gap (units) Demand Projection Supply Projection (purpose-built and condo) Source: Urbanation Inc.

27 MEASURING RENOVATION INVESTMENT: PURPOSE-BUILT RENTAL UNIVERSE IN ONTARIO Purpose-built Rental Apartment Universe by Building Size Ontario: ,693 Purpose-built Rental Apartment Universe by Period of Construction Ontario: , ,613 81,687 90, Units 6-19 Units Units 65, ,815 Before , Units 407, or Later 200+ Units Source: CMHC Housing Market Information Portal Source: CMHC Housing Market Information Portal

28 OVER $5 BILLION INVESTED IN RENOVATION UPGRADES SINCE 2012 Total Estim ated Value of Renovations of $5,000 Plus for Purpose-built Apartments Ontario: 2012 to 2016 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 % Estimated Total Surveyed Units Renovated at $5,000 plus since ,875 Estimated Total Surveyed Units Built Pre 1992 Renovated at $5,000 plus since ,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 Source: Urbanation Inc., FRPO, CM HC

29 PURPOSE-BUILT RENTAL INVESTMENT A SIGNIFICANT CONTRIBUTOR TO ONTARIO ECONOMY Ontario Nominal Gross Domestic Product, Expenditure Based In billions of dollars 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 *Data not released for Ontario. Estimated using national share. Source: Ontario M inistry of Fianance Urbanation, FRPO

30 MOST INVESTMENTS ARE OVER $10K PER UNIT Share of Surveyed Units by Renovation Investment per Unit since 2012 Ontario: % 38% 35% 30% 25% 23% 20% 15% 17% 10% 5% 0% $5,000 to $10,000 $10,001 or $20,000 $20,001 or more Source: Urbanation Inc., FRPO

31 REASONS FOR INVESTING IN UNIT UPGRADES Rank Factors Impacting Decision to Invest in Renovation Expenditures Factor Purpose-built Rental Apartm ents in Ontario Average Score (1= highest 5= low est) 1 Age/deteriorating quality Rising achievable market rents at turnover Competitive pressure: falling behind market standards Low cost of borrow ing Other 4.25 Source: Urbanation Inc., FRPO

32 RENTAL TURNOVER IS DECLINING Average Rate of Turnover Past 12 Months and Directional Change Ontario Purpose-built Rental Apartments: % 80% 79% 70% 60% 50% 40% Average Rate of Turnover Directional Change from a Year Ago 30% 20% 27% 21% 10% 0% Average - Past 12 months Source: Urbanation Inc., FRPO Increased Decreased

33 IMPORTANCE OF VACANCY DECONTROL Likelihood of Investing in Renovations in next 5 years Without Vacancy Decontrol Ontario Purpose-built Rental Apartments: % 21% 5% 5% 53% Very Unlikely Somewhat Unlikely Still likely, but less so Very likely Unsure Vacancy decontrol is vital. It is like the hole in the lid of the kettle, it helps relieve the pressure put on us by aging buildings --FRPO member Source: Urbanation Inc., FRPO

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