Ontario Rental Market Overview & Outlook FRPO & GTAA Rental Market Update Breakfast February 2018 Ted Tsiakopoulos Regional Economist, CMHC ttsiakop@cmhc.ca CANADA MORTGAGE AND HOUSING CORPORATION
KEY TAKEAWAYS Ontario & BC Remain Tightest Rental Markets Tightest Rental Markets in Ontario South East Tightening Demand Shifting to Less Expensive Housing Vacancy Rates Still Have Room To Fall - Rents Will Grow Demand Supply Imbalances Will Narrow But Composition of New Supply a Bigger Question National Housing Strategy To Play Important Role CANADA MORTGAGE AND HOUSING CORPORATION 2
Ontario Rental Vacancy Rates Among the Lowest Rental Apartment Vacancy Rates - Overall 9 8 7 6 5 4 3 2 1 0 8.1 7.5 6.5 6.6 4.4 3.7 3.4 3 2.1 1.6 1.3 1.3 BC ALTA ONT QUE NFLD CAN 2016 2017 Source: CMHC Rental Market Survey CANADA MORTGAGE AND HOUSING CORPORATION 3
Eastern Ontario Vacancies Decline N. Ontario Vacancies Still Elevated Rental Apartment Vacancy Rates - Overall 6 5 4 3 2 1 0 2016 2017 Source: CMHC Rental Market Survey CANADA MORTGAGE AND HOUSING CORPORATION 4
Demand Growing More At Lower End Growth in Rental Demand* 2016 vs 2017 10% 8% 6% 4% 2% 0% -2% -4% -6% -8% Low End High End Toronto Ottawa Kitchener Hamilton London Sudbury Source: CMHC Rental Market Survey *Demand measured as change in occupied stock at 20th(low end) and 80 th (high end) rent percentiles CANADA MORTGAGE AND HOUSING CORPORATION 5
Southern Ontario Rents Grow Faster vs North & East Same Sample Overall Apt Rent - % chg. 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 2016 2017 Source: CMHC Rental Market Survey CANADA MORTGAGE AND HOUSING CORPORATION 6
Factors Impacting Ontario Vacancy Rates FACTORS 2016 2017 Job Market D D Demographics D D Cost Gap (Own vs Rent) D D Expectations/Psychology N D New Rental Supply U U Net Effect D D D=Downward Pressure U=Upward Pressure N=Neutral Source: CMHC Rental Market Survey, Statistics Canada, Social Media Data 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? 12 Historical Annual Rental Apartment Vacancy Rates (Post 1988) - Overall 10 8 Historical Hi Historical Low Fall 2017 6 4 2 0 Source: CMHC Rental Market Survey, CANADA MORTGAGE AND HOUSING CORPORATION 9
Rental Market Benefits From Being Pro- Cyclical Unemployment & Rental Vacancy Rates % - Ontario 10 9 8 7 6 5 4 3 2 1 0 Forecast UNEMRT VACRT 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019f Source: Statistics Canada, CMHC Rental Market Survey, CMHC forecast(f) CANADA MORTGAGE AND HOUSING CORPORATION 10
Ontario Economy Growing Faster vs Rest of Canada Since 2015 GDP Index (2009=100) 125 120 115 110 105 100 95 Rest of Canada GDP Ontario GDP 90 2007Q1 2009Q1 2011Q1 2013Q1 2015Q1 2017Q1 Source: Statistics Canada Economic Accounts, Ontario Ministry of Finance, CMHC calculation CANADA MORTGAGE AND HOUSING CORPORATION 11
But Will Grow At Slower Rate Especially vs Pre Recession Period Best Years For Ontario Economy Likely Behind Us 3.5 3 2.5 2 1.5 1 0.5 GDP % chg Emp % chg 0 2017e 2018f 2019f Pre 2008 Source: Statistics Canada Economic Accounts, Statistics Canada LFS, CMHC Forecast (f) 2017-19 12 CANADA MORTGAGE AND HOUSING CORPORATION
Consumer Sector More Vulnerable Due to Rising Debt, Higher Rates Household Debt to Disposable Income % - Canada 180 170 160 150 140 130 120 110 100 90 Q1 2007 Q1 2010 Q1 2013 Q1 2016 Source: Statistics Canada CANADA MORTGAGE AND HOUSING CORPORATION 13
Some Sectors Will Benefit From Rotation of Growth Accelerating Decelerating IT RETAIL HEALTH & GOVT FINANCE NATURAL RESOURCES HOUSING Source: Statistics Canada, CMHC CANADA MORTGAGE AND HOUSING CORPORATION 14
Bigger Dip in Millennial Ownership Rates Blip or New Downtrend? 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Owner Hlds-ONT 2006 Owner Hlds-Ont 2011 Owner Hld-Ont 2016 Renter Hlds-Ont 2006 Renter Hlds-Ont 2011 Renter Hld-Ont 2016 15 to 24 years 25 to 34 years 35 to 44 years 45 to 54 years 55 to 64 years 65 to 74 years 75 to 84 years 85 years and over Source: Statistics Canada Census Ontario data CANADA MORTGAGE AND HOUSING CORPORATION 15
Eroding Affordability To Dampen First Time Buyer Demand First time buyer* (FTB) share % 80% 70% 60% 50% 40% 30% Forecast Affordability** 160% 140% 120% 100% 80% 60% 20% 10% FTB share Affordability* 40% 20% 0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018(f) 2019(f) 0% Source: Statistics Canada, CREA, CMHC * Based on CMHC high and low ratio data **Required income as a share of actual household income to buy average resale home, Ontario CANADA MORTGAGE AND HOUSING CORPORATION 16
Higher Share of Renters Under Age of 44 & Carrying Most of the Debt 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% % of renters by age % of total debt held by age Under 44 45to64 65+ Source: Statistics Canada Survey of Financial Security, & Census 2016 Ontario data CANADA MORTGAGE AND HOUSING CORPORATION 17
Ontario Migration Easing But Remains Above Decade Average International Migration Impacted By Global Conditions 180000 160000 140000 120000 100000 80000 60000 40000 20000 0-20000 -40000 International Interprovincial 2005 2007 2009 2011 2013 2015 2017 2019(F) 18 Source: Statistics Canada, CMHC Estimate(e) CANADA MORTGAGE AND HOUSING CORPORATION
Demand/Supply Balance Calls For More Rental Supply 40000 35000 30000 New Rental Completions*(Supply) Growth in Renter Households (Demand) - CMHC Forecast (2011-16) Actual Growth in Rental Households (2016 Census) 25000 20000 15000 10000 5000 0 2006-11 2011-16(f) Source: CMHC Starts & Completions Survey, Statistics Canada Census Annual Averages *Does not include condominiums completed and available for rent CANADA MORTGAGE AND HOUSING CORPORATION 19
Only 18% of Renter Households Can Access Newly Constructed Units 33% Newer Units Distribution of Renter Household Income - Ontario 35% 30% 25% 20% $65K required for newer existing rental unit occupancy (33%) earning>$60k $83K required for newly constructed units (18%) earning >80K 15% 10% 5% 0% Less Than $20,000 $20,000 to $39,999 $40,000 to $59,999 $60,000 to $79,999 $80,000 to $99,999 $100,000 And Over 2011 2016 Source: Statistics Canada Census, CMHC RMS calculations CANADA MORTGAGE AND HOUSING CORPORATION 20
Rents To Grow But Some Downside Risks To Growth 920 Inflation Adjusted Rents 2 Bed Apt. - Ontario 900 880 860 840 820 800 780 760 740 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: CMHC Rental Market Survey, CANADA MORTGAGE AND HOUSING CORPORATION 21
Rental Market Turnover Will Remain Low 45 40 35 30 25 20 15 10 5 0 Rental Unit Turnover Rate** - 2017 Toronto St. Catharines Ottawa Sudbury Hamilton ONTARIO Kitchener Brantford Peterborough Guelph Oshawa London Thunder Bay Kingston Windsor Belleville* Barrie FACTORS? 1. Rent Controls 2. Eroding Affordability 3. Population Aging Source: CMHC Rental Market Survey *Data suppressed **Share of rental units changing occupancy last 12 months CANADA MORTGAGE AND HOUSING CORPORATION 22
Risks To Ontario Vacancy Rates 2018/19 Risks Exerting Upward Pressure Much Slower Pace of Business Investment/Hiring (Trump effect, Minimum Wage) Elevated Household Debt Among Younger Adults Risks Exerting Downward Pressure Stronger Youth Job Market & Release of Pent-Up Demand Stronger US Economy vs Forecast More Significant Erosion of Ownership Affordability Stronger International Migration Policy Induced (Rent Control, Minimum Wage) CANADA MORTGAGE AND HOUSING CORPORATION 23
GTA Rental Market Overview 8 th February 2018 Dana Senagama Principal, Market Analysis (GTA) CANADA MORTGAGE AND HOUSING CORPORATION
Record Low Vacancy Rates in the GTA 4.3% 3.8% 3.7% Vacancy Rate 3.2% 3.2% 3.1% 2.5% 2.1% 2.0% 1.6% 1.4% 0.9% 0.8% 0.9% 0.8% 0.7% 1.8% 1.8% 1.7% 1.7% 1.6% 1.6% 1.4% 1.4% 1.3% 1.2% 1.1% 1.1% 1.0% 0.7% 0.4% 0.4% 0.4% 0.1% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Condo Rental Apartment Purpose- Built Rental Apartment Source: CMHC CANADA MORTGAGE AND HOUSING CORPORATION
The Current Housing Market High Demand Low Supply CANADA MORTGAGE AND HOUSING CORPORATION
Accelerated Rent Growth Due to Lack of Supply Rent Growth * 5.0% 4.2% 4.0% 3.0% 2.0% 1.8% 1.9% 2.8% Millennials 3.0% 2.7% 3.3% 3.2% 1.0% 0.0% 2010 2011 2012 2013 2014 2015 2016 2017 **GTA fixed sample two-bedroom apartment rent Source: CMHC CANADA MORTGAGE AND HOUSING CORPORATION
Recent Upswing in Rental Construction No Match for Condos 35000 30000 25000 20000 15000 10000 5000 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 2017 Condominium Apartment Completions Rental Apartment Completions Source: CMHC CANADA MORTGAGE AND HOUSING CORPORATION
Flat Purpose- Builts, Increasing Condo Rentals Rental Apartment Universe 350,000 300,000 250,000 200,000 150,000 100,000 50,000 Purpose-Built Condominium 0 2010 2011 2012 2013 2014 2015 2016 2017 Source: CMHC CANADA MORTGAGE AND HOUSING CORPORATION
Higher Domestic Investment in Condos Share of the GTA Condominium Apartments Rented 40% 30% 25.7% 28.9% 30.1% 32.6% 32.7% 20% 19.2% 18.8% 10% 0% 2003 2008 2013 2014 2015 2016 2017 Source: CMHC CANADA MORTGAGE AND HOUSING CORPORATION
Homeownership Not a Viable Option in Future CANADA MORTGAGE AND HOUSING CORPORATION
Supply Is Slow to Respond.. Average Length of Construction for Rental Apartments, Dec 2017 Source: CMHC CANADA MORTGAGE AND HOUSING CORPORATION
Demand for Other Secondary Rentals Will Increase CANADA MORTGAGE AND HOUSING CORPORATION
Rents in New Purpose-Built Units Are More Expensive Average 2- Br Rent for Rental Apartment in GTA 2005+ $2,176 1990-2004 $2,088 1975-1989 $1,423 1960-1974 $1,368 Pre 1960 $1,309 $0 $500 $1,000 $1,500 $2,000 $2,500 Source: CMHC CANADA MORTGAGE AND HOUSING CORPORATION
Contact Information Dana Senagama Principal, Market Analysis (GTA) Email: dsenagam@cmhc.ca Phone: (416) 218 3328 CANADA MORTGAGE AND HOUSING CORPORATION