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

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 900,000 800,000 700,000 600,000 500,000 400,000 300,000 200,000 100,000 0 637,801 Purpose-built rental apartments 461,690 156,905 304,785 rented ow neroccupied Condominium apartments Source: CMHC, 2016 Census, Statistics Canada 765,014 Other rented homes

RENTAL DEMAND EXCEEDING 20K UNITS PER YEAR Annual Net Change in Occupied Rental Stock Ontario: 2006 to 2016 35,000 30,000 25,000 Condo rental apts Purpose-built rental apts 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 Ontario vs. Rest of Canada: 2001 to 2016 Unemployment Rate and Purpose-built Apartment Vacancy Rate Ontario: 1990 to 2016 5.0% 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) 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 4.5% 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.

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 Percentage of Households that Rent by Age Range Ontario: 2016 Distribution of Renter Households by Age Group Ontario: 2016 90% 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% 15-24 25-34 35-44 45-54 55-64 65-74 75+ 0% 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 175,000 150,000 125,000 100,000 75,000 50,000 25,000 0-25,000-50,000-75,000 Immigration Net interprovincial migration 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. Net non-permanent residents 98,409 69,295 25,689

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

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 2026 500,000 400,000 2011-16 2016-21 2021-26 300,000 200,000 100,000 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% 70.0% 65.0% 67.9% 71.2% 71.2% 35 to 44 68.0% 60.0% 25 to 34 55.0% 53.8% 53.8% 50.0% 45.0% 48.5% 48.2% 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 *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

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 $0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 YTD Source: TREB, Urbanation Inc. 2017

AFFORDABILITY ADVANTAGE EMERGES FOR RENTING OVER BUYING CONDOS $2,600 Average Condo Ownership Cost versus Rent Greater Toronto Area: Q1-2011 to Q2-2017 $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

CONDO RENT GROWTH RISES INTO DOUBLE-DIGITS Average Condo Apartment Rents PSF and Annual Change Greater Toronto Area: Q1-2011 to Q2-2017 $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%

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

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 12,487 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 2.00 2.12 1.50 1.00 1.19 1.03 0.98 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% 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% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: CMHC, Urbanation Inc.

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% 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 30,000 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.

CONDO DELIVERIES TO BEGIN RISING NEXT YEAR 30,000 Annual Condo Apartment Completions Greater Toronto Area: 2010 to 2021 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 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Condo Apartment Unit Mixes by Project Status Greater Toronto Area: Q3-2017 1% 2% 11% 13% 24% 21% 35% 33% 25% 29% Built since 2012 4% 3% In Development 3B 2B+D 2B 1B+D 1B Studio Source: Urbanation Inc.

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: Q3-17 42% 42% 39% 30% 20% 10% 0% 8% 9% 3% 2% Bachelor 1 Bedroom 2 Bedroom 3 Bedroom + Source: Urbanation Inc.

RENTAL SUPPLY SHORTFALL OF 6K UNITS PER YEAR PROJECTED FOR ONTARIO Rental Apartment Demand vs. Supply Projections Ontario: 2016 to 2026 45,000 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) 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Source: Urbanation Inc.

MEASURING RENOVATION INVESTMENT: PURPOSE-BUILT RENTAL UNIVERSE IN ONTARIO Purpose-built Rental Apartment Universe by Building Size Ontario: 2016 42,693 Purpose-built Rental Apartment Universe by Period of Construction Ontario: 2016 32,876 142,613 81,687 90,978 3-5 Units 6-19 Units 20-49 Units 65,800 131,815 Before 1960 1960-1979 1980-1999 279,830 50-199 Units 407,310 2000 or Later 200+ Units Source: CMHC Housing Market Information Portal Source: CMHC Housing Market Information Portal

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 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 Source: Urbanation Inc., FRPO, CM HC

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

MOST INVESTMENTS ARE OVER $10K PER UNIT Share of Surveyed Units by Renovation Investment per Unit since 2012 Ontario: 2017 40% 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

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 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 Source: Urbanation Inc., FRPO

RENTAL TURNOVER IS DECLINING Average Rate of Turnover Past 12 Months and Directional Change Ontario Purpose-built Rental Apartments: 2017 90% 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

IMPORTANCE OF VACANCY DECONTROL Likelihood of Investing in Renovations in next 5 years Without Vacancy Decontrol Ontario Purpose-built Rental Apartments: 2017 16% 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

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