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An unprecedented development boom is coinciding with—and failing to alleviate—a critical housing shortage crisis, all as home prices skyrocket and become less accessible to the average Canadian. These factors are among many discussed in a new webinar focusing on the Canadian Build-to-Rent (BTR) market, an emerging asset class that caters to the changing needs of both renters and property developers. Livestreamed on Wednesday, May 12th and now available to re-stream, the webinar titled New Frontiers in Housing Supply was the sixth episode in Season 2 of the Common Knowledge series, started over a year ago by co-living specialists Common Living to discuss the future of cities and housing in the face of COVID-19 with a rotating panel of experts.
Hosted by Brad Hargreaves, Founder and CEO of Common Living, the webinar's experts include Benjamin Tal, Deputy Chief Economist at CIBC World Markets, Corey Hawtin, Founder and CEO of Core Development Group, Ben Myers, President and Owner of Bullpen Research & Consulting, and Susan Tjarksen, Managing Director of Cushman & Wakefield. Topics range from innovative ways to unlock attainably-priced housing supply in challenging markets such as Toronto and Vancouver, to how BTR in Canada is different from the US market, to broader issues like macroeconomic trends shaping urban housing markets in 2021, and the capitalization of multifamily projects.
This episode kicks off with guests' insights on the potential of the BTR market.
Known for his market insights, Myers is bullish on BTR, recognizing that supply has not kept up with demand through his 20 years working in and researching residential real estate. Myers sees already considerable demand for rental housing supply only increasing as homeownership becomes less affordable.
Tal agrees with these points, adding that there simply isn't enough supply to keep up with rising demand through population growth, especially through immigration. Also optimistic about what is to come, Tal expects the extremely tight rental market conditions experienced in 2019 to return in full force in the near future as the pandemic's strain on rental rates and transactions wears off.
Tjarksen echoes his optimism, taking a bullish stance on BTR and co-living, especially in fast-growing markets like Toronto and Vancouver where rent growth outpaces income growth. This is expected to producing an even greater demand for supply from the young professional and entry-level renter demographics as the COVID-19 situation comes under control.
Hawtin echoes. Through his role as Founder and CEO of Core Development Group, Hawtin is among the leaders in Toronto's development community now making a push towards BTR. Developers like Core, with veteran experience building various condominium developments in Toronto, are already intimately familiar with rising real estate prices and the growing trend towards rental versus homeownership.
Pulling back to look at the situation at a macro level, the conversation shifts to immigration, with host Hargreaves asking panelists to discuss its impact on the housing market, specifically in Canada versus the United States.
Tal points out misleading immigration figures from StatsCanada, which notably excludes Canadian citizens who return from residences abroad. Tal cites approximately 70,000 Canadians returning from Hong Kong alone in 2020, which would not be factored into the population growth of roughly 200,000, down from 500,000 the year before. Around 500,000 Canadians reside in Hong Kong, where political instability is a factor in a recent uptick in returns. Another factor driving the rental market, and not covered by immigration statistics, is the mass numbers of foreign students unable to return home due to COVID-19, with government visa extensions putting more strain on rental supply. Tal states how Canada's higher rate of population growth differentiates it from the US market, with much of this population growth concentrated in immigration and educational hub cities with already-high real estate values like Toronto and Vancouver.
Myers drills down further with points on immigration in Ontario specifically, which was seeing yearly population growth in the vicinity of 250,000 in the pre-COVID years, fuelling an increase in rent prices. Myers also cites Tal's research that revealed new immigrants tend to rent for their first three years after arriving in Canada, numbers which can exert real pressure on rental demand as new arrivals outstrip the building of new rental housing supply. Adding to these points, Tjarksen points out that 30% of the foreign students who come to Canada end up seeking permanent residence, compounded by the tendency for younger demographics to seek rental housing versus ownership.
Introducing the supply side into the discussion, Hargreaves asks the panelists if cities in Canada are producing enough housing to keep up despite booming skylines of new construction. The general consensus is that we are nowhere close to the level of purpose-built rentals needed to meet demand. Tal states that the homeownership market has nearly peaked and rental must be part of the solution to the housing shortage. He states that while the overlap of the condo market into the rental market through investor units is a temporary fix as of now, governments need to provide incentives to developers in order to bring more housing supply to our cities.
Myers points out that while it may seem that we're building more units than ever before in the Greater Toronto Area, 2020 saw more homes built than any of the previous few years. Homes are currently being built with fewer bedrooms and lower square footage, packed into taller towers, but not enough units are being introduced. Myers estimates that 70-80% of new condo units in the GTA are bought by investors, with roughly half of those being rented out, not nearly enough to meet the shortfall. Mayers also mentions that real estate developers working primarily in condos and townhomes are seeing this supply shortage as an opportunity to diversify their assets, with BTR offering a long-term investment largely insulated from turbulent home affordability and declining ownership rates.
Hawtin is especially optimistic about the co-living model, stating that Toronto, in particular, urgently needs new supply of relatively affordable rental units. A third-generation real estate developer, Hawtin's Core Development Group has specialized in condominium and townhome development with ownership tenures, though the company is now making a foray into the co-living market with a sub-brand known as Avanew. With this brand, Core aims to create new BTR opportunities in amenity-rich neighbourhoods with transit accessibility, using green and innovative technologies to bring down long-term costs and keep buildings liveable.
Differing from standard purpose-built rentals, the co-living asset class is modelled on furnished rental units where residents share common areas of units such as living rooms and kitchens, while retaining their private personal spaces. In a region with increasing wage disparity and runaway housing prices, roommating has become the norm for many younger demographics, though purpose-built rental properties have yet to address this growing demand for co-living.
In a region known for its high-rise development, Hawtin sees mid-rise, infill development as a key opportunity to bring more rental housing to the mix, specifically co-living rentals. One such BTR project is in the works at 252 Parliament Street in Toronto's Cabbagetown neighbourhood. The mid-rise development would bring 68 units to the area with the BTR co-living model, using the area's comparatively affordable land value to unlock rental housing in a mid-block location well-served by nearby transit routes. Planned in an area where previous generations of rental housing have not stood the test of time particularly well, Hawtin and Core are banking on the future of cities with the project. The long-term livability and carbon footprint of the building are being taken into consideration, with a plan to utilize renewable geothermal heating and cooling as a means to offset energy consumption.
The COVID-19 pandemic has negatively affected demand for urban real estate, though Tjarksen stresses that street animation is an important part of cities, and that it is the coming return to normal through mass vaccination programs that will rekindle urban life through restaurant and retail re-openings. A return to normal is already being felt in parts of the United States where large percentages of the population are vaccinated and easing back into the shopping and restaurant scenes that were left behind in 2020. While not a typical feature in the single-family home, retail is an integral element in urban BTR developments in parts of the United States. Even a modest inclusion like the 140 m² of retail planned at the base of 252 Parliament project has the capability of increasing sidewalk animation, and connection between residents above and the surrounding urban conditions.
There is plenty more to learn in the hour-long discussion, which is available to be streamed in full.
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