REAL ESTATE
We just might need all those new condos, CIBC economist says
IMMIGRATION FLOOD
By GARRY MARR
Nov, 2014
Are we really overbuilding, constructing too many condominiums and creating too much sprawl? A new report maintains we need that housing more than ever.
Benjamin TaI, deputy chief economist with Canadian Imperial Bank of Commerce , says we might be substantially underestimating household formation because we are not factoring in up to 100,000 immigrants.
“Ask any real estate developer in any of Canada’s major cities about the risk of overbuilding, and the first line of defense would be immigration and its critical role in supporting demand,” writes Mr. Tal, in a note he co-authored with Nick Exarhos. “It turns out that at least for now, this claim is more valid than widely believed.”
Mr. TaI points out that not only do new immigrants account for about 70% of our population growth, but about half of them are in the 25-44 age cohort, a key demographic that will
lead to more household formation. In 2013, the number of Canadians aged 20-44 grew by 1.1%, which is the fastest pace in more than two decades and stronger than the average of countries in the Organization for Economic Co-operation and Development “Healthier demographics are benefiting trends in household formation,”
they write. ”In fact, despite some concerns of overbuilding in the current housing boom, the ratio of housing starts to household formation is not far from its long-term average of 1.03.”
The bottom line is that when the housing boom does wind down it will not be as dramatic as once feared because of those immigrants picking up the slack, the paper states.
In spite of the stronger than anticipated household formation, markets in Alberta, British Columbia and Ontario might still be outstripping what should be built based on
demographics.
Their argument that immigration is being underestimated comes largely from underestimating the number of non-permanent residents in Canada that includes students, temporary workers and humanitarian refugees. That number was 22,000 in 2013, which brought the total number of non-permanent residents to 774,000.
“Those are big numbers. And evidently when it comes to measuring household formation in Canada and its implication for the appropriate level of home building, we understate the number of those non-permanent residents;’ say the economists. The economists say researchers are using the 2011 census to estimate household formation in Canada and
that census bases household formation on 400,000 non-permanent residents, which is 200,000 below even figures reported by Citizen and Immigration Canada.
“It’s a huge gap:’ they write. “The gap is increasingly becoming more relevant for household demand since a growing portion of non permanent residents come from workers and students with a high propensity to rent:’ The pair say there is no doubt that the pace of growth of the echo generation is slowing and foreign workers will face more barriers to
entry albeit that will be offset by a decision by Ottawa to raise the annual immigration quota by 20,000 to 30,000 per year.
“But for the here and now, any claim of significant overbuilding in the Canadian market is not supported by the rise in household formation relative to starts; says the paper, adding non-
permanent residents will continue to provide the market a cushion from any downturn.
Financial Post
Autumn Numbers to Crunch

Cut it anyway you like it, October was a big month for the statistics lover.
Condominium Market Update, November 2014:
 
The Canadian Mortgage and Housing Corporation (CMHC) started the ball rolling with its report that housing starts were up in September – 197,343 units, up from an upwardly revised 196, 283 in August. The crown corporation noted that condominiums led the way, as more developers broke ground on multiple unit dwellings.
Even as this news broke, there was some evidence that the long awaited soft-landing might be on the horizon, or actually might’ve already happened. BMO’s Senior
Economist Robert Kravic said in a recent note to investors that he believed the bulk of the condo boom is over. He reported that Toronto condo starts hit a “4 ½ -year
low” in Q3 to 16,500 annualized units, which he noted may be a part of an overall balancing out process. Meanwhile, Credit Suisse had reported by mid-October that the government’s tightening of lending rules for mortgages appears to have its desired effect as housing price increases appear to have moderated.
This seemed to fly in the face of a warning from the International Monetary Fund when earlier in the month, it repeated its earlier assertion that Canada’s housing
market was overvalued by 10% and added that “measures” may need to be taken to slow demand.
There is some evidence that the soft-landing may have already happened. 
Statistics Canada had reported a year-over-year drop of 28.6% in multifamily residential build-ing permits in August, with Toronto experiencing a drop of 27.2% in multifamily building permits over the same time frame. Some industry observers, however, cautioned that these latest numbers came at the end of a period that saw a surge of building permits being issued in the run-up to this fall’s municipal election.
However by October, Statistics Canada was re-porting that its new home price index was up 0.3% in August after no growth in July. Calgary, with, 6.8% growth and the combined metropolitan area of Toronto and Oshawa, next with 2.3% growth, continued to the lead the country. Teranet reported earlier in September that home prices in the GTA had posted above aver-age annual price increase of 7.4%, which was only surpassed by Calgary at 9.5%.
The Toronto Real Estate Board (TREB) reported that condomini-um sales continued to grow in Q3, rising 5.7%, over the same time last year, with total sales of 5,954 units at an average price of $359,352. TREB also reported that going into Q4, in the first two weeks of October, condo sales in the GTA were up 7.0% year over year, while prices slipped 2.7% over the same time period.
Royal LePage’s Q3 2014 Survey of Home Prices seemed to bear this out. It reported that in Toronto, the price of a standard condominium increased 8.0% year-over-year, to an average price of $383,039 with the strongest annual price gains of 25.1%, 17.3%, and 13.6% re-ported respectively in midtown Toronto, The Annex, and Riverdale neighbourhoods. De-tached bungalows rose by 7.6% year-over-year to an average price of $733,317, with the strongest price in-creases in the city’s North Toronto neigbourhood of 34.4%.
Calgary and Toronto continued to drive the Canadian housing market.
According to Royal LePage, the Canadian housing market was at a “goldilocks market” – not too hot; not too cold. In the same instant, the real estate company also confirmed earlier reports that the hard-charging Calgary and Toronto markets continued to buck the moderating trend with continued market growth.
A report from the non-profit Toronto Foundation highlighted affordability issues. The Foundation noted that 63.5% of pretax household went to cover the average cost of home ownership in Toronto in Q1 2014 (30% of pretax income is considered affordable), beaten only by Vancouver at 86.5%. Good news, however, came from CIBC’s Chief Economist Benjamin Tal, who observed this month that 30-40% of Canadian households are now paying back their mortgage principal faster, taking advantage of lower interest rates and the ability to accelerate mortgage payments.
Late-breaking news in Q3 came with arrival of Chinese developer Greenland Holdings Ltd. in the Toronto market. The deep-pocketed sovereign with over $1 billion in annual profits and ranked 268th on the 2014 Fortune 500, purchased the King-Blue project in September for an amount in the $100 million range. Shanghai-based Greenland has residential projects in the U.S., U.K., and Australia.
The Rental Market:
Rental markets seemed to be in a bit of a flux in Q3. As opposed to earlier in the year, the actual number of condominium rentals dropped, reported market watchers Urbanation. The first two quarters of 2014 had recorded an annual increase of 20% in the num-ber of condo leases being signed. In Q3, how-ever, the rise was more moderate at 10%. Average size – good news for renters – was up in Q3 – 767 sq. ft. from 755 sq. ft. in Q2. The number of condos rented was 7, 132 – was a record – but demand seems to be slowing.
Average condo rent remains unchanged at $1,870 monthly year over year, Meanwhile, the Toronto Foundation reported that in 2013 the average rent for a two bedroom apartment in Toronto was $1,225, up from $1,106 in 2009.
Toronto in Top Rankings for Expat Workers:
Toronto has always been welcoming to people coming from other countries. The London-based Boston Consulting Group’s Decoding Global Talent survey, reported out of ten world cities, Toronto ranked eighth among choice destinations for expats to live and work in. Toronto, which was the sole Canadian city listed, ranked above Singapore and Rome, while London, New York, and Paris remained favourites. Overall, Canada ranked third as a preferred destination for expats.
November 2014