ontario rental market overview - february 2017 - frpo · canada mortgage and housing corporation...

CANADA MORTGAGE AND HOUSING CORPORATION

Ontario Rental Market Overview - February 2017 Ted TsiakopoulosRegional Economist, [email protected]


Ontario & BC Remain Tightest Rental Markets

Tight Rental Markets in South – Cooler in North

Economy, Affordability, Immigration Add to Demand

Vacancy Rates Still Have Room To Fall - Rents Will Grow

Private Multi Unit Rental Investments Will Grow

Investors/Builders Should Keep Eye on Potential

Demand @ High End

National Housing Strategy & Other Policies To Play a

Pivotal Role

2

KEY TAKEAWAYS

CANADA MORTGAGE AND HOUSING CORPORATION 3

BC & Ontario Remain Tightest Rental Markets

1.2

5.6

2.4

4.3 4.13.5

1.3

8.1

2.1

4.4

6.5

3.7

0

1

2

3

4

5

6

7

8

9

BC ALTA ONT QUE NFLD CAN

2015 2016

Source: CMHC Rental Market Survey

Rental Apartment Vacancy Rates - Overall


Toronto, London, Ottawa Contribute Most To Vacancy Drop

0

1

2

3

4

5

6

2015 2016

Rental Apartment Vacancy Rates - Overall



Southern Ontario Rents Grow Faster vs North & East

0

1

2

3

4

5

6

2015 2016


Same Sample 2bed Apt Rent - % chg.


Younger University Towns Post Higher Turnover Rates

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

Turnover Rate by CMA

Source: CMHC Rental Market Survey*Poor quality data (suppressed)


Factors Impacting Ontario Vacancy Rates: 2015/16

FACTORS 2015 2016

Job Market/Economy U D

Demographics U D

Cost Gap (Own vs Rent) D D

New Rental Supply U+ U

NET EFFECT U DD=Downward Pressure U=Upward Pressure N=Neutral

Source: CMHC Rental Market Survey, Statistics Canada


Downtrend in Rental Vacancy Rates Will Continue

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

2000 2002 2004 2006 2008 2010 2012 2014 2016

Source: CMHC Rental Market Survey,

Ontario Rental Apartment Vacancy Rates - Overall


How Low Can Ontario Vacancy Rates Go?

0

2

4

6

8

10

12

Historical Hi Historical Low Fall 2016

Source: CMHC Rental Market Survey,

Historical Annual Rental Apartment Vacancy Rates - Overall


Ontario Economy Will Be Among Growth Leaders But…

-1.5

-1

-0.5

0

0.5

1

1.5

2

2.5

3

-1.5 -1 -0.5 0 0.5 1 1.5 2 2.5 3 3.5

Employment(F) % chg.

GDP (F) % chg.

BC

ONT

MANCAN

QUESASALTA

NFLD

Source: Statistics Canada Economic Accounts, Statistics Canada LFS, CMHC Mean Forecast (F) 2016-18


Best Years For Ontario Economy Likely Behind Us

11

Source: Statistics Canada Economic Accounts, Statistics Canada LFS, CMHC Forecast (f) 2016-18

…Will Grow At Slower Rate Especially vs Pre 2008


Lower Paying Jobs Leading – More Supportive of Rental Demand

Source: Statistics Canada

Year 2016 Job Growth % of Ontario Avg Earnings

Part Time 1.5

Full Time 0.97

Total Services 2.1 98

Total Goods 1.6 110


International Migration Impacted By Global Conditions

13

0

50000

100000

150000

200000

250000

300000

350000

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

2016e

Source: Statistics Canada, CMHC Estimate(e)

Net International Migration - CANADA

Recession

Asian Currency

Crisis

Sept 911

Credit Crisis

Syrian Refugees

International Migration Impacted By Global Factors


Some Millennial Finding Ownership Option Prohibitive

80

90

100

110

120

130

140

2000 2002 2004 2006 2008 2010 2012 2014 2016

rent own

Source: Statistics Canada, Bank of Canada, CMHC

Inflation adjusted rent and home ownership index (Year 2000=100) - ONTARIO


Affordability Erosion Encourages Spillover Demand to Neighbouring GTA Markets Actual Income as % of Required Income to Purchase Average Resale Home – 2016

Source: Statistics Canada, CMHC calculation & estimates(e) based on 5yr mtg, 10% dp, 25 yr amortization

76

97

110

120

129

131

139

149

166

176

0 20 40 60 80 100 120 140 160 180 200

Toronto

Oshawa

Hamilton

Barrie

Guelph

Kitchener

London

Ottawa

Thunder Bay

Windsor

More affordable (>100)

Especially in Less Affordable Markets in Ontario


Demand/Supply Balance Favours More Rental Investment

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

2006-11 2011-16 2016-2021

Rental Completions* New Rental Households

Source: CMHC Ontario Estimate 2011-21, Statistics Canada

*Does not include condominiums completed and available for rent


Condominium Rentals – Biggest Source of New Rental

0

5

10

15

20

25

30

35

40

Hamilton Kitchener London Ottawa Toronto

2015 2016


Percentage of Condominium Universe Held By Investors – Ontario


Growing Appetite for More Primary Rental Investment

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

Source: CMHC Starts & Completions Survey

Purpose-Built Rental Starts – Ontario


Purpose-Built Rental Starts Occurring Across The Province

36%

3%10%

21%

12%

18%

% Share Distribution* of Rental Starts By CMA - 2016

Toronto

Hamilton

Ottawa

Kitchener

London

Rest of Ont

Primary

Rental

Starts


*may not add up to 100% due to rounding


Will These New Investments Be Absorbed?

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Hamilton Kitchener London Ottawa Toronto ONTARIO

2015e 2016e

Required* median income to rent as % of actual median

income - ALL UNITS

Source: CMHC RMS Survey, CMHC median renter income estimates(e), Statistics Canada

• Assumes 32% affordability ratio for renters, 2bed apt units

• Ratios <100=affordable, >100=unaffordable

120%

125%

130%

135%

140%

145%

150%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015e2016e

Required* median income to rent as % of actual median

Income - NEW UNITS Completed - ONTARIO


Multi Unit Cap Rates Still Attractive in Low Interest Rate World

0

1

2

3

4

5

6

7

2007Q1 2009Q1 2011Q1 2013Q1 2015Q1

Tbill_3 5yr Cap Rates

Source: Bank of Canada, CBRE (Class A Toronto Properties)

Selected Interest Rates %


Not Just About Returns – Real Estate Offers Stability

0 0.2 0.4 0.6 0.8 1

Residential REIT

Multi Unit Rental

Bonds

Single Family & Condo

Gold

Stocks

Source: Altus, CREA, Bloomberg, CMHC calculation, Statistics Canada

*CV = Coefficient of Variation; CV close to 0 = low volatility; CV close to 1 = high volatility

Historical Volatility (CV)*


Risks To Ontario Rental Vacancy Rates/Rents – 2017/18

Risks Exerting Upward Pressure

• Policy Uncertainty and/or Slower Global Growth

• Elevated Household Debt

• A Rental Supply Shock @ High End

Risks Exerting Downward Pressure

• Stronger US Growth

• Further Erosion of Affordability

• Housing Imbalances Continue Growing

• Stronger International Migration

ontario rental market overview - february 2017 - frpo · canada mortgage and housing corporation...

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