What is Causing Ontario's Housing Shortage?

Message from Tom & Nick

So this was the scene at our office yesterday.

The Rock Star marketing team is making some new videos and somehow they convinced Nick to get tied up and be interrogated by two masked individuals.

I think they were trying to extract “the hidden real estate secrets” that Nick is apparently in possession of.

LOL, we’re obviously a very serious outfit over here.

Truth be told, we enjoy having fun with this business. Dealing with investment properties is super serious business, so sometimes it’s nice to lighten the mood and poke fun at ourselves.

Who says you can’t have fun and deal with income real estate?

And speaking of fun…how fun is this economy right now?

With interest rates rising every few weeks, equity markets dancing, bond markets gyrating, central bankers pontificating it feels like the entire economic world is confused about what happens next.

Do rates keep going up for the rest of the year?

Does the equity market reverse course?

Do inflation numbers slow down or speed up?

Yesterday, there was a clip circulating the Twitterverse of Jerome Powell explaining how the vast majority of the economists they polled last year thought inflation would be under 4% right now.

No one can predict what comes next it seems.

There’s a lot of noise out there.

But as real estate investors, there are some data points that are giving off some true signal.

Check out these two Tweets put out recently by @MikePMoffatt who we had on the podcast a few weeks back.

ontario_housing_completions

That bottom blue line is the actual number of housing completions we have had in Ontario over ten year periods.

The line above it, the orange one, is the amount of housing units forecasted as needed here in Ontario over the next 10 years by Mike’s, Baby Needs a New Home, research report.

The grey line is the required number of new homes needed as reported by the Ontario Government.

And the highest line is the CMHC target for new homes to make housing affordable in Ontario again.

See the problem?

We are not even close to hitting ANY of those targets.

Sure, interest rate moves are going to affect prices in the short term. But in the medium and long term it doesn’t change the fact that we have a serious shortage of units.

We’re not even taking into account that most new units are now condos and townhomes. Good old, brand new, single family homes are almost like unicorns in Ontario.

Here’s a nice summary of the situation in another Tweet:

moffatt_tweet

To make housing affordable we’re going to need to build 2.6 million homes in the next 9 years but our 10-year average is just under 700K.

We’ve got work to do.

When people ask us why property prices have gone up in Ontario so much we feel like saying…“Hold on, we may not have seen anything yet!”

The fact that all levels of government are not sounding the alarm and are not working together day and night to fix this is mind numbing.

“Let’s have the population size increase but let’s not help bring new housing onboard!”

It’s literally unbelievable at this point.

But wait, there’s more!!

Why don’t developers jump all over this and start building more?

Check out this short clip of what the CEO of Greybrook Realty Partners, Peter Politis, recently shared with Nick.

Peter is directly involved with the funding of many large condo and subdivision projects across Ontario…so to say he has some insight on this exact topic is a gross understatement.

Real_Estate_Supply

You can also click here to watch this 5 minute clip.

This province has a long-term, structural, housing shortage.

And this is an absolute HUGE opportunity for the small investor.

This opportunity shouldn’t exist but it does.

The smaller investors who are bringing new rental property onto the market by buying older homes and fixing them up into beautiful new duplexes are doing an incredible service to this market.

Most new investors focus so much on the near term price action of real estate that they often miss the big trends of:

  1. Massive population growth incoming for Ontario
  2. Massive housing shortage and little new forecasted supply increases
  3. Long term debt trends force real rates (interest rates minus inflation) to stay negative, rewarding asset owners.

These factors together present one of the most interesting environments, perhaps ever, to be owning income producing properties in the GTA and Golden Horseshoe.

We don’t have a crystal ball of course but we can extrapolate trends, and the trends point to more demand for housing here, not less.

Time will tell.

And before I forget...

We recorded a brand new podcast episode this week where we chat about what we're seeing in the economy, where interest rates are headed, variable vs. fixed rate mortgages, what economic data would make rates go higher from here, population updates, housing supply, the Bank of Japan activity, hedge funds investing in single family homes and more!

It's linked for you below.

In the meantime, we need to wrap this up as Nick is still tied up in the office and I figure it’s been long enough…I’ll go cut him loose now, LOL!

Enjoy the beautiful weather this long weekend, everyone!

Tom & Nick

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