Rethinking real estate and affordability

 

 

 

 

| Rethink

Supply, demand and the government’s role

Industry players are skeptical that recent tax moves by the Ontario government, following last year’s move by British Columbia, to curtail foreign investment will have a long-term cooling impact on housing affordability in Toronto and Vancouver. “Growth will continue to drive needs,” one interviewee said. “No regulation will stop that.”

In August 2016, British Columbia implemented a 15% foreign buyers’ tax on the Vancouver housing market. In the short term, the Canada Mortgage and Housing Corp. reported the tax pushed monthly sales to foreign buyers from around 10% of sales to 0.9%, with a marked decrease in average prices. But after a year, prices rebounded to pre-foreign buyers’ tax levels and are now pushing new heights, especially in the condo market. In April 2017, Ontario announced its own 15% tax on foreign buyers and expanded rent-control rules to buildings constructed after 1991. Most interviewees feel foreign buyers’ overall influence on housing prices has been greatly overstated. The impact on some Greater Toronto Area (GTA) submarkets may have been greater, but most interviewees think that overseas buyers still see Canada as a safe haven and an attractive place to live, so they will continue to buy in the Canadian market regardless of new taxes.

For those in the industry, it’s a matter of supply and demand. A common refrain from interviewees is that governments should stop trying to interfere in the market and turn their attention to other more important issues, such as the impact of regulations and processes that are limiting land supplies. This echoes our findings from last year’s report, where many believed provincial land-use policies and local government approvals are factors holding back the supply of available land for development. Building on that, one interviewee stated that government policy “is the largest issue impacting real estate.” For example, many are worried about how proposed changes to the Ontario Municipal Board will give local governments more say when it comes to development decisions. This could restrict supply if residents push back against high-density projects in their neighbourhoods. And in Halifax, some believe the government’s approach to city planning is limiting development.

“Government regulations will have a meaningful impact on affordability—they just won’t solve the problems. In fact, they’ll go a long way to creating new problems.”

 

 

 

 

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A mindset reset

While there isn’t much concern about housing affordability in most of Canada, it’s driving profound change in the lives of urban Torontonians and Vancouverites—particularly millennials. As it stands, more than one in three young adults live with at least one parent, a share that’s grown since 2001 according to 2016 census data. Younger Canadians in centres like Toronto and Vancouver will need to rethink their living expectations. While many millennial families will move farther away from major urban cores—even to new cities—in search of affordable homes, others will choose to stay and raise their families in condominium units (in some cases, larger units in family-oriented buildings). Others will simply opt out of home ownership and embrace a permanent-renter lifestyle.

In major centres, we may continue to see a rise in multi-generational and multi-family homes as a means for people to overcome affordability challenges. Census data shows that 6.3% of Canada's population lives in multi-generational households, which have grown the fastest of all household types since 2001. These affordability concerns are, in turn, creating opportunities for real estate developers in Ontario and British Columbia. One Vancouver-based developer has even launched a prize to find a paradigm-shifting technology in the construction of high-density housing.

“With more single people living in expensive markets, watch the emergence of co-living.”

 

 

 

 

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Transit to transform cities

In recent years, Canada’s federal, provincial and municipal governments have joined forces to invest billions of dollars in transit infrastructure in cities across the country, and this is poised to shape real estate opportunities for years to come. The new transit lines will let more Canadians find homes they can afford while offering a reasonable commute to work in urban cores or intensively developed nodes along the lines.

Indeed, investors and developers in Montreal foresee the Réseau électrique métropolitain (REM) network turning Dorval and the South Shore into a sizable employment hub, with opportunities in multi-use developments. In Ottawa, city planners are championing increased density along the new light-rail transit (LRT) lines. In fact, the closer a project is to the LRT, the more favourably it’s viewed in approvals. Similarly, Edmonton’s Valley Line LRT will increase density around the corridor. In Vancouver, TransLink plans to help finance its transit network by leasing space at its rapid transit stations to retailers. Toronto is seeing much interest at key transit hubs, such as the Union-Pearson express rail, the Spadina subway extension and the Eglinton Crosstown LRT. As one interviewee observed, transit-oriented retail and mixed-use properties offer a stable cash flow, making them strong prospects.

The link between transit infrastructure and real estate development is expected to grow closer in the years to come. Governments and agencies are increasingly looking to emphasize transit projects that can demonstrate wider public benefit—such as creating hubs or places where people want to spend time and money, whether through work, play or both. And as the sharing economy evolves with rideshares and autonomous vehicles, transportation planners will need to examine “last mile” travel between transit hubs and commuters’ destinations. Transit proposals that integrate plans for further real estate development are likely to have a stronger case for funding going forward.

“Transit is a key link between people and where they work and play. Smart developers buy around transit nodes—and future transit nodes.”

 

 

 

 

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The rise of placemaking

As new transit lines prove to be a near-irresistible magnet for real estate developers and investors, the industry is paying more attention to the idea of placemaking. In many ways, it’s an evolution of the industry’s recent focus on mixed-use properties and creating communities—fusing residential, commercial, retail and service properties. What makes placemaking different is that it’s more than a collection of different types of property. As one interviewee put it, place-based development is bigger than the sum of its parts: it’s about creating a unique experience and culture, an engaging environment that provides people with things to do throughout the day and into the night.

And now, new transit spending is creating opportunities to establish unique places along new and future lines. Large, dense, transit-centred developments like Transit City in Vaughan or M City in Mississauga are examples of placemaking in action. They’re also attractive to investors because the appetite for new product is almost insatiable.

Place-based development is bigger than the sum of its parts: it’s about creating a unique experience and culture.

 

 

 

 

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Making the 18-hour city a Canadian reality

The 18-hour city—sometimes known as the “long day/seven day” city—has been described as a less intense version of so-called 24-hour cities like London, Paris, Madrid, Berlin, Tokyo, New York and Toronto. While this concept isn’t new, it’s relatively new to Canada. The prototypical 18-hour city is a major centre with an international character that has managed to retain a vibrant urban core. These cities also tend to have robust and integrated residential, commercial, retail, services, entertainment and cultural amenities that allow people to enjoy themselves well into the night. Currently, Vancouver and Montreal fit this idea of the 18-hour city—though Calgary is also making a solid claim to this status.

But other centres could also evolve into 18-hour cities in the years to come. Some will be dynamic regional centres that are busy establishing their reputation as diverse, exciting cities in their own right—often with the advantage of better housing affordability or a lower cost of doing business. And then there are edge cities—the former suburbs eager to achieve more balanced development and establish their own unique urban identity. Montreal, Vancouver and Calgary may gradually develop into true 24-hour cities, buzzing with activity around the clock. But many more, from Quebec City to Ottawa and Kitchener-Waterloo to Edmonton, could evolve into 18-hour cities.

Not that reaching 18-hour status comes without challenges. Transit infrastructure needs to support daytime commutes and late-night service. Disputes between residents, businesses and patrons over noise levels and nighttime activity will need to be negotiated. Urban densities and even urban form will need to be re-examined, as the need for evening public and pedestrian spaces grows. Public services and private businesses will need to figure out how to serve customers throughout the day and into the night—or around the clock. The 18-hour city may be exciting, but making it work won’t always be easy.

The prototypical 18-hour city is a major centre with an international character that has managed to retain a vibrant urban core.

Contact us

Frank Magliocco
Partner, PwC Canada
Tel: +1 416 228 4228
Email

Miriam Gurza
MRICS Managing Director, Real Estate, Consulting, PwC Canada
Tel: +1 416 687 8143
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Chris Potter
Partner, PwC Canada
Tel: +1 416 869 2494
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