A recent CMHC report details the encroaching instability of the housing rental market in the GTA

 According to the CHMC’s “Housing Now” report for the Greater Toronto Area, building has not slowed down, but both new home sales – which were only half that of new housing starts – and resales, which dipped by 12% compared to September of 2011 –  have. And when we’re talking about new housing starts in the City of Toronto, 95% of the time, we’re talking condos.

So, assuming that this is the reality of the current market, what brought it on?

Among many other factors, I blame the Government.

THE FEDS ARE BEHIND IT!

Canadian Finance Minister Jim Flaherty has, since the dawn of the real-estate collapse in the U.S. and the subsequent worldwide recession, been making incremental efforts to slow down the apparently overly hot Canadian real-estate market, which has seen major flare ups in first Vancouver and, for the last few years, Toronto. Each of the last three years has seen major structural changes to the tenancy deposit claims, designed to inhibit first-time buyers who really can’t afford a mortgage, banks that have engaged in rate wars designed to rope in these first-time buyers, and current homeowners using their equity to pay for things they can’t really afford:

Feb 2010  

    Require that all borrowers meet the standards for a five-year fixed rate mortgage even if they choose a mortgage with a lower interest rate and shorter term.
    Lower the maximum amount Canadians can withdraw in refinancing their mortgages to 90 per cent from 95 per cent of the value of their homes.
    Require a minimum down payment of 20 per cent for government-backed mortgage insurance on non-owner-occupied properties purchased for speculation.

Jan 2011

    Reduce the maximum amortization period to 30 years from 35 years for new government-backed insured mortgages with loan-to-value ratios of more than 80 per cent.
    Lower the maximum amount Canadians can borrow in refinancing their mortgages to 85 per cent from 90 per cent of the value of their homes.
    Withdraw government insurance backing on lines of credit secured by homes, such as home equity lines of credit, or HELOCs.

Jun 2012

    Reduce the maximum amortization period to 25 years from 30 years.
    Lower the maximum amount Canadians can borrow when refinancing to 80 per cent from 85 per cent of the value of their homes.
    Fix the maximum gross debt service ratio at 39 per cent and the maximum total debt service ratio at 44 per cent.
    Limit the availability of government-backed insured mortgages to homes with a purchase price of less than $1 million.

Flaherty has suggested throughout that the changes affecting CHMC backed mortgages have been in response to fears of household debts becoming unsustainable if – or more likely, when – historically low interest rates start to rise again. Almost five years after the first of these changes, Flaherty continues to express his fears that Canada might follow the U.S. into the home equity abyss, as his views from August 31 of this year indicate

“I remain concerned about people taking on larger obligations than they would be able to afford were interest rates to go up, as they inevitably will…(b)ut other things are going on too. I think Canadians are increasingly getting the message that at some point interest rates are likely to rise.”

SOMEONE FORGOT TO TELL HOGTOWN

Regardless of what might be seen as nanny state economics at the federal level, Toronto will continue to build condos. The boom that’s been going on for the last few years has actually been part of a growth pattern stretching back more than ten years. An amazing article on the CBC website provides dramatic visual (and interactive) proof as to how Toronto’s skyline has been affected by the city’s increasing population density.

Where once the city’s lakefront featured office buildings of ever-increasing heights, it is now a magnet for condo developers who bring with them ambitions on a fantastic scale. Despite the shift from business to residential (many of Toronto’s condos are being created within the city’s outmoded office space), the race to the top has continued. At 277 metres, the tallest condominium building in Toronto will be The Trump International Hotel & Tower, scheduled to open at the end of the year (the hotel part opened in January). Regardless of the building’s infamous brand name, its creation points to some sort of proof that Toronto’s condo boom has attracted some very big players. Predictably, with big money comes a desire to be at the centre of the scene, and thus you see the tallest buildings going up in the busiest and highest rent areas in the city Aura at College Park (264 metres) will be just south of Yonge & College; 1 Bloor (237 metres) is being built at the corner of Yonge & Bloor – probably the epicentre of Canada’s biggest city.

The umpteen high-profile condo projects fighting for space in the city core represent a seismic shift of scale for Toronto. Having surpassed Montreal for Canadian urban supremacy sometime in the early ‘70s, the city has for awhile imagined itself competing on a global scale – with the added attraction of being the business engine of an economy that has not fallen off the rails. Toronto has many to thank for its current reputation as a safe investment haven historically cautious fiscal management at the federal level; the fruits of an ambitious municipal plan to increase both the population density and the “world class” image of the city; and a 2006 provincial government growth plan designed to curb suburban sprawl and consolidate more of southern Ontario’s population (and its tax base) in the “Greater Golden Horseshoe” area – the centre of which is Toronto.

TOO MANY PEOPLE! (a.k.a. more sushi restaurants than hospitals?)

The sort of headlines that are popping up these days focus on the inevitable fallout from the decade long development party, and they all question how it is that the city can handle its supercharged and highly concentrated urban growth.