Update Dec 14, 2024: Added Newsletter Email Archive at End of Post.
If you’ve purchased stocks or own some real estate then you’ve likely heard about what changes the federal government has proposed to the capital gains tax. I thought I would go through and talk about this and in a future post I may go over some of the other changes proposed. There was talk of millions of homes getting built which might be what we need to work through our housing problem. But will we have to manpower to accomplish these lofty targets? I’m not so certain.
Let’s begin with the big headline. The changes to capital gains tax. Under the proposed 2024 budget the capital gains inclusion rate, which is the percentage of the gain that is taxed, will stay at 50% for gains under $250,000. However, beyond $250,000, 2/3rds of the gain will be taxable at your marginal tax rate. This would most likely be taxed at the highest tax rate since the gain itself will almost produces enough income to put you in the highest tax bracket.
So lets take an example. You sell a real estate asset and it produces a gain of $500,000 under the current system where 50% of the gains are taxable, you would owe tax on $250,000. If you’re in Ontario the combined federal and provincial tax rate is 33+13.16 = 46.16%. So you would owe approximately 250,000*.4616 = $115,400 total on the gain.
Under the proposed change, your first $250,000 would produce $125,000 of taxable income. I’m going to assume this is still taxed at the highest tax bracket. This means you would owe $57,700. Then on the next $250,000 gain, you would have an inclusion rate of 2/3rds which is $166,666.67 of taxable income. This means you would owe $76,933.33 in taxes. The total tax amount is $76,933.33+$57,700 = $134,633.33.
So the change in taxes owed is approximately 134,633-115,400 = $19,233 increase. As you get into higher gains this number does increase quite a bit. Another way to look at this is as an “effective” tax rate. If you get taxed on 50% of the income at a 46.16% tax rate your effective rate on all this income is .5*.4616 = 23.08%. The effective rate of 2/3rd’s is 0.6667*0.4616 = 30.77%. So this is an increase of around 7.69% in taxes on any capital gains beyond $250,000.
If you are an investor, and you are buying and selling many stocks, real estate, or businesses and making millions of dollars a year doing so, you’re going to owe approximately an additional $76,900 in taxes per $1,000,000 in capital gains. That would be a total of around $307,700 per $1,000,000. Where under the current system it’s closer to $230,800 per $1,000,000 gain. The increase is the equivalent of a pretty decent salary for the average Canadian. Crucially, primary residences remain tax free, which is the majority of Canadian’s largest asset and many Canadians retirement plans.
Many people in the business community are arguing that this change could do a few things. It could disincentivize venture capital from investing in Canada, disincentivize general investment in new businesses, and cause investment money to leave Canada altogether and put us into a further state of stagnation. Our per capita economic output has actually declined over the past year due to our recent population influx combined with higher interest rates. Interest rates impact borrowing costs which is how a lot of business invest, less investment equals less economic growth; generally speaking. Additionally, if companies who are mobile choose to leave the country altogether, depending on the nature of their work, they may or may not be able to keep a Canadian workforce. Which could also negatively impact the Canadian jobs market.
Regardless of your stance on this I do believe that a change of this nature (some type of tax increase) was likely to be proposed at some point as more and more people feel they cannot get ahead for one reason or another and politicians hear about peoples problems and look for someone to come after. With the higher interest rates impacting food, gas, and other essentials. The cost of purchasing a home having outpaced wage growth by almost 4x. It is likely to put a target on the backs of people who have already found their success as governments search for a solution to these issues and try to find people to help pay for their programs and chosen investments.
So if this change does pass what will happen? I think this change most likely won’t cause any major exoduses out of capital markets. It’s unlikely that people with strong ties to their families and communities will end up jumping ship. After this change, capital gains are still going to be taxed at a lower rate than equivalent earned income theoretically still making it a good idea to invest. I also doubt that it will cause any investors to change their long-term plans and sell all their investments this year. Investment is a long-term game and takes detailed planning. So even with this change I don’t see it having an outsized impact on the markets.
I’m not a politician, not an economist either, so I can’t say whether or not this new tax will actually provide a meaningful contribution to the deficit or if maybe the better approach is to simply spend less. There could also be a variety of other solutions out there that don’t require a tax like this. No one enjoys paying higher taxes. Another point I think is worth mentioning is that the current government has lost some popularity among constituents. Therefore, if I was a prudent politician looking at my odds to win the next election, I would likely try to be a bit more aggressive on what could be one of the last budgets I get to table to see if I can push through some final big changes before I get the boot. We’ll see how this pans out, and I will be following the news on this change closely. While I do have further thoughts on this topic it is a bit of a challenging one to discuss so I’ll leave it there for now. Feel free to let me know your thoughts via email or leaving a comment below.
All the best,
Oliver
Newsletter Email Archive Sent: April 28, 2024
Newsletter #13: The Proposed Capital Gains Change, Other Real Estate News.
April is coming to a close! The big news the past few weeks has been the federal governments 2024 budget. The big discussion in the business and real estate communities has been the proposed increase to capital gains tax. I write about that in my blog post. As far as real estate goes there were some proposed increases in spending on building new housing. The government also wants to introduce accelerated Capital Cost Allowance acceleration (faster depreciation) for certain purpose built rental housing, which could incentivize more builders to take on those projects. The home buyers plan for using RRSP towards a down payment has increased from $35,000 per person to $60,000 per person.
This Weeks Blog Post:
How the Proposed 2024 Federal Budget Could Impact Investors:
Discussing what financial impact the tax increase will have
Will the change cause lower investment? Maybe some people to leave the country?
If this changes goes through it could send an interesting signal to people who are well off and prompt them to get ahead of further changes by moving elsewhere.
Canada CPI Inflation Mar 2024: 2.9% (0.1% Increase from Feb 2024) Current BoC Benchmark Interest Rate: 5% NC (Next Meeting: June 5, 2024) Unemployment Rate Mar 2024: 6.1% (0.3% Increase from Feb 2023)
Update Dec 14, 2024: Added Newsletter Email Archive at End of Post.
This post is going to be more of a guide on how to set up a Property Management System. This can work even if you just have 1 property to manage although the payoff is a bit better where you are dealing with more than 1 property. I’m going to assume a few things in the post, that we are mainly talking about property management for residential rentals, this could be any number of rentals, single family, multi-family. I’ll even have a section on short-term rentals like AirBnB or self managed BnBs. I do plan on discussing commercial real estate property management in a later post, but that will be focusing more on people who own retail, industrial, or office spaces.
Property Managers:
So you own a few residential properties and it’s starting to become a bit much to self-manage, or maybe would just rather have someone else handle tenant issues when they come up. The first and most important thing you will need is a property manager. They usually charge between 8-12% of rent in order to look after the property for you. You will still have to pay the expenses to hire the professionals if/when something breaks. But the property manager basically steps into your role and handles the coordination for you. There are different forms of property management. You can hire it out to a larger company who manages multiple properties for multiple landlords. You could try to find someone who operates more independently, small business style where it might just be one person that you sub-contract out the property management to. Finally, you could outright hire your own property manager on a salary, if you have the properties to warrant it.
Regardless which option you choose, it’s important to interview whoever you’re thinking of going with and do some background research on them. Make sure they already have pre-existing systems and a good track record of success in place. I’d also recommend interviewing some other people they manage property for to make sure they are good at what they do. Lastly, I would recommend whoever you work with putting some rules in place for the way that you want problems handled, you are paying them after all. Ask them if they already have standard operating procedures, if they don’t you can always work with them to build a manual of operations dealing with problems that come up at your properties specifically, spend limits on small issues, etc. Building a manual for dealing with problems is a good practice anyway especially if you’re planning to expand and hire your own in house property manager at some point. If you have a smaller number of properties it may be worth asking your Realtor. If you’ve bought an investment property with them in the past there can be some benefits to working with your Realtor. They have access to the MLS for finding tenants, they have worked with many investors and may even have investments of their own, and they may already have a property management wing to their business. From a Realtors perspective its good business to continue working with their past clients in any capacity so down the line you buy or sell your investments or primary residence with them, this can sometimes include property management. Either way they are likely to have some recommendations for you if you are looking for property management and they themselves don’t provide that service.
Tenant Screening:
With the value of properties across Canada continuing to climb, it is important to find great tenants. There are many different ways to screen Tenants, you can add this to your property managers manual. Nowadays the “standard” rental documents are last 3 paystubs or income tax return, Photo ID, landlord reference letter, employer letter, credit report and score, and occasionally bank statements to verify income. That’s a lot of stuff to sort through and depending on the market and the amount of demand in the market, you may not want to be the one doing the background checks and calls to employers. That is where your Realtor or Property Manager comes in. They can do a round of preliminary screening for you, and once they have found a candidate and screened them they can leave the final decision up to you, or you may decide to allow the property manager to handle the entire process. Nowadays it is also prudent to see what you can find from Googling or checking social media platforms to verify what you can about the tenants you are considering. Again, all of the steps of doing this should be added to an manual of operations if you want a property manager to handle everything.
There are many software’s out there nowadays that can do a secondary check, and I would recommend using one of these, the one that I have been using recently to screen tenants is called SingleKey. It costs about $25 per tenant to screen, but it goes in depth and checks criminal records, credit scores, and more. It gives that extra layer of security that makes sure the tenants are who they say they are by doing a deeper dive into databases that the public general doesn’t have access to.
Trusted Tradespeople:
When you are first starting out you many not have a list of tradespeople that you can trust to do a good job if something comes up at your property. Again, if you are unsure where to find someone I would recommend asking your Realtor if they have someone they can recommend. Otherwise if it is your first time using a particular tradesperson I would do a bit of a background check online about their business and see if they are established and legitimate, see if you can talk to past clients about their work. Over time you will build up a list of tradespeople that you know can get the job done right, on time, and at a good price and this would again be something you add to your manual of operations and who to call if something or other breaks, goes wrong, or needs to be repainted after tenants move out. A list of tradespeople that you might want to consider gathering are as follows: painter, plumber, electrician, cleaner, movers or junk removal (to swap appliances etc.), lawyer or paralegal (in case you need to evict a tenant), and Realtor to help find tenants.
Student Rental Property Management:
If you are planning to run a student rental near a University or College campus, the property management of this can get a bit more complicated since you are likely to get calls that maybe working professionals wouldn’t make, like changing lightbulbs, or fixing a hole in the wall. When working with student rentals it’s very very important to factor in the extra expenses that you will come across. This means painting every year if needed, possibly hiring cleaners every quarter to make sure the property stays in a liveable condition, having the correct (more expensive) property insurance, and ensuring the property is above and beyond fire code standards with regards to alarm systems. Student rentals can be a very profitable enterprise, but the management of them also requires more work. The manual of operations for the property manager will likely be different from a traditional rental and take a bit more time to develop. You’ll have to consider getting co-signers on the leases, which is twice the paperwork and twice the screening. You’ll have to make sure that you either come to an agreement with the tenants about garbage, lawn maintenance, and snow removal, or you hire that out as well. You’ll have to consider to a greater extent how you want to manage utility expenses, baking it into your rent, or requiring each tenant to pay a portion (again adding overhead and time to the process). There are many considerations when dealing with student rentals, and you may get charged a bit more by the property management to manage these types of properties, but the one great thing with student rentals is that their rent default rates are extremely low. Parents are supporting them, the government and banks are happy to hand out loans. So it’s more unlikely you’ll be in a situation where someone isn’t paying their rent, but they may forget once in a while so you’ll have to stay on top of things. I will likely make a longer post detailing student rental considerations in the future and how to retrofit and property for it, finding good deals etc.
Medium or Short-Term Rentals (AirBnB):
If you are considering a short term rental business, you will again have different considerations from the other types of rentals I mentioned above. The biggest change is that you will have to have a cleaner basically on call all the time after each persons stay. Many companies exist that specialize in short term rental cleanings, and they will even send pictures after each cleaning, which I would recommend you request no matter the cleaner you work with. This can be even more profitable than the Student Rental business, but it also comes with more risk. If you are considering doing this and hiring a property manager, the fees will likely be closer to 20%. You also have to look into the area you plan to host your AirBnB and see what the rules are for doing so. For example Toronto has tried to crack down on AirBnB’s requiring a license, and only allowing people to rent out their primary residences. There are also many condo corporations in many cities that ban AirBnB or short-term rentals in their bylaws, so if you are looking to purchase a property in a condo specifically for short term renting, you have to confirm whether they allow this.
There are also many many intricacies to getting your AirBnB at the top of the rankings; such as uniqueness of the property, photos of the property, reviews etc. There are websites that can assist in your market research if this is something that you are considering doing. One website that is well known for researching the AirBnB market is called AirDNA. There are also software’s and websites that are built specifically to assist people who are looking to manage or operate their AirBnB’s which can help with managing bookings, cleanings, etc. You also want to make sure that your guests have someone responsive they can contact at all times to deal with their issues in a timely manner since your reputation is everything.
There has been a lot of talk about AirBnB fees becoming a bit excessive in recent years, and while it is a great search engine for posting your short-term rental, once you have more experience and more properties you may want to consider creating your own website, with your own booking system to avoid these fees. This works very well for many kinds of short-term rental operators. For example, there are many “mom and pop” more traditional bed and breakfasts that have minimal websites, a phone number to call, and an email to send an E-transfer to. This can work surprisingly well, and seems to be somewhat more common in rural areas that have been hosting people this way since before AirBnB’s were a thing. Niagara Falls or Niagara on the Lake are great examples of areas where this is more common. But this can also work in more populated areas like Toronto for example. There are some pros and cons to doing things this way, AirBnB has a system of dealing with guest issues that somewhat circumvents you as the host, but if someone is booking directly you don’t have that extra layer of security. But on the flip side, you get a direct line to people, and have more control over their experience and what happens during their stay and depending on the vibe you are going for some people may prefer the feel of a small local booking, compared to booking through AirBnB. Did I mention that this saves on the AirBnB fees? This does come with it’s own host of challenges, where instead of competing on the AirBnB rankings, you are competing on the Google rankings, which could arguably be more difficult. You are also going to have to work harder and operating your business this way will likely require a lot of word of mouth, whereas getting started with AirBnB is very low barrier to entry. Many people choose to do both, or start with AirBnB and then find a way to transition once they have become more established.
Conclusion:
There are many approaches to property management and many different types of rentals out there which is great as an investor because that means you can have a number of strategies for a property that you are considering purchasing, if one doesn’t work out, maybe the other will. Look out for slightly more in depth posts about each of these types of investments in the future. As well as posts about investing in retail or other commercial properties and how to go about evaluating those properties as investments. Hopefully you found this short Property Management overview useful and at the very least it got you thinking about the various ways to property manage and building out your own systems for your portfolio. If you have any comments or questions I’m available by email: oliver.foote@royallepage.ca.
Thank you for reading and have a great day!
Oliver Foote
Newsletter Email Archive Sent: April 14, 2024:
Newsletter #12: Setting up Property Management Systems, BoC Rate Update, March Market Data
April is here! Hope everyone got to enjoy the Solar Eclipse last week, at the very least peeked outside for the totality. I drove out to Niagara and the drive to Mississauga was a cool 3 hours, I’m not sure there will ever be that much traffic on that stretch of highway again. It was a fun adventure nonetheless. In this weeks blog I discuss how to property manage various types of residential property from long-term to short-term rentals, how to build out systems, and what to know or consider when hiring out property managers. Another reminder that we are approach the tax deadline on April 30. Inflation continues to come down, but the bank of Canada isn’t anticipating it reaching 2% until 2025 with housing being the holdout to inflationary pressures. I’ve personally noticed in grocery stores that the weekly sales and promotions seem to be popping up more and more, grocery bills are still high, but the sales are helping if you are a savvy shopper and I’m noticing a different in the total cost of my cart.
This Weeks Blog Post:
How to Set up Property Management Systems for a Real Estate Portfolio:
What to consider when looking for a property manager
How to find trusted tradespeople
Creating an “operations manual”
Different types of rentals and their different property management considerations (Long Term, Student Rental, AirBnB)
The Bank of Canada announced on Wednesday April 10 that they will continue to hold their benchmark interest rate at 5%. From my reading of their announcement it does not seem likely to me that they will be lowering rates at the next meeting in June. It does appear that their main concern continues to be how housing is contributing to inflation.
A somewhat significant change that may influence interest rates is the unemployment rate rose form 5.8% in February to 6.1% in March. Since the Bank has a double mandate to keep inflation low and unemployment low, if unemployment continue to climb they may be willing to cut rates sooner than later. This is going to be an important indicator to watch.
Federal Government to Allow 30 Year Mortgages for First Time Buyers: CTV
This change will come into effect Aug 1
Affects new build homes and insured mortgages (a.k.a. High ratio mortgages) where buyers put less than 20% down.
My thoughts: While this may help some buyers enter the market, I think it may just result in even more homes becoming out of reach. This also may just be a targeted approach by the government to revitalize the new-construction industry, since sales of new construction hit decade lows recently due to the higher costs of borrowing.
From a banks perspective this is likely a good thing for them since they get to collect more interest for a longer period of time. But by that same token this could also allow higher risk borrowers to put themselves in an even longer term debt situation. As a general rule, I don’t think that more borrowing and more leverage should be the way we are approaching our housing needs. Canada already has one of the highest debt to income ratios in the world. So allowing people to take on more debt is not a good thing in my view.
March housing market data shows that prices increased in the GTA 1.9% to $1,121,615 from this time last year. New listings are up 23.1% from last year to 12,459. While inventory has climbed from last year, the overall inventory to sales ratio is lower than historical averages in some markets, meaning we could see upward pressure on prices here soon.
Condo prices have either declined or stayed flat from this time last year, which is good news for First Time Buyers. The condo market continues to have higher supply than other sectors. This means that buyers have more choice and with fixed rate mortgages slowly coming down, we are likely to see a pickup in activity once buyer realize their increased buying power.
Investors in Condos may also be looking to sell, since low pandemic rate mortgages may be coming up for renewal and could result in renewal scares and no longer make the investment cash flow positive as a result.
Market Performance as of close Friday April 12, 2024:
Canada CPI Inflation Feb 2024: 2.8% (0.1% Decrease from Jan 2024) Current BoC Benchmark Interest Rate: 5% NC (Next Meeting: June 5, 2024) Unemployment Rate Mar 2024: 6.1% (0.3% Increase from Feb 2023)
Update Dec 14, 2024: Added Newsletter Email Archive at End of Post.
The New Legislation:
Back in 2019 the Ontario Government introduced a law that allows up to 3 units on a single property without a zoning bylaw amendment. It was up to municipalities to individually change their zoning bylaws and now in 2024, the majority, if not all municipalities across Ontario have implemented some version of this bylaw. Some municipalities are allowing up to 4 units without requiring a zoning bylaw amendment. This may not seem like anything special to an outsider, but this is a very big change in the status quo. If you’ve ever tried to change a zoning bylaw or know someone who has some form of development you’ll understand what I’m talking about.
How Things Used to Work:
Let’s talk about how things would have worked prior to this new law in order to give you a better idea about how these changes make building housing easier. For those who are unaware of how land planning works in Ontario here’s a brief synopsis. The Ontario government administers something called the Planning Act which is the overarching legislation of what Ontario as a province wants to achieve with respect the land use, housing, transportation, environmental concerns etc. The Planning Act provides the basis for each individual municipal government to come up with something known as an Official Plan for their city. This document outlines on a more granular level how the municipal government plans to use all of the land in their municipality. They administer things like building permits and enforce zoning bylaws. A zoning bylaw is effectively a list of requirements for each land use zone. For example you might have agricultural zoning, single family residential zoning, industrial zoning, retail zoning, or mixed commercial and residential zoning. Each of these zones will have rules like maximum building height, minimum setback from the lot lines, maximum buildable areas, parking requirements, etc. Most municipal websites have all of this documented and easily accessible so if you’re curious or you plan to build or develop land, it’s always advisable to get familiar with your zone. You can also find past city council decisions on the municipal website or the Ontario Land Tribunal website to learn what council tends to decide when people want to apply for special exceptions similar to one you might be considering. You can also call up the city and ask a city planner there if your proposed change would fall within the zoning bylaw.
Generally speaking if the change you want to make to your property is within the zoning bylaws rules, even if it’s a teardown and rebuild, you will have no trouble applying for a building permit. However, if you are proposing a change that falls just outside of the zoning bylaws you‘ll have to apply for a minor variance (e.g. taller building height than generally allowed). Depending on how big the change is and how reasonable the city views the change with respect to the surrounding properties you may or may not have your minor variance accepted. This process alone, can sometimes take multiple months depending on how back logged the city is. Then we get into the big scary monster of trying to re-zone a property. All I have to say is best of luck to you if you plan to re-zone something. I hope you have lots of time and lots of money ready to go. Changing zoning bylaws is a system that, in my opinion, was not very well thought out and now leads to significant delays in housing development.
Before this new law allowing up to 3 units on a single lot. If you wanted to change your “single-family residential” property to 3 or more units, that would usually fall well outside the current zoning bylaw and you would have to apply for a re-zoning. When you apply for this re-zoning, you have to hire planners and architects to prepare a proposal for the city, then once the city has received your proposal they put up a big sign on the property explaining the proposed change. Then they mail out a letter to all surrounding properties explaining the proposed change, and set a date allowing people to voice their concerns. Overall, I’m in favour of allowing people who have pre-existing homes to voice their concerns, especially if the proposed change could or would have an impact on the property owners quality of life or impede on their existing properties somehow.
However, like anything, you will get people who will simply disagree for the sake of disagreeing and will not allow ANY change to happen no matter how small. This is where this process falls apart in my opinion (and where the term NIMBY comes from). As cities grow and run out of land, the natural progression is to increase density. So as property values increase you will get developers or homeowners who would like to add a second or third unit legally to their property in order to help pay for the mortgage or simply to add more housing supply to an already suffocating city. But often times this means a re-zoning application. So instead of the city being able to simply approve the building permits and plans like they can now thanks to the updated legislation. There would be a whole rigamarole process that could often take multiple years and could even involve lawyers or paralegals to represent the arguing parties, which adds expense and delays to what often times could be a more simple process.
So effectively your options were, build a unit illegally and hope no one finds out (like a lot of Brampton, sorry Brampton), or spend multiple years and lots of money fighting for a simple change that at most will add a car or two to the street and probably won’t inconvenience your neighbours. I think that two things can be true at once, people having the right to voice their concerns, and the city looking out for the citizenry as a whole. They should consider the needs of the city and make decisions that help solve problems rather than exacerbate them.
Thoughts on a New System of Land Development:
Briefly, I want to discuss very big redevelopment projects and the problem with the way things are currently done. I think that the city requiring developers to submit a plan first and THEN allowing citizens to voice their concerns, and (usually) tear it top bits, is counter-productive and wastes everyone’s time and money. In my opinion a better approach could be allowing citizen to voice their opinions BEFORE tens of thousands of dollars have already been spent (sometimes more). This would allow community groups to consult on how land will be redeveloped alongside developers, architects, and city planners to come up with a plan that considers everyone’s interests BEFORE submitting the application and proposal to the city. I think this would ultimately speed up the city planning process and would make all parties much happier in the end rather than standoffish. With this model all stakeholders were considered and collaborated in the creation of this new development. I’m not sure how practical something like this would be but I think it’s worth considering as a better method of city planning.
What The New Legislation Makes Easier:
As mentioned the new rules allow up to 3 units per lot. Depending on your municipality their implementation of the rules might be a little bit different. For example in Toronto depending on your property you may have access to a laneway, which could allow for the construction of a laneway house or Accessory Dwelling Unit (ADU). There are already companies out there which specialize in developing plans for laneway suites. If you want to find out if your property is suitable for a laneway suite there is a very handy tool called adusearch.ca which allows you to looking up certain cities and determine if your property can have one. In Toronto a majority of the existing land can have an ADU built. There is potential for over 400,000 new units (either attached or accessory to the existing building). The website says that there are currently 126 permitted ADUs in Toronto, I’m not certain I believe that the number is so low. But it could be that most basement apartments in the city do not have permits or maybe don’t fall under their definition of ADU.
In other cities like Mississauga for example you would most likely be looking at building a basement apartment, garden suite, or garage conversion. This was approved very recently in Mississauga in November of 2023. I would recommend looking at proposed bylaw amendments that show how a potential garden suite could be constructed (it’s also just fun to look at the renders). You can find the meeting notes here (pg. 83-134, pg. 112 and beyond are the renders). Depending on the size of your particular lot the allowable garden suite size will vary up to a maximum of around 1000 sq ft. The Region of Peel also has a forgivable loan program which can provide around $20,000 to upgrade a pre-existing basement apartment to a legal basement apartment if certain conditions are met. There might be similar programs in your region or municipality and if you are considering developing a secondary unit I would highly recommend speaking to the city planners at the city and expressing your intentions to see if they might be able to help you with your planning process and make sure that it goes according to plan.
It’s Still Not Enough:
While it’s great that all these changes are being made to add density. Quite honestly, all of these will be a drop in the bucket compared to the actual amount of housing that is needed across the province to help solve our housing crisis. Larger developments and purpose built rental housing will be more likely to put a real dent in the situation. While there is more funding at provincial and municipal levels to speed up development approvals and speed up timelines at the Ontario Land Tribunal we are still quite a ways away from building the housing that is going to be required to improve our current situation. We can’t solely rely on the private sector to develop all the housing the province needs as has become very apparent over the past few decades. There have been improvements to purpose built rental housing over the past few years after an almost 30 year lull in development thanks to different programs that assist larger developers in either redeveloping older properties or providing them HST breaks among other things to make the numbers actually make sense for this type of development. However, I do hope that many people decide to take advantage of the easier development and approval processes across Ontario because any amount of new housing is better than no new housing.
As always thank you for reading, feel free to let me know what you thought in the comments or via email. I’ll see you back here in two weeks.
All the best,
Oliver
Newsletter Email Archive Sent: March 31, 2024:
Newsletter #11: Adding Secondary Units Legally, Renter Rights, Spring Market Predictions
Happy Easter long weekend! I hope that those of you who are able to take some time off do so. For those who haven’t yet started their taxes, this is your reminder to get on it! This week there is some interesting news articles that came out about the federal government and renters rights. I have a small analysis of what may be to come in this Spring real estate market. Spring is officially here and this is seasonally the busiest time of year for buying and selling homes, it will be interesting to see how many sales happen this Spring and through to the end of the year, many analyst are predict this to be a more active year than 2023 in that regard. Check out the blog post on ADUs and the new laws that Ontario passed allowing up to 3 units on (almost) any pre-existing lot without requiring a zoning change.
This Weeks Blog Post:
How to Add Secondary Units or ADUs in Ontario:
How different municipalities have implemented this legislation
Toronto’s new easy to build “laneway homes” and tool to see if your property is eligible
Some conversation about why this is overall a positive change and how the land planning and use process could be improved by involving the community earlier in the developmental process
Wants to make it standard to include rent payments into tenants credit scores. Rent tends to be a large payment and showing on time payments could help when looking for a mortgage
Standardized national lease agreements
Renters Bill of Rights, crack down on renovictions etc.
Spring Housing Market Discussion:
Some analysts believe that rates could be cut as early as June. Since real estate remains one of the CPI components that is holding inflation higher, I find it unlikely that the Spring market will be conducive to lower rates, since fixed rate mortgage borrowing costs continue to stay somewhat low.
Additionally, with the current stock market Bull Run, some investors may choose to put some of their cash towards purchase other assets (including real estate). This could mean that the real estate market will find itself in short supply once again with upward pressure on prices. There is a well studied psychological effect that an increase in investors assets tends to result in an increase in their overall “consumer sentiment” and thus their spending.
Owners with pandemic low 3-year fixed mortgages are likely to have their mortgages come up for renewal this year, and their cost of homeownership will likely go higher. This could cause people to be forced to sell and lead to increased supply. For others it will untether them from the past mortgage reality into the new one which could see an increased number of people looking to make a move either to downsize or upsize.
Market Performance as of close Thursday March 29, 2024:
Canada CPI Inflation Jan 2024: 2.8% (0.1% Decrease from Jan 2024) Current BoC Benchmark Interest Rate: 5% NC (Next Meeting: April 10, 2024) Unemployment Rate Feb 2024: 5.8% (0.1% Increase from Jan 2023)
