Three big real estate issues – supply, supply, supply

Lisa Raitt: Thank you for tuning in to The Raitt Stuff. I’m your host, Lisa Raitt, former Cabinet Minister in Stephen Harper’s government from 2008 to 2015. I’m here now at CIBC Capital Markets, and in this podcast, I’m going to share insights on current hot topics in the areas of public policy, politics and business with some guests along the way. Hi everybody, and welcome back to the Raitt stuff. Well, if you take a look at the newspapers lately, you can see that there’s always a lot of speculation and interest into what’s happening in the residential real estate market. We also see a lot of stories about whether or not the downtown cores of some of our cities are going to be returning as a result of people returning back to work in COVID and concerns that small businesses have in terms of whether or not their operations are going to make it through twenty twenty two. And I thought it’d be a really good opportunity to do a bit of a deeper dive on public policy issues around real estate in general. And I’m delighted to have with me today. The CEO of the Ontario Real Estate Association, Tim Hudak, who was recently named as one of North American Real Estate’s most powerful and influential leaders and executives in 2021. Thanks so much, Tim, for agreeing to be with me here today on the right stuff.

Tim Hudak: Oh for sure. Lisa Raitt, great to see you. Congrats on all your success as Vice Chair of Global Investment Banking, CIBC, I want to tell you that I’m not only thrilled to be on your show. I’m also a CIBC customer, both in investments and in banking, so I’m a big fan and I was thrilled when you join them.

Lisa Raitt: Well, listen, thank you for that. Thank you for your business. Really appreciate that. And it’s good to know you’re in good hands. Tim, I guess from the perspective of the clients who’d be listening in today, they may want to have a bigger view of what’s happening in terms of real estate here in Canada and specifically whether or not there’s going to be any public policy inputs into what’s happening in the free market as it were. Given that people are worried about affordable housing, they’re worried about being priced out of certain parts of the country and the question of whether or not we’re going to see any building of new stock. So can you give us a lay of the land of what’s going on?

Tim Hudak: Yeah, great question. We could do a month of the rate stuff on that topic alone, I think, but we probably should break it down between residential, commercial and happy to talk. Rent control is a big issue happening, you know, at least if you’re here in Ontario. On the residential side, there’s the three big issues supply, supply and you guessed it supply. We have an increased demand in the marketplace for millennials coming of age, getting promoted, having families at Bank of Mum and dad, financing their loved ones to get into the housing market, low mortgage rates and an economy that is improving and immigration to come in twenty twenty two. So it has become like a cruel game of musical chairs, a lot more people circling fewer and fewer homes. The big focus for the Ford government in Ontario and other premiers housing supply, particularly Ontario, British Columbia.

Lisa Raitt: Is there a right way to do this? From your point of view, you’ve been on both sides of this, you’ve been the political lawmaker and now you’re on the side of of helping people advocate for good public policy in the real estate space. What’s the worst thing a government can do?

Tim Hudak: Well, I mean, that comes from your your success in the political circle. The senior leader in parliament to government can be a two edged sword so government could make wrong interventions in the marketplace to try to disrupt the market, which, when you pull a string in the housing industry, could have severe consequences down the road, particularly limiting, as we’ve seen today, enough homes for first time buyers and move up buyers. Government should focus on increasing supply across the board by updating your nineteen seventies zoning bylaws, for example, looking to convert government excess real estate into housing opportunities. And our other topic working with the commercial sector, I do see the potential here, Lisa, to have underutilised commercial space due to work from home and move that into mixed use residential solving two problems at once.

Lisa Raitt: That’s really interesting. So lots of zoning around those issues. I read this morning, actually, Tim, that New Zealand has passed a law that they’re no longer going to be allowing single detached home zoning. They’re going to allow it to go in and you can build density on what would traditionally have been places where you can have only single detached homes. Do you think that’s something that lawmakers here should take a look at?

Tim Hudak: So if your listeners want to see what we put on the table and specific, they should go to Orea.com, Orea.com, in fact bring affordabilityhome.com. Let me say that, the chance to actually contact the politicians and say do idea A, B and C, so bring affordabilityhome.com To your question. We actually propose this. We call what we have today exclusionary zoning. So picture a wartime bungalow, whether that’s in Oakville or Toronto or Windsor. And right now, property owner Lisa could knock that down and build a four storey monster home, which is good for one wealthy family. They have the right to do that. We support that right. But if that owner wanted to knock that down and. Create, say, a triplex or enough room for four families affordable for first time buyers. They go through a ringer of a zoning process, all kinds of fee’s. The NIMBYs descend. The project never happens in those four families continue to sit in rentals and don’t get a home. So we say in the areas of high demand, urban areas say within 500 metres of a subway or a transit station that we should do that and allow that right doesn’t have to be everywhere like New Zealand, but certainly in high demand areas like I mentioned.

Lisa Raitt: Yeah, in the bigger picture of public policy, I was doing a roundtable recently and one of the businesses that I was speaking to complained about the difficulty in finding workers for lack of a better word. And they said the issue is that there’s not enough supply of housing in their area, that the people have the ability to actually live in. So they’ve got folks commuting from Windsor, Ontario and sleeping overnight in their car or in rooming houses in order to work at one of these larger warehouses out here in the Milton area. Demand is going to continue. I know you mentioned that before. What do you see in the future for for these kinds of folks trying to go towards jobs?

Tim Hudak: I see a big risk of losing talent. We did a survey recently and found that over half of Ontarians this was like Canadians, but Ontarians. Forty five and under Lisa, were looking at moving out of Ontario to another province or the states simply because of housing prices. This is the next generation of entrepreneurs, job creators, workers. And if we lose that talent, that will be a major economic setback for our province. Government should be mindful of not intervening the market to try to suppress demand that will be tempting, like higher taxes or limiting who can get mortgages. Instead, they should focus like a laser on increasing choice and supply in the marketplace, a lot of it on the table. Tough decisions, sure. But nineteen seventies era zoning bylaws and planning no longer fit the reality of twenty twenty one or future talent Investment and jobs depend on that.

Lisa Raitt: Yeah. Is this something that all orders of government have to work together on?

Tim Hudak: Yeah. Picture it like the Olympics, so the province would be the Gold Medal winner. They can have the greatest impact on housing supply and therefore the affordability next is municipalities. They have to be able to stand up to NIMBY forces or get the right incentives, carrots and sticks from the province to actually build needed housing supply. And then the federal government can play a role largely run monetary policy like mortgages, so they can all make a difference. It can all cause damage. But the reality is we’ve had too much government, we’ve had too much government saying where you can build, you can’t build here. And as a result, demand has exceeded supply for the country as a whole. We probably need about one million new homes built over the next five years or so. A good portion of that in province of Ontario.

Lisa Raitt: Wow. One million homes. That’s a big number

Tim Hudak: And a great story of Canada. Here your CIBC bank has been a big part of this is that every generation had a greater shot at owning a home than their parents or grandparents. That was true. My grandparents immigrated to this country. It stopped in about twenty twelve. Or that steady increase that built a strong, vibrant middle class was a chief area of savings for Canadians. Started slipping downhill in about two thousand and twelve. We need to get it back up to about 70 percent or so because strong neighbourhoods, strong communities, that that’s all the result of a backbone of housing ownership in Canada’s history.

Lisa Raitt: Yeah, in our last two minutes, I wanted to get your sense of something that you mentioned at the very beginning, and that is the notion of rent control. As a public policy measure in Ontario, we were talking earlier. I mean, remember how much we paid for our first apartments when we were coming out of university and I remember being rent control. Nova Scotia doesn’t have rent control and there is a significant pressure in terms of people having their rents even doubled in the past two years. And they are saying to their elected officials, Look, we need to have rent control here, what’s happening here in Ontario in terms of rent control because there’s been a bit of a back and forth.

Tim Hudak: Look, it can be tempting to impose the rent control policies because you get a short term payoff in terms of release and relief. But it’s long term damage because it limits supply and investment. And that means people, single moms, students getting their first good jobs will have limited and lower quality supply in the long run. Good public policy should focus on that long term impact. So what’s happening in the rental side is a result of the lack of inventory on the ownership side, so families can’t get that first family home, the starter home Lisa. They stay in rentals longer and that means people in social housing trying to get into good rentals can’t get into that market. It backs up across the spectrum, impacting on the most vulnerable who may end up with no shelter whatsoever. When you have a big demand on rentals because people can’t move up into ownership, that drives prices even higher. So what is the solution here again? More supply for first time buyers to own housing or move up homes to free up that starter home and also increasing rent. To do so, you need to have an incentive for the investor like Mom and pops, the chief source of new rentals, to decide to invest in rental accommodation. If you limit how much their returns can be, you tie them up with all kinds of red tape or an imbalanced tribunal. They’re not going to invest, and that ultimately impacts the most vulnerable in our population.

Lisa Raitt: Yeah, without a question. Hey, Tim, just as we finish this podcast today, is there any jurisdiction that gets it right? Is there anywhere that we can look to?

Tim Hudak: Well, you know what? We’re off to a better start in Ontario, where the rent control properties have have remained political decisions with rent control. A change to the Mike Harris government did was what called vacancy decontrol. So if the tenant moved out of her building, then the landlord could set the new rent at whatever market they chose the market rate and that kept more investment in the system. Premier Ford has said any housing built post two thousand eighteen then can also have a market rent, so that’s encouraged new investment. We’ve seen more rentals in our province as a result of that. I do think, though, because of the debate over affordability issues in Ontario, in our country, this will be a hot election issue in twenty twenty two. But if we’re thinking about, you know, my daughter’s down the road having good choice or rentals when they’re in their late teens or early twenties, whatever that age will be, Lisa, we need to make sure we have incentives on the supply side to ensure good rental choices down the road. So we made some good policy choices in Ontario. I just hope they’re not reversed.

Lisa Raitt: Excellent. Thanks so much, Tim. Looking forward to hearing the discourse on this topic in the next election that seems to be just around the corner. It’s continuous election season here.

Tim Hudak: My pleasure. Thanks for having me on the Raitt Stuff and keep up the great work itself.

Lisa Raitt: Thank you. You bet. Thanks so much for tuning in. Now, if you have any questions or comments or even requests on topics to discuss. Drop me a line at Lisa Raitt at CIBC’s. Your interactions actually will make this better. I’m your host, Lisa Raitt, and this has been the Raitt Stuff I’ll talk to you next week.

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