Has The National Housing Strategy Failed ?

[00:00:00] Welcome to the Canadian Real Estate Investor, where host Daniel Foch and Nick Hill navigate the market and provide the tools and insights to build your real estate portfolio.

[00:00:10] Welcome back to the Canadian Real Estate Investor podcast. Today we're going to be discussing the National Housing Strategy in Canada, which is a 10 year 82 billion dollar plan that was launched in 2017.

[00:00:24] It's been playing a pretty big role in actually getting housing built lately with the aim of providing more people in Canada with access to safer affordable and inclusive housing. My name is Daniel Foch and I am joined here in studio by who is it?

[00:00:40] I'm trying to get people excited that it might be somebody else. Here's pretty excited.

[00:00:46] They're not excited to hear me, I guess after 160 plus episodes maybe not, but yes, me, Nick Hill back in the studio with Dan and again talking about the National Housing Strategy today, which includes a range of complementary programs

[00:01:02] and initiatives that address the diverse needs across the entire housing continuum that we have here. It's anchored in the National Housing Strategy Act, which will look at which requires the strategy, consider the key principles of human rights based approaching approach sorry to housing.

[00:01:22] Yeah, and I think the two main opportunities in Canadian Real Estate right now, both sort of stem from this. One is five units in above, which comes from you've heard us talk millions of times on the show about this, the MHCMLI select.

[00:01:38] We're going to get into that a little bit later in the show and then the other one comes for units in below, which we're starting to see happening is a result of a lot of the up zoning where those aren't subjected to development charges.

[00:01:50] And so they get a little bit of an arbitrage against developers large scale developers where they don't have to pay DCs. That's like a 60 thousand dollar advantage if you have against somebody building a high rise right beside you in some of these cities.

[00:02:02] I'm still a lot more attractive for people kind of jumping into this space that would you know, 60 thousand dollars in DCs could really mess up the.

[00:02:10] Well, yeah, and it turns on a project for sure. And I know you were on this on the call with the team today about some of the MLS select deals on a lot of these smaller MLS select deals are having trouble because, you know, people who have never developed before that they're covenant or network doesn't always get content considered to like 100%.

[00:02:26] Yeah, it's not even just covenant in that worth that plays a role, but it's also experience and track record. So even if you do hit that net worth component right if you need 10 million to finance you need to be able to show 2.5 million in that worth.

[00:02:38] That is actually easier for a lot of people versus the level of experience that see him, he wants to see for some of these projects.

[00:02:46] Yeah, and so that's where you kind of get into the smaller incremental stuff which is to build the experience and still get an advantage of being a housing creator in today's market.

[00:02:56] So yeah, so to just get back to what it says on the National Housing Act, government of Canada website through the strategy, the goal is to reduce or eliminate the housing need for 540,000 households and create 160,000 new housing units were new and repair 300,000 homes.

[00:03:13] And protect and expand 385 community housing units. Additionally, the strategy aims to provide affordability support to 300,000 households through the Canada housing benefit.

[00:03:24] Some big numbers there goes on to say that the strategy also focuses on priority areas such as housing for those in greatest need community housing sustainability indigenous housing northern housing.

[00:03:38] So we have to take that one sustainable housing and communities and ensuring a balanced supply of housing. Well, there's a lot of work to do on that front so join us as we delve into the details on this comprehensive government plan and how we explore how it's shaping out and how it's kind of shaping the future of Canadian housing here.

[00:04:02] Let's dive in, Dan. Yeah, we're going to talk a little bit about how it shaped the past of Canadian housing as well because that context is pretty important. So here are the objectives of Canada's National Housing Strategy. So number one is creating new housing supply. Great. I like that.

[00:04:17] Number two, modernized existing housing. I also like that. Number three, innovation and research. I don't think I have to mention it.

[00:04:25] But I'm pretty sure that's like that. Yes. So I think it's obviously something that's good and this is the time in which it is most needed and actually, I guess that we have coming up on the show. I'm looking at this copy of this.

[00:04:39] Now Gregor Craggy. So this is really cool. This book says our crumbling foundation, how we solve Canada's housing crisis. It's written by a journalist from Victoria BC Gregor Craggy. He's a CBCer.

[00:04:53] He does a talk show host and stuff like that. He's been and it says how we solve Canada's housing crisis. It also says on the cover here on sale March 5th, 2024. So I have a physical copy of a book that does not exist yet.

[00:05:04] Wow. Look at us. And I think we're going to give some of these away to our listeners. So this is cool. Where this is our first book to our podcast experience.

[00:05:14] Yeah. We've got them on the show what in the next week or yeah. Next couple weeks. More on that. But yeah, there's probably a little bit overlap. But I'm okay.

[00:05:22] I think we have a lot of him on and see what he has to say. Yeah, and he's I've read it because I was asked to do some commentary on the book before it went to press.

[00:05:30] You know, we hear about some of these things and it's basically what's wrong. How how do we get here and how do we fix it? And so to me you know that us as like one of our themes on the show is create value if you want to get value back.

[00:05:44] If you want to create capital appreciation or cash flow, you got to create value and the easiest way to do that right now is solve a real problem. What's a realist problem in canter right now? How's it?

[00:05:55] Okay. So that's a great place to start in. So let's let's go back to the first objective of the NHS that's a national housing strategy.

[00:06:05] I just thought I'd throw a little lac on there because that's a high school in New Market as well in the market high school NHS not to be confused with the new market high school. The national housing strategy their first objective is creating new housing supply.

[00:06:17] Yeah, so let's talk about the initiatives under this supply strategy. So what would be the details of this like what are some examples of things that would fit under the supply creation goal.

[00:06:29] For sure, some of the stuff that they list here is initiatives like national housing co and a national housing co investment fund, which is very interesting. We've talked a lot about co investing

[00:06:40] And funds together and separately on the show before affordable housing the affordable housing innovation fund again another great idea there, which is to provide funding and financing for opportunities for building new affordable housing.

[00:06:55] We also have programs like the rental construction financing and the federal lands initiative, which encourages the construction of sustainable rental projects. So a lot of familiar stuff here that that's come up on the show a lot before.

[00:07:11] And the other piece is, and like this is from my perspective really just, you're just pointing to the opportunities in the market. So the first one is creating new housing and we've talked about this along the show. You want to create value. You want to, you want to, you want to burn right we hear a lot about burn coming up podcasts in the states. The only way you can really do that.

[00:07:30] In order to burn you have to create so much incremental value that you can borrow the down payment back out of the property and the only way to do that in Canada right now is through adding units right. So rule number one, create units according to the national housing act rule number two modernized existing housing.

[00:07:47] So another important aspect is the modernization of existing housing. So what does this national housing strategy say about this? Yeah, the national housing co-investment fund. This is where this comes into play along with other funding opportunities supports the renewal and renovation of the existing affordable housing stock.

[00:08:10] This allows for improvements and upgrades to ensure quality housing for residents. And again, I don't want to get too much into the CMHC MLS like stuff but a lot of ties in with this on bringing things.

[00:08:25] Making things affordable or bringing things up through a renovation process to make them more energy efficient, a lot of that action happening.

[00:08:33] Yeah, for sure. And then, exposes supporting community housing providers. This one's interesting because we're looking at a community housing provider deal right now that you know the goal would be to get it to fit into the MLS like box but it's just like really tough to get those like you know if you have

[00:08:50] rent gear to income or affordable housing. I would say affordable housing is probably one of the least commonly used streams in that MLS like program. Yeah, I think like what are you saying? It's definitely environmental right.

[00:09:01] Definitely so just very high level and we've been requested to do another full episode on this. So that is in the works everybody stay tuned for full episode on MLS.

[00:09:09] If you want to go back and check out the other one I was I believe how to get 95% loan to value on or 95% mortgage on a multi-family.

[00:09:20] But to answer your question, yeah, Dan, the out of the three buckets where you can get your points energy efficiency affordability and accessibility by far the most common one that we see builders use is the energy efficiency.

[00:09:35] And so knowing that like that box doesn't technically always fit for the financing side of things for most housing providers or most community housing providers.

[00:09:49] You know the NHS allows for for other things for and for community housing providers. So what kind of specific resources are available for them? Yeah, yeah absolutely. I mean the strategy provides things like technical assistance tools and funding opportunities to increase the capacity of community housing providers.

[00:10:11] So there's actually incentives here initiatives like the federal housing initiative and the community housing transformation center support these providers in their goal of delivering affordable and inclusive housing.

[00:10:28] So the next piece is this element of promoting innovation and research. And I actually the first time I mean I know I work with the media a lot right now, but the first time I ever did something with the media in regards to real estate was when I was rewarded through this end of the program when this actually funny. I don't think I'm ever talked about this on the show so yeah so when I was in university, I was always like really passionate about like shipping container housing.

[00:10:56] Yeah and just a adaptive reuse and a good friend of mine kind of got me into it and I was just proposing it as a it's so funny now in hindsight because like how did pursue that.

[00:11:06] I mean, I don't know if it would have worked away. I wanted it to anyway, but that back then it was like the housing affordability issue was a big challenge. So and that was in 2017 2016.

[00:11:18] But anyway, I was always awarded by CMHC and York Region for this make rental happen program as well as through a business and incubator at the University of Gualph where we both went.

[00:11:30] And I can say like the opportunities and like the doors that were open for me through that were you know, was I maybe a little bit better business person or better like figuring out how to capitalize on those opportunities.

[00:11:44] I probably could have had a much bigger impact so I would say this is really interesting and actually we have a guy in our course who you have does a lot of work in this space.

[00:11:54] So if you ever need like grant writing or anything like that give us a shout we'd be happy to connect you, but like he knows all of this stuff for the innovation side of things.

[00:12:02] There's a lot of opportunity in like I think that it's pretty evident that we're kind of behind in Canada when it comes to construction innovation.

[00:12:13] And we have some of the lowest research in the product. You know, we have some of the lowest research and development spending in in the OECD as a poor per capita R&D spending and so and we're economy is very exposed to housing so naturally if we're going to choose somewhere to spend that R&D spending it's going to be housing and yeah so I guess innovation and research are really vital in shaping the future of housing so what does the national housing strategy do in regards to that.

[00:12:42] They tune in and listen to this podcast because we've been promoting innovation research for years now. See me see we're waiting if you want to send us a grant for all the good work we've done over here will take it.

[00:12:55] They also the national housing strategy includes programs like the demonstrations initiative and solutions lab which highly innovation and ideas and solutions targeting affordable housing. The collaborative housing research network and the national housing strategy research and planning fund support research efforts to guide evidence based decision making.

[00:13:20] They really they've got long names for every one of these subsidiary. They want us and they're not a maximum buzzwords again. Yeah, why I'm jealous. You know, we're heartened in the making of these two well paid here.

[00:13:36] Yeah, so it is interesting right because people just think about innovation as like physical innovation as well. We have so we were fortunate enough in the course we have some some really cool folks.

[00:13:48] We'd love to have you there obviously but in regards to the grant side that's one individual who's within the course and this is where I'm literally learning from our audience by the way like this is I'm just reiterating stuff to you that I've heard from them.

[00:14:00] We also have somebody who's really deeply involved in the panelization of housing like so you know and they ship basically these sandwich panels for so it's like semi modular like they think they ship walls right so to be able to construct faster.

[00:14:14] But the other piece is non physical innovation so like financial innovation this is something you and I've been discussing a lot with potential financial partner that you know we've been we've just done a lot of content with and we've done a lot of friend of the show for sure.

[00:14:28] We're really hopefully being able to work on like the big thing from my perspective is if you want to build that you're a homeowner as is and I think a lot of listeners on the show are homeowners and even listening to us and we're like.

[00:14:40] Yeah, yeah, you guys keep saying create units but I have no money how it's like and it's like or I'm house poor and like don't like I'm not saying that to chirp because I am that so like I get it.

[00:14:50] Well, but I would love to put an ADU in my yard. You know, I got a nice lot. I'd love to create and love to be a creative housing creator have a mortgage helper. There's no financial product.

[00:14:59] Exactly. And so to have those to have those innovative physical products what do we need? Yeah.

[00:15:05] We need those innovative financial products to be able to support the implementation of things like putting a lane waste weed or a garden suite or whatever in your backyard or to be able to have a better plan on how to you know refinish that basement or.

[00:15:19] Again, add units more stuff like see me she's a nice elect but for different levels of development for you know that that that true citizen developer or that end user that's looking for that as you said mortgage helper kind of thing right.

[00:15:32] Yeah, yeah for sure and so one of the things we've wanted to do this for a long time we've talked about it from an ADU perspective which I think there's enough people in that space that are really already trying to do the ADU financing people have reached out to us from the show.

[00:15:45] And so who are already doing it basement apartments, et cetera. But it's a detached ADU in a modular basis where we're really hoping to like just I think if you could just have a one size fits all thing where it's you know those things can get popped into your backyard but they're also finance.

[00:15:59] Yeah, you know and it either gets added to your mortgage that to me is that's going to be huge because that's super agile supply you can pop one of these modular things like the ones that Jordan screen co is posting today.

[00:16:11] If that if that was finance at you know 80 or 100% be slammed on deal for any of right you know if the rent's going to cover the cost of it cost 200 grand to build one of those things in rents for 2,000 bucks 1% rule achieved.

[00:16:25] Yeah, and just on that that's not what this episode is about entirely but we have had a lot of requests to do another full episode on ADUs, lane waste weeds, garden homes and we've got some some great guests and some great people that were working with and that'll be out in the next couple of days.

[00:16:40] That'll be out in the next couple of weeks so I can stay tuned for that. But damn let's get back to this year. The strategy the National Housing Strategy is aiming to achieve some pretty big things in the next few years. Can you walk us through the list of what they've got here?

[00:16:55] Yeah, so by the year 2027 to 2028 the strategy aims to achieve 540,000 households whose housing need is reduced are eliminated 160,000 new housing units created 300,000 homes to be renewed and repaired. 385,000 community housing units protected and expanded by 50,000. They want to add another 50,000 there to community housing.

[00:17:18] 300,000 households provided with affordability support through the Canada Housing benefit and 25% of funding towards the meeting of housing needs of women and their children. Yeah, I mean those seem like some pretty good goals.

[00:17:31] And they have another section and that is addressing housing needs through complementary programs and initiatives. So this is all the other initiatives under the National Housing strategy.

[00:17:44] These are kind of all the funds and stuff that we've been talking about and the capital so the money allocated to each one of them. 48.3 billion dollars in new construction repair or renewal of housing stocks that makes up the vast majority of the budget right there almost 50 billion.

[00:18:03] 1515.7 billion dollars in initiatives delivered with provinces and territories. So that'll be parcel out to provinces and territories 11 points 11.1 billion in existing community housing programs 4.1 billion reducing chronic homelessness 4 billion in system changes to increase the housing supply

[00:18:29] 1.9 billion in support for the community housing sector 1.3 billion improved home ownership options 1.2 billion. One time direct support payments to lowering come renters now we're into the millions 541 million on data innovation and research and I think after we take about 250 million of that damn there's still about half left.

[00:18:53] I'm kidding we'd start a million see if you're listening and then 63 million in human rights based approach to housing so all the way from 50 billion down to essentially 50 million we see the budget allocated here.

[00:19:08] I mean it's it's always interesting to get an idea for like how your tax dollars are spent to solve the problems that matter to you and I think that if you're listening to this show you probably like housing is probably something that matters to you as a policy issue I would say.

[00:19:24] So the next thing that they outline here is priority areas for action the national housing strategy and visions affordable housing for all Canadians promoting sustainable communities in a thriving economy it emphasizes six priority areas for action so number one housing for those in the greatest need I think this one you know it's pretty rhetorical.

[00:19:43] You were obviously seeing a growing issue with homelessness and Canada and cities pop on on by everywhere. Yeah for sure and so I think this obviously should be a priority area that no notice disputing that.

[00:19:55] The next ones are community housing sustainability indigenous indigenous housing northern housing sustainable housing and communities and a balanced supply of housing the last one actually is fascinating to me because.

[00:20:06] You know a lot of people like they'll say oh you know you're only building luxury condos it's like well first of all luxuries just like purely a branding term literally the word luxury if the word luxury is a.

[00:20:18] Basically just means like not a purpose no rental but just means not horrible yeah not bad. Yeah, it's basically like builders grade. They use the word we're having a laugh about what many names here but someone describing a flat ceiling as a is a luxury item.

[00:20:33] So the word the poor word luxury has has lost its mean that is from the Latin word looks. I'm just kidding. I don't know that probably is some I don't know I don't know that one.

[00:20:45] I haven't been keeping up with my dual lingo Latin lessons okay we'll carpet the mr we had a swimming yet.

[00:20:52] And yeah anyway so getting that housing building like no housing is housing right a unit is a unit and a lot of like a lot of like nimbees will argue with me on this on twitter and i'm not like i'm not a yinby by the way.

[00:21:05] I think that i think that things need to be planned properly but if you if i build a luxury condo and nick moves into it then nick vacates a non luxury condo that he was living in before and that creates that that makes that unit available for somebody else someone else kind of working the way it's a ladder.

[00:21:20] Yeah, it's almost like what was that Nick hella original that you recall that trickle down economics yeah yeah yeah I think that was that was it anyway so let's let's look back here on Canadian history and like the impact of

[00:21:34] whether or not that national housing act has been successful in creating housing before because we always hear people comparing today to the good old days but it's like you know it's

[00:21:46] People comparing present day to the 70s especially when a lot of the old people are really sick and a lot of personal rentals building that period of time right. Yeah, so let's let's dive into that then time for a little history lesson.

[00:22:00] Let's look at what the national housing acted in the past this is from the Fraser Institute to composition of Canadian housing starts from 1946 to 1969 versus 1972 1975.

[00:22:14] Yeah, so from 1975 45.8% of housing starts came from the National Housing Act and the remainder came from the private sector so mostly through the Murb program the what program maybe six Excuse me next time you burp on the show good joke. I wrote that one in there.

[00:22:34] So I can't play. I need a new comedy writer over here. Yeah, you joke later. I was going for like you know that that that we'll try and commercial with it like T. Like T. Like, but I know I that was my fault.

[00:22:49] Yeah, I know I deleted that. So what is the Murb program now you may have heard about it in a recent CBC article that we've mentioned on the show before but

[00:23:00] the same as he examines the 1970s tax shelter as agency seek solution to the rental crisis program that was aimed at increasing rental construction but there were reports of abuse is so high level. It was a program that pushed for purpose, but rental housing that was abused.

[00:23:20] Please continue. Yeah, I mean I ruled I've ended it so basically the same age she was examining this tax shelter from the 1970s as part of its efforts to address the current housing crisis.

[00:23:32] The tax measure, which was known as the Murb program provided tax reductions for investors in housing but was criticized for abuse is in lack of oversight. Basically, same age she suggests reconsidering similar tax policies to promote investment and rental construction that we desperately need.

[00:23:48] But they also highlighted the need for urgent action to increase housing supply and restore affordability in the country. Yeah, sounds kind of spicy. So what kind of things were in the Murb program that were so exploitable, right? We've heard that it's been abused.

[00:24:10] So what existed in there that you could even do that and we're going to take a look at a CBC study that was commissioned all the way back in 1981. I do love me a little history lesson.

[00:24:24] I feel like we kind of burned dog the audience because we were talking about the true crime episodes before and apparently now we're a history show. Well, we did, we'll be to put that aside. Did I get a couple of DMVs? Yes, please do true crime.

[00:24:37] So yeah, we will get to you. Yeah, we heard those. I do think I want to do one on the right man family. There's like that there's a book called Too Big Defail. So I'd have to read it first. That would be helpful.

[00:24:47] That was a limpia in New York. By the way, if we're just a Toronto based company, kind of started as a huge developer and owner in Toronto and then they started expanding to like buying stuff in New York. There was a famous site in New York.

[00:24:57] I can't remember the name of it now, but anyway, I digress. Yeah, let's get back on track. So the Murb and that's M-U-R-B by the way. The Murb provision of the income tax allows investors in Murb's to deduct capital cost allowance. That's otherwise known as CCA.

[00:25:17] So they're able to deduct capital cost allowance losses from their other income for taxation purposes. I guess we have to do a little explainer on CCA now as well, Dan. So we're really going to go down that rabbit hole now, aren't we?

[00:25:31] Yeah, so I will start by saying this is obviously out of scope for us and we will have an account back on the show to do this properly.

[00:25:39] However, from the CRA website who I would say is qualified to, you can not deduct the cost of the property when you calculate your net rental income for the year.

[00:25:51] So kind of like a car right if you buy a car, you can't just be like, oh 80 grand off my income. I wish I'd be buying my B-Wand, my cars if that was the key.

[00:25:59] Yeah, yeah, so because the car wears out as an economic life, it depreciates in value. You can, it becomes obsolete over time. So you can deduct that depreciation over a period of X amount of years and this deduction is called the capital cost allowance.

[00:26:15] And the same thing exists for a property. And so any time you're basically putting money in that where that money almost becomes part of the property, let's call it. It's deducted as depreciation. Yeah, exactly, Dan. I mean, it comes down to how you deduct expenses on a property.

[00:26:33] So if something has an economic life longer than a year, such as a roof or any other kind of major renovation, you can deduct it as depreciation, not as an expense against income. And difference between CapEx or capital expenditure and OpEx or operational expenditure.

[00:26:56] And it's worth noting that we've done very thorough accounting to prove breakdown this in our online course and community that you can find out realist.ca. Such a group in here just pitching is course all the time. So yeah, it's interesting.

[00:27:11] So basically they allowed these investors. And this is where you hear like about a lot of, you know, you'll, you know, I'm sure you know somebody and somebody knows somebody who's dad is isn't was a doctor lawyer, mom or dad was a doctor lawyer.

[00:27:24] And they did this and they now own some a bunch of apartment buildings because back then you could deduct capital cost allowance losses.

[00:27:34] So that depreciation that we're referring to, you could deduct that against your personal income. And so high earners who were doctors and lawyers. That's why I use that career as an example.

[00:27:42] People who have high incomes were going in building multiplexes with all their cash as a tax advantage. Amazing. And that's so that's kind of where they were talking about the abuse of it, right?

[00:27:57] And I don't think it's, it's so much abuse. It's like people are taking the incentive for offering them a lot. They're literally doing exactly what you want them to. Now what then it's abuse because they're doing it too much. I think we'll get into it.

[00:28:08] The numbers but I think it was really just like the cost it ended up really missed distributing well for sure. Like, you know, again, when you hear about that person who's grandparents, you know their grandmother grandfather have a portfolio of hundreds of rentals because they did this.

[00:28:25] Because they did this because they were doctors, you know, or lawyers. And now it's like, okay, well, you're using a huge tax because it's not like a regular person. We really have a huge advantage to do right? Because they're not making it. Yeah.

[00:28:37] And so I think it kind of missed distributed the outcomes but the incentives obviously worked. So prior to 1981, it was estimated that a total of 170,000 murder units were started in Canada.

[00:28:47] In 1981 approximately this 1981 is when the study was commissioned by CMHC. That's why I'm saying that it's not just some arbitrary year that I chose. I would choose 91 because I was the best year.

[00:28:57] But I chose that approximately 25,000 murder units were forecasted to be started in that year when the study was commissioned, which would have brought the impact of the program down over 200,000 units during that period of time.

[00:29:08] Nice. Yeah. And the cost of that Merber provision in terms of tax expenditures for the year, dance favorite year when he was born in 1981 is estimated to be $67 million. So the tax expenditures associated with the expected 25,000.

[00:29:27] That we're supposed to or scheduled to start in 1981 on a discounted value basis are estimated to be between approximately 50 and 80 million dollars depending on whatever discount rate is used.

[00:29:41] The average, that average is out to between 2000 and $3200 per Merb unit built. So per unit built under that Merb program. And if we consider the cost per rental unit added it would likely be nearly double those figures.

[00:29:58] So while Merb's played a crucial role in the recovery of rental construction in the mid to late 1970s, it was likely that the rental market would eventually respond to the access demand on its own.

[00:30:09] I'll be at with higher rents. This is the funny part. It's like, eh, it may be what the free market would have done it anyway, but with higher rents. It's like, well, is that like the receipt like, you know, okay, so your outcome worked.

[00:30:21] It's just like a lot of people got maybe two rich in the process.

[00:30:24] Yeah. Right? Like the main beneficiaries of the Merb provision this goes on. This is from the executive summary of that CMA sheet report was the supply side and was the developer and promoter and investors with high marginal tax rates.

[00:30:37] So there was evidence that some promoters were potentially overvaluing projects and then investors who were unfamiliar with real estate matters would purchase the assets only for the tax shelter aspect without considering the possibility of poor investment prospects due to inflated purchase prices.

[00:30:53] I would argue they probably are fine now, and if you're buying it, if you're buying a cash loan and multi-projects and you're overpaying a little bit in the 70s.

[00:31:01] Also, I'm a doctor. I got to just put my millions of dollars somewhere. I guess they're leaving for that. I guess this 200 unit building will do for now.

[00:31:09] Right. So yeah. Yes. I mean, it's funny. There's a 2019. So obviously decades later, there's a 2019 opinion piece titled rental crisis cries for return of tax, sort of investor tax incentives.

[00:31:24] The 45-year-old Merb program harness the private sector to deliver many of the affordable rental apartments still in use today. The article discusses the rental housing crisis in Canada, and suggests the return of investor tax incentives as a solution. It highlights the success of the Merb program.

[00:31:44] It stands for what I don't even think we've multi-year-old. We did not. Wow, that's a great acronym. There's an actual accident. We just waited for an initial. Yeah. What was in the good joke? I might be our first time ever editing.

[00:31:57] Oh, yeah. The show. No, just kidding. You'll hear it. Multi-unit residential buildings. Yes, yes. So the current reliance that we have on public sector expenditures is just not working.

[00:32:09] And so the article argues that this could really create kind of like a, I think the, I think the idea is that the private sector kind of has to make some concessions.

[00:32:16] Which we're seeing them. This was in 2019 before things got really out of control and before we started seeing responses happened in 2023, which is obviously maybe a bit too late.

[00:32:25] The article argues that a national strategy focusing on encouraging the private sector to deliver rental housing would be more effective and cost efficient than the, then what was existing there. Shocker.

[00:32:36] It does kind of sound like how CMI cheese, MMI select directly benefits developers today through its housing creation and centers, but also by giving housing creators access to a few things. One being the longest amortization we've seen the market up to 50 years.

[00:32:55] The highest leverage point. So up to 95% on both loan to value and loan to cost and tie that in with the lowest interest rates you're going to get, which is the Canada mortgage bond usually plus 50 or so bips, which is well below the five year fix.

[00:33:11] So we're at this point, you know, today we're seeing that in the mid to high forves low fives. Yeah, I mean the whole thing comes down to your incentives, right? So you kind of have to let them win a little if you want them to build.

[00:33:23] I was recently speaking at RazzCon the residential construction council of Ontario, literally a room full of the biggest builders in Canada speaking alongside the provincial housing minister, Kalandra and Olivia Chow, which was an honor to have that speaking opportunity.

[00:33:39] It was tough because I feel like I was kind of mentally in the hard truth about how I felt that we in Canada were heading for a rent just economy and I, as I tend to do tried to substantiate that with data.

[00:33:50] And a lot of builders don't want to build rental, right? Like they just, you know, they know what they do and they're good at building up and they're good at building up product and delivering it.

[00:33:59] So we're going to go and buy rentals and they all have portfolios. I mean, they're not hard done by buying a means, but it's usually, I would decide of the stuff that they're building even right? It might even be a different asset class in some cases.

[00:34:11] Yeah, I think well, I think creating housing well and owning housing well are very different business holders, right? So it's hard to do like to be fully integrated to that and I think it's easy as a policy maker to oversimplify that and be like, like, I do think the build right.

[00:34:23] I do think that the person who built it is the right person to keep it, right? Like in some cases for sure. They're a good person to be a landlord. They're like very familiar. Like if something goes wrong, they can be like, I don't have a fixed view.

[00:34:33] Who built that unit? Yeah, and him in the next thing, you know? Like it's kind of, and they do that anyway with terrions stuff, right? Right? Or any other building warranty, right?

[00:34:41] So but so I have this before and after slide where I show, so I'll do the before and you can do the after.

[00:34:47] So before build or build a unit, an investor bought it. The investor is paying maybe $3,700 per month for the mortgage and someone rented that unit for $3,500 a month. And the investor loses money on a monthly basis for that rental unit to exist.

[00:35:04] Now that mortgage basically gets spread over 50 years rather than the classic 25 years, the investors buying it with. So the builder builds the unit to build, it keeps the unit. And their mortgage payment on that same unit is maybe let's say $3,000 a month as opposed to the $3,700.

[00:35:24] And they can still rent that same unit for $3,300 and that's based off of CMH's debt service coverage ratio requirements of 1.1, which means a 10% rate of positive cash flow. Yeah, oh man, DSCR, my baby. I didn't think you're going to bring it in here.

[00:35:44] Don't get all sap you on DSCR come on. You know how Oxford dictionary does like a word of the year? That would be mine. And Sherwin Williams actually does a paint color of the year.

[00:35:56] We need an acronym of the year. The Oxford word by the way is Riz, the word of the year for 2023, which is I just learned this and looking it up in writing this episode.

[00:36:05] Why do we use word online to find a style term or attractiveness and one's ability to attract a romantic partner? And last time I tried to use Gen Z terminology on the show, it did not go well. I thought by Symbussen was taking public transit. So there's that.

[00:36:20] Yeah, you know what's funny is we actually we were looking up to both no way. Handsome charming and attractive. Maybe the name. He was on our original podcast years ago. Yeah, good friend of the show. Riz if you're listening. This one's for you.

[00:36:36] And I say, Riz all the time. I know you're probably wondering what it means. And I'm not going to tell you because I haven't been using it right. My Riz.

[00:36:48] Anyways, sure what name is paint color for 2024 is upward. That's a word that I know. Yes, AKA sw6239, which is usually what I say instead of upward. I'm a very technical guy, which is described as a breezy blissful blue.

[00:37:07] The color found when we slow down take a breath and allow the mind to clear. No, man. I can't wait to paint over some light switches and power outlets with that one. Yeah, sure it is definitely the best paint for that purpose. It sticks to everything.

[00:37:23] Well, our acronym of the year sticks to everything as well. It is DCR and is the most important thing for you to know this year. It really is. And you really do love a good DSCR don't you?

[00:37:34] I feel like 2024 is just the year of the DSCR from here right now because I've been looking at a lot of deals in the states and in basically as a Canadian. The only way that you can finance deals well is through DSCR loans, which is literally just alone.

[00:37:46] That basically they say as long as it hits our DSCR, which is like a 1.25 there. The truth is the reason that this year is the year is because the numbers are so tight on everything.

[00:37:58] And we're going to go through an amazing report from Cushman and Wakefield that shows you how tight those numbers are on single family investing in Canada. But the numbers are so tight that it's not like we get to decide who or which deal is better.

[00:38:12] It's like if a deal fits the debt service coverage ratio of a lender, then the lender decides if the deal is doable. That's it. Like and then you do it. Yeah, we'll usually yeah.

[00:38:23] And so in order so when a lender decides if a deal is getting done in today's market, they use a debt service coverage ratio DSCR. Not a cap rate, not a gross rent multiplier in sites just a DSCR.

[00:38:35] I mean, cap and GRM are great for us as investors to compare property side by side before we take them to the lenders. But the lenders they just want to know if their rent will pay the mortgage. That's it. And how do they do that? Did the DSCR?

[00:38:48] The Dan service coverage ratio. That is my birth name true story. It's the government name on the ID. Before we wrap this one up Dan give us a quick reminder of what the debt service coverage ratio is. Please.

[00:39:02] Yeah, so the debt service coverage ratio is a crucial metric in real estate lending that measures a properties net operating income divided by its debt service. So can the income of the property then net income of the property service the debt?

[00:39:14] And so if it's higher than one, that means the property is cash flow positive. Usually you won't see a lot usually the lender wants a little bit of padding there so they want to see a 1.1, 1.2, 1.25 for some of these DSCR lenders that I'm seeing in the states.

[00:39:26] 1.3 if it's below one, if your debt service coverage is below one, then you're the condo investor who is losing money that I described earlier in this episode. And so pretty good rule.

[00:39:37] I think maybe by cash flow positive stuff that requires a debt service coverage ratio higher than one. That's what we like to do around here and we talk a lot about the importance of debt service coverage ratio.

[00:39:47] In the course and the community that we have built that I'm also slightly afraid to mention now because you called me a guru earlier and that kind of hurt my feelings. Sorry, I do not know how to identify as a guru.

[00:39:58] I'd want to identify as a cold plunge in podcaster, okay? That's what you will do this. Yeah, that's what you will. So I just share those affirmations in the mirror. That's it every morning's part before you do your cold plunge before and after. I think that's it.

[00:40:11] Thanks so much for listening to everybody. I hope you got a ton of value out of knowing and understanding what the national housing strategy is hearing Canada.

[00:40:21] The programs underneath it, the goals and the shortcomings as well that we're seen in the market and those shortcomings in our opinion are just opportunities in disguise. So go figure out how to take advantage of them. Thanks so much for listening. We'll talk to you soon.

[00:40:38] The Canadian real estate investor podcast is for entertainment purposes only and it is not financial advice. Nick Hill is a mortgage agent with premier mortgage center and a partner in the G and H mortgage group. Licent number 10317 agent license M21004037.

[00:41:00] Dinofotches a real estate broker licensed with rare real estate. A member of the Canadian real estate association, the Toronto real estate board and the Ontario real estate association.