The 5 Best Markets To Multiplex Properties

[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. Welcome back to the Canadian Real Estate Investor podcast, and thank you for making us Canada's number one real estate podcast.

[00:00:21] My name is Nick Hill, I'm a real estate investor and mortgage professional. And I'm Daniel Foch, also a real estate investor and a real estate broker. And today we're going to be talking about an awesome report from commercial real estate firm,

[00:00:36] Cushman and Wakefield in Toronto on single family residential real estate investment in Canada. It's written by Samantha Senella, Senior Managing Director at Cushman and Wakefield as well as Christina Garcia, Senior Associate at Cushman and Wakefields.

[00:00:54] Yeah, we're going to have to try to get these two or least one of them on the show to discuss this report because it's probably one of my favorite reports I've ever read, incredibly thorough and Dan. You and I have been through a couple reports.

[00:01:08] It's nice when you finally get the institutional level analysis paired with sort of this world of more small cap investment. This is something that you and I have tried to do here and with a lot of the research work that I'm doing as well.

[00:01:26] So it is I agree with you, it is nice, it's a nice collision of worlds and a lot of it is stuff that's just, maybe it's just affirming our beliefs.

[00:01:36] So that's why we like it but it is, it is a little bit of an Ontario focused report, but it's not, you'll notice it's not very, the Toronto's the center of the universe.

[00:01:46] I mean, it's not a good idea because basically nowhere in the GTA ranks in the top, investable markets in Ontario. However, I guess maybe to be fair to the national audience what we should also revisit.

[00:01:58] Fraser Institute report that shows the housing supply gap on a province by province basis so you've heard us mention this report before but it's called Canada's growing housing gap, comparing population growth and housing completions in Canada from 1972 to 2002.

[00:02:15] And it shows that the annual ratio of population growth to housing completion in the province is in 2002.

[00:02:22] We'll just go through the list here, I'll just quickly go through from, I guess I'm going from east to west so newfoundland and labored our 9.7 new people for every new house under construction.

[00:02:34] And then number is 5.1 Nova Scotia 7.7 new bronze week highest in the country at 11.3 Quebec 2.8 Ontario 5.5 Manitoba 4.6 Saskatchewan 8.2 Alberta 6.2 and British Columbia 2nd lowest in the country 3.5.

[00:02:51] There's a couple other kind of coast to coast comparisons that we're going to, I'm going to start bringing those back on the show because I've been doing a lot of research on those in right now.

[00:03:01] We're working on the picking and market segment of the real estate C.A. course and a big theme is when we're talking about housing creation which this whole episode is going to be about from the

[00:03:12] Cushman report that affirms our beliefs. You're an allot of cases picking a municipality that can help you that's an ally in getting your approvals and that's one of the biggest things like beginning the business of being a housing creator, you need a place that's going to let you do your job.

[00:03:28] And so we'll go back to look at some of those permanent processing municipal score cards stuff like that because we haven't touched on those in like a year and a half to years.

[00:03:35] Wow it's been that long and it's crazy. Yeah, good recap I mean that's this stuff from the Fraser Institute, you know, especially new bronze week 11.3 to 1.3 people to 1 house just crazy so lot of stuff to cover in this report.

[00:03:50] It's like 50 pages we've distilled it down to as little as we could while keeping all the really good relevant juicy information. So we're going to get deep into it but before we do that then I had to put this review in here because it's probably one of the best reviews we've gotten out of the hundreds we have so thank you very much for anyone that takes the time to go.

[00:04:13] So even just to rate the show five stars, but to leave us a written review it really helps the show and hello put the smile on our faces so it's worth it. Okay here is the review.

[00:04:23] I stumbled onto this podcast on the very first episode and have been hooked ever since. Finally, a podcast that has relevant content specific to the Canadian real estate market Daniel and Nick deliver Steven Hawking like knowledge with the whimsical flare of Willy Wonka.

[00:04:41] Let's pause for applause right there because it's good. They're never wavering commitment to delivering two perfect episodes a week is beyond reproach honestly guys love the show thanks for all the great advice and hope to work on a deal with you one day from Jordan 1980 Jordan.

[00:05:02] Thank you so much. I'm a great year Steven Hawking also newsworthy guy as of late not going to not going to get to that why.

[00:05:09] That's how it all took a lot of that yeah quite the pair there Stephen Hawking and Willy Wonka I guess that's you and I did and some weird alternate universe. Yeah cool I'm into it as long as I get to be Steven Hawking is smart fellow.

[00:05:26] So maybe we'll just drop back into the report here so tell me a little bit about it.

[00:05:32] Yeah so I mean first things first let's give credit what credit to do the report was researched heavily and published by the good people over at Kushman awake field that we mentioned at the top of the show

[00:05:42] And if you're not familiar with Kushman they're one of the biggest commercial real estate firms in the world.

[00:05:47] Yeah and I guess along with I think that it's kind of like similar to the banks they have the big six sort of thing going on down there so like jail all call yours CBR and a few others.

[00:05:58] I used to work at CBR and I think you you kind of brush shoulders with a lot of these folks in in your past life yeah yeah you used to be our crew here.

[00:06:07] So Kushman is again one of the largest real estate service firms in the world so they do a lot of different things over at Kushman they got over 50,000 employees in 400 different offices and about 60 countries.

[00:06:19] And they've got about 9.4 billion dollars core assets and and servicing properties they do facilities and property management, leasing they get involved in capital markets, valuation and a bunch of other real estate services.

[00:06:34] So the point of killing everyone this is they're credible they know a thing or two about real estate.

[00:06:40] Yeah, they are definitely qualified to be talking about this it's a good report it's very thorough they made it really easy for us to summarize it with excellent headings and executive summaries and visuals and all that stuff and this I feel you could honestly almost be to full episode so hopefully it will become two episodes if we can get some anthem on the show.

[00:07:00] Yeah that'd be great so let's get into it the report starts by contextualizing Canadian single family so not something we talk a ton about on the show unless you're buying it to convert it but.

[00:07:12] Which is what the report is all about if contextualized Canadian single family rental investments against our big brother to the south the USA and their market and we've seen a lot of things if you listen to bigger pockets we've seen a lot of those groups go in.

[00:07:27] And by a ton of single family homes, but we've also seen the likes of blackstone and other hedge funds go and enter into that market as well.

[00:07:36] Yeah it's funny I post a lot of stuff on blackstone because they know it just gets the TikTok kids fired up right.

[00:07:42] You're guaranteed to get like a hundred thousand views and a bunch of comments of people saying you'll own nothing and be happy if as soon as you mentioned blackstone. Yeah that's the second.

[00:07:52] I literally like did a TikTok recently like my hook was just blackstone I'm going to try it again coming like that is like blackstone and then I said what they did right. I did do one soon that's baby bovers and then see it then that'll be my hook.

[00:08:06] That should get the jenzys fired up seems to you so blackstone pretty newsworthy lately in the context of Canada because they just bought Toronto based trycon residential this like just happened.

[00:08:16] So headlines has blacks on to acquire trycon for $3.5 billion dollars the deal gives blackstone more than 37,000 homes owned by trycon.

[00:08:24] Wow yeah now to just add to that an article in housing wire goes on to say that trycon which owned just over 37,000 homes at the end of the third quarter of 2023 was one of the three big publicly traded institutional home buyers.

[00:08:43] Most single family rental giants are privately held or consolidated into a broader reat a real estate investment trust which we've talked a lot about in the show. By the close of Q3 in 2023 American homes for rent. It feels like my dad made the name for that one.

[00:09:00] Like it's the number four you guys can see as much American homes the number four rent. So something that you think you might see on a front lawn kind of thing but definitely like a 90s like they built that brand and like a Microsoft.

[00:09:14] Yeah public Microsoft publisher like logo and to be fair they were probably one of the first people to replace four with the number four so hey well well done and try it.

[00:09:25] Two bad because they own over 58,000 single family homes so not really the front yard operation like we're describing also innovation homes with a whopping 76,000 single family homes. They and and trycon essentially is being compared to these to these other three giants invitation homes that is not innovation homes.

[00:09:46] Invitational rebranding that's this Lexi coming back to haunt me on on a live record in here. Okay so now let's think about this when we consider cushments report right so the evolution of the 4.4 trillion dollar single family rental sector in the United States 4.4 trillion dollar market.

[00:10:09] Serves is a case study to demonstrate how conversions of individually own single family homes to institutionally owned rental units can create a dual benefit to renters and investors alike.

[00:10:20] This strategy provides a quality rental housing options for tenants and can generate predictable recurring cash flows for investor owners and let's be real like a lot of people don't we're I think we're growing like a lot of it's that black black stone world economic forum tick talk commenters like oh you're nothing to be happy.

[00:10:37] But I think you're starting to see a lot of people just be like not interested in yeah yeah when do I get to the be happy.

[00:10:47] I know nothing I'll let my hand to the board you guys yeah yeah yeah no I think a lot of people just don't want to want to own it like I think you just see I think like and maybe it is like this culturally embedded thing that we're being taught by the black stones of the world or maybe it's just like they've realized that it's not.

[00:11:06] Realized that it's not all it's cut out to be or maybe it's also just cyclical right like maybe in 10 years from now this whole sentiment and and all these ideas will be washed away with another bull run like I mean.

[00:11:18] Well in order to own a house you got to be able to afford it this is pro tip by the way this real estate of you share tell you yeah no I know a lot of people a lot of people miss that one the past couple because that for a hook.

[00:11:30] Yeah so in order to own a house you have to be able to afford it and a lot of people can't afford houses right now so this is where we are like maybe that's has something to do with it.

[00:11:39] Maybe yeah let's this I put so much of this report content in here so we should probably keep this going yeah we'll keep the banter to light here so.

[00:11:48] Bachelor for it goes on to say that with time and investment this sector being the single family rental so if you hear us say FSR that's what that means.

[00:11:58] Has the potential to develop into a professionally managed institutionally owned commercial real estate asset class within the larger rental housing spectrum in Canada similar to what's happened in the United States or the last couple decades.

[00:12:13] And in this report they aim to showcase that the market potential of a single family rental as an asset class within the broader housing commercial real estate sector in Ontario which is of course can is most popular region.

[00:12:26] The report focuses on 34 different markets which we might not have time to touch on in all of these but again this likely would become a two-parter focuses on 34 markets of different sizes and characteristics within the province of Ontario.

[00:12:41] But the single family rental strategy can obviously be applied to your area wherever you're listening to this across Canada.

[00:12:49] So the report attempts to put the Canadian housing market in the context with G7 counterparts although it kind of blows them out of the water when you look at it like it just it doesn't make Canada seem compelling compared to the direction of the G7 when you look at rent rent.

[00:13:03] And we've talked about this like the economists has a great chart on it when you look at price income in price to rent in Canada.

[00:13:09] It's just doesn't look at all that good not a great picture but yeah, I mean apparently it's trying to convince us that the housing demand and market factors in Canada could make an a prime location for large scale rental housing investment like this.

[00:13:24] And the report goes on to suggest that we should look at the US as a shining example of how investors can adapt the institutionalization of the single family rental sector to the Canadian market because you know what work so well in the US should surely work here in Canada too.

[00:13:40] You don't sound all too convinced though. I mean, I think the report does outline it like there are really only five markets where this actually makes sense and so I don't think the numbers work in most places.

[00:13:53] And in order for it to work either rates would have to be much lower or cap rates would have to be much higher which means that prices would need to come down substantially and I think that's just unlikely given the absence of supply and like I'm pretty bearish but I still just think like to see a meaningful compression to the point and let's just rewind here like.

[00:14:11] Let's look at core development whose name recently showed up in the news again with the headline Toronto based developer vowed to buy that vowed to buy up $1 billion in single family homes plans to add 10,000 more houses to its portfolio.

[00:14:23] Now this is the important part subheading says the new goal will include both existing and newly built houses according to core development group CEO. So you have to be creating units for the numbers to work you just have to.

[00:14:37] Great great points. So let's go back to the first announcement on this from 2021 Toronto based core development group plans to buy $1 billion worth of single family homes and convert them into rentals has triggered intense debate over the political impact of the investment strategy on the Canadian housing market.

[00:14:57] No surprise there the Canadian the sort of the company has said it intends to buy 4,000 rental units in Ontario Quebec BC and Atlanta Canada by 2022 so this is currently happening right now.

[00:15:11] As first reported by the global mail the idea is to buy these homes that can be split into two units we've talked about this once or twice I think then with a second unit in the basement and then turn both over to the rental market.

[00:15:27] Now core brain investors like private equity firms real estate investment trust and financial institutions have become an increasingly large presence in Canada's multi family apartment rental sector.

[00:15:39] An investment strategy focused on turning single family homes into rentals will already come in the US is thought to be a first in Canada I guess from that institutional level if it's profitable experts say it will likely invite imitation from other corporate real estate investors.

[00:15:58] So they were originally trying to make it work with sort of a blend of single family and doplex residential but I think a single family just didn't work in most markets and I remember there were selling some assets as well that got a little bit of media.

[00:16:10] The only stuff that worked was stuff that was duplexed and that's outlined in that article and that's a key theme you basically have to be multiplexing houses to cash flow in today's market.

[00:16:21] This means investors have to be housing creators you can't make money in real estate investing in Canada right now if you're not having more than one unit in a home and most I think almost all markets maybe there's some small friends markets where rents are so much higher than mortgage carrying costs that it would make sense.

[00:16:42] This is a good thing for my perspective access demand like if there's so many people that want to have there's so much capital that wants to spill over into the ownership market out of just owning your primary. It should be creating housing so it's a good thing.

[00:16:56] I think we're like totally fanboy when we're reading an article on here before about how well it explained things.

[00:17:25] Yeah well this article is a reflection of that she describes it very well so here we go after being vilified for its plans to buy one billion dollars worth of houses in Ontario and then turn around and rent them out.

[00:17:38] Core development group limited says it now also wants to buy rental houses from scratch is to rental has the little rental houses for crash right on a roll tonight here.

[00:17:49] It's been two years since course founder and chief executive officer Corey hotton told the global mail that the company would buy hundreds of detached houses in mid sized southern Ontario markets. The plan was then to add basement sweets and turn those units into rentals.

[00:18:08] Mr. hotton did not anticipate the ensuing wave of outcry as company was accused of profiting from rising rents taking houses away from Canadians and contributing the pandemic surge in home prices the news added fuel to the debate over the role of real estate investors and whether properties should be considered assets or homes.

[00:18:25] Since then high mortgage rates have made it much harder for individual buyers to afford their own homes and these high borrowing costs have kept more people in rentals which has in turn led to a shortage of those.

[00:18:36] And the federal government is now pushing the private sector to create rental specific apartment buildings and has reduced development costs through DC's HST with tax breaks and also cheaper financing this is from the article what cheaper financing might they be talking about.

[00:18:55] It's something that you and I are talking about. But must we don't know anything all day every day these days yeah I mean honestly they really nailed it on a lot of things in this article that we've been talking about on the show for.

[00:19:06] For quite some time here the first thing being building less than five units you pay no development charges to get the advantage against the big developers and then if you decide to build more than five units.

[00:19:20] You get to use the MLSLEC product which is you know the best leverage the best rates along the same monetization if you haven't heard us saying it's praises you're not listening to enough of our content. I'm just I'm surprised you haven't changed your name to MLSLEC to it.

[00:19:38] Yeah maybe we should get Corey hot in on the show honestly that's I will call that an official call out if anyone knows Corey please tell them to come on her show actually I literally asked him today in a publicly an a comment on LinkedIn.

[00:19:49] Yeah hello that totally changed my follow up totally shameless now in the open not even a DM slide so we can you know reject you and private. Yeah, no you gotta just what do they say what are the kids saying these days shoot your shot.

[00:20:02] Yeah we should also try to interview some of the private equity groups that we work with that land bank who are looking to do similar things basically looking to fund these types of rental subdivisions at scale.

[00:20:15] So as long as it's stick frame construction in a suburban market and a minimum of 100 units.

[00:20:23] Yeah I mean if you don't if anyone listening knows or has projects of that scale that builders are looking to build this rental potentially with an equity partner just give us a shout we have a couple of groups interested in those kind of deals.

[00:20:38] All right I think we've we've teased this report enough in the context of a bunch of different news so let's just dive in so it says.

[00:20:45] The development of the single family rental class in Canada can number one provide the solution to the systemic shortage of housing and number two provide an investment strategy in targeted single family residential. And it's as an attractive and growing sector.

[00:21:01] Yeah it also presents the evolution of the single family rental sector and again compares it to the US and Canada but specifically Ontario so it identifies transferable. SF our strategies and explorers opportunities to approach the Canadian market maybe differently than we have been.

[00:21:20] So it lists some benefits here of the single family rental strategy in Ontario and they include. And so remember when you're when we're reading this to you that this is christman and wake field this is being presented to an institutional audience.

[00:21:33] So while all of these advantages exist for us as as regular investors small cap investors these are also advantages that are being presented to large like the course of the world as an example like the black stones of the world or the invitation homes of the world.

[00:21:50] And so it's just fascinating for my perspective because we talked you know even when we had sasha from great broke on the show and he was going through a bunch of different strategies and you were like,

[00:22:01] yeah this is basically exactly what we tell our audience to do just with four extra zeroes at the end of the night so.

[00:22:08] So let's kick this off so it says converting renovating and densifying single family home residential properties can be an expedited solution to address the chronic shortage and quality of housing in the market and a big piece of that is. So literally just what they're saying is agility right.

[00:22:22] So that and again they're talking to the audience of institutional investors so hey mister institutional investor rather than taking six years to build a condo building.

[00:22:31] Maybe start flipping or start converting individual homes to do plexus and that's literally what core did yeah and great point Dan well we're on that let's not forget that a lot of those institutional and level investors have been kind of burned on some of their investment properties in the last couple years specifically if you're in the office space right so there.

[00:22:50] They've got capital to deploy and to real estate assets and they're just looking at what assets can have the best yield right and agility and and a potential you know.

[00:22:59] ease of liquidity for these guys is is is a huge factor it goes on to say that this is another benefit working with existing housing stock aligns with an environmental social and governance mission so that's the ESG stuff that we hear all about.

[00:23:14] Help produce the carbon footprint associated with the new construction will also offering housing at more affordable rental rates compared to what is financially possible with new construction so this is saying.

[00:23:26] Hey the stuff that already exists is great we can buy it and make it better and it's cheaper to do that than going and building new stuff. Yeah.

[00:23:35] Next is that the single family rental business model has been tried tested and true and proven in the US and so in that they've been.

[00:23:43] So in that they say that investors and growing markets like Ontario can benefit from being early adopters early movers fast followers as shown by.

[00:23:53] The ones who were in the US during that last real estate cycle and I mean this is kind of what we're doing with the fund that we have you know the exactly the best is that we have it's.

[00:24:04] And we know individuals who have done this well and sold large portfolios to some of the groups named in this in this episode prior so it's it like this exists this is real and and if you think if you really if you're if you're.

[00:24:20] Good at putting together duplex triplex four plex portfolio's good at acquiring good at stabilizing good at maximizing those assets.

[00:24:30] I can tell you right now that the cores of the world and the black stones of the world they don't want they don't want to be buying duplexes you know and by when we gather 20 30 duplexes so if you can do there's a huge left to be to be made available to being the person who puts that portfolio together just at just so you're.

[00:24:48] Yeah, no really great point right I mean if you're looking to exit well one first of all approach us because we'd we'd love to help you with that or potentially buy it but yeah the next buyer for your portfolio may not be another small cap investor they may be you know a.

[00:25:03] The billion dollar multi national hedge fund or private equity firm yeah and a lot of these groups have like they benefit from economies of scale so they don't like they're looking at cap rates that or let's it let's just we'll say cap rates so you know maybe you buying at a five cap and you're selling it at a 4.75 or something like that and I mean the incremental value.

[00:25:24] The real thing that you have is a portfolio builder is is substantial. Yeah, and that's that's a 25 basis point change right for sure and I we did actually do a full episode on on buying a portfolio versus building a portfolio I can't remember a number it is but.

[00:25:38] Go back and check that out if you want to hear more about about you know that yeah the next the next benefit here is the scattered single family rental they trade at higher spreads than built to rent or conventional or purpose built multi family rental development so there's more money to be made with.

[00:25:56] Well yeah and I think the spread pieces also like when you're you know built to rent like a large purpose built rental building is would trade like at you know whatever market cap rate is from multi family building.

[00:26:08] Whereas these single family rentals they still have a layer of value that they could be occupied by an end user and so if the end user still willing to pay a little bit more there's that's where the value comes from right.

[00:26:21] The next one is layering on a densification strategy to the acquisition rehabilitation of residential properties through ADUs not sure if ever heard of these we don't talk about them very often on the show.

[00:26:33] So adding in basement apartments ADUs detach a user substantial renovations like an enhanced investor returns I mean this is all I just love it this report is just speaking our language it's like.

[00:26:43] This they've taken everything that we've talked about on the show and just to still the down and to like the most perfect.

[00:26:48] And it's such a great like what will put the link to the report in the show notes, but you have to go read this it's it's really really fantastic.

[00:26:56] Yeah the next benefit that they've got here and I was waiting for this one of course the the old immigration piece so Canada is expected to experience the greatest percent increase in immigration across all G7 countries.

[00:27:08] Providing a multi year tailwind for rental demand and need for new supply of quality rentals again great point something we've been talking about for a long time.

[00:27:18] Yeah this was recently outlined in the Bank of Canada's monetary policy report today so when Wednesday January 24th bank of Canada had an announcement today they held nobody was surprised.

[00:27:30] But I always get excited when they do their voluntary policy report. They didn't mention housing that much in it, but they did show one chart which was it was already released by I think it was Doug Porter from BMO who is an economist.

[00:27:44] They basically used the same chart. It just shows rent CPI between population growth and they're literally like the same lines so there's that which was you know that they there's data to show like population growth leads to increase in rents and that as an investor,

[00:28:03] I know why portion of your you know you're cap rate and so it should bring in a value of your property up and increase your income and all of those wonderful things as an investor.

[00:28:13] So yeah exactly and here's another piece of information that we brought up just once or twice in the show the current 2.3 million units projected to deliver by 2030 is roughly 3.5 million short of the need for Canadian housing and that's per cmHG from their report in June of 2022.

[00:28:35] Yeah so let's also not forget that in 2022 Canada's population grew by over a million people for the first time ever fueled almost exclusively by immigration and non-permanent residents growth

[00:28:47] and over the past decade Canada has built an average of 188,000 homes per year and that includes all types of housing however to keep up with population growth and additional 100,000 units would need to be wouldn't would have been needed to maintain that 2016 ratio of housing to population.

[00:29:09] Now Toronto approximately 28,000 units were approved annually from 2016 to 2021 but only an average of 15,000 units were actually built so almost almost half. Yeah to me this is you know you often see people post the GDP per capita chart and say Canadians are getting poorer right we're getting more poor.

[00:29:31] So GDP per capita in Canada is falling and I agree but it like that's just data but the way that that is most likely to materialize from my perspective is from that we're all going to feel it is from housing the biggest portion of most of our incomes.

[00:29:50] And so what it means for the average Canadian it doesn't mean you're going to buy less groceries or you're going to go hungry or you know I mean for the average Canadian right it means that you're not going to buy you'll never own your dream home right.

[00:30:04] Honestly like you're not going to step up from the house that you're in to another one the same way that generations before us did right and so there's like there's limited upward mobility but there's also just limited household mobility and so what and what the biggest way that materializes we see this everywhere else in the world like let's look at London right 200 years ahead of us.

[00:30:28] When everyone in the world wanted to move to London they did and all of the townhouses in London got cut up into flats.

[00:30:35] Well what's happening in Canada we have all of these McMansions and what are they going to do they're going to get cut up into flats we have we talked about this all this time but access bedrooms.

[00:30:44] We have a bunch of boomers that have houses that are too big and we have too many people for the amount of houses that we have to just do the math and what like you know just do the math here it's not it's not rocket science if if we're not building.

[00:30:56] More if the high rise in builders aren't building more units because there's no investors lining up to buy cash flow negative condos anymore what's going to happen existing housing stock gets converted to rental supply. So doodle housing production report says.

[00:31:10] And it's housing ratio for 170 one he housing units per 1000 population is among the lowest in the G seven nations to achieve the G seven average and additional 1.8 million homes would have to be built and it's remarkable from my perspective because we still even with that we still have some of the highest square footage per capita right so it's it's fascinating.

[00:31:29] Yeah another fascinating kind of jaw dropping stary here is per the Ontario housing affordability task force. average house price and Ontario skyrocket 181% in the 10 years between 2011 and 2021. 181% well at the same time in that 10 year period the average incomes only grew by 38%.

[00:31:58] There we go they also quote the association municipalities of Ontario report that they had I haven't even seen this report but the new construction requirements that differ significantly among municipalities.

[00:32:11] So and this is where I was talking about the approval timelines thing and the municipal scorecards and I think build puts out the municipal scorecards or somebody else who does it I can remember we covered up one of the reports maybe last year yeah.

[00:32:23] So approval timelines range from 14 months to three years the shorter end of this week is yeah I know and so and this is thinking about or comparing to the US is more challenging markets in the US like San Francisco as an example.

[00:32:37] The longer end is obviously going to be worse where the housing crisis is exacerbated by the lack of supply right and so this is where it's tricky as an investor it's like if you want to be a housing creator.

[00:32:49] You want to municipalities going to let you create housing but if you just want to be a speculator you probably want to municipality that doesn't let you create housing because you benefit more from the scarcity.

[00:32:58] So during the approval period a single family development may need to undergo anywhere from 17 to 28 to 28 different studies as part of the processes. Massive seven just wow 17 to 20 so he's like what are you studying 28 times to.

[00:33:13] Yeah sure that you can build a house here yeah and see a major to take on this as well so. Yeah there's a land survey so data collected from the 2022 municipal land use and regulation survey unearthly compelling connection between land use regulations and housing affordability.

[00:33:34] Particularly in highly regulated cities. Released in July of 2023 the survey shed further light on the impact of stringent zoning laws height restrictions and other regulatory measures on the availability and cost of housing.

[00:33:51] Yeah so in CMH she's 28 team report and by the way you can just Google that by 2022 municipal land use and regulations survey from. From CMHC they they released an article on in July 13 2023 it says approval delays linked with lower housing affordability well who would have thought so.

[00:34:09] And they actually rank all of the cities like it's just a shame a wall of shame basically GTA and Vancouver are the worst actually GTA Vancouver Ontario and BC are all the worst and then yeah we'll go we'll go through and I think I have it in here.

[00:34:23] Yeah do sweet 2018 report escalating house prices they cited municipal land use regulations is a potential factor contributing rising house prices so just you know if only they mentioned that earlier five six years ago right anyway there there was a lack of data draw definitive conclusions but they worked closely with statistics candidate developed and conduct a survey to close this crucial gap so it only took the government's six years to start acting on this.

[00:34:52] This advice from their own housing history the objective is to measure the degree of local land use restriction and municipalities across. Canada which would though it's a did while and we'll get to that we'll get to the list.

[00:35:05] Yeah so the municipal land use and regulation index captures the degree of land use regulation in each city higher values indicate more regulation and smaller values represent less regulation.

[00:35:19] And we're to easy understand this these values have been normalized relative to the GTA which will be 100 that'll be represented as 100 the GTA the speed of improving new developments is the most crucial survey factor. And the difference is in housing affordability among various land use regulations.

[00:35:39] Okay so let's take a look then at the naughty list on who is considered the worst for approvals in Canada so I'm going to start off I'm just going to go through the list.

[00:35:48] I'm going to read the city and then the municipal land use and regulation index so GTA is 100 so we know that they're well they're the top of the list so GTA 100 greater than covariate and 98 the rest of Ontario and 80 so 80% of how bad Toronto is the rest of BC 79 the territory 79 greater Montreal area 77 greater Edmonton area 73 at Lantic Canada 72 Manitoba 71 the rest of Quebec 71 the rest of Alberta.

[00:36:17] 608 and who has the best permitting municipal land use in regulation index in the country to scaatch you on at 66% way better way better than that 100 index on the Greater Toronto area so why don't you take me through the same list starting with the GTA on approval delay index.

[00:36:34] Exactly so we'll start off again the GTA ranks at 101 but it is not first on the list the Greater Vancouver area. Do we ever agree to call that the GVA Dan I think we got.

[00:36:46] No I think we got bad I think they can't hold us for trying to do that. The lower main main main main.

[00:36:50] I think the same person they got they think they gave you they gave us a negative review on the podcast for you calling the Pacific Midwest Pacific Northwest.

[00:36:57] Yeah, yeah, I've made West and then we I think we pulled it up a week of media that was a Wikipedia. Yeah, yeah anyway let's I don't know. Maybe the guys probably still arguing with Wikipedia.

[00:37:08] Yes definitely hasn't donated to Wikipedia so the Greater Vancouver area actually takes longer more approval delays there added they coming at 101 the rest of Ontario drops by almost 50% they're down at 52 whereas the rest of BC is at 60 we've got the territories at 36 greater Montreal area jumping back up to 71.

[00:37:32] So longer approval delays there greater Edmonton looking pretty good at 38 again remember this is compared to 100 so we want lower numbers. Atlantic Canada 43 Manitoba 27 the rest of Quebec 51 the rest of Alberta 27 and actually the rest of Alberta beats Saskatchewan on this one is it comes in at 29.

[00:37:57] Yeah, and then finally if we look at the housing on affordability of all of these areas so basically this is your house price divided by income so house price to income ratio.

[00:38:06] So let's say make 100 grand a year greater Toronto area as an example is 9.25 so your house would be 925 thousand dollars relative to the average incomes in that area.

[00:38:19] So GTA 9.25 house price to income ratio greater Vancouver area 14.19 crazy for house price to income yeah so I don't know can you qualify a guy from mortgage of 14x income Nick is that thanks our banks are lined it up to do those.

[00:38:38] Yeah, so the rest of Ontario six times income is house prices are six times income BC 7.45 times income in territories we're starting to see some affordability house prices are 3.47 times income greater Montreal area the biggest of the the best of the large cities 6.63 times house prices to income greater Edmonton area house prices are 4.28 times income Atlantic Canada and Manitoba.

[00:39:07] The rest of Quebec the rest of Alberta and Saskatchewan are all in the threes for house prices to income ratio so that's where you're going to find affordability yeah yeah.

[00:39:18] So I will get back to the report here because I wanted I just wanted to add that same H.C. context because it's like everyone agrees with the things that are being said here.

[00:39:27] So for each housing unit in high density development every month of construction delay is estimated to increase cost by 2630 300 dollars according to a 22-build report has results of that shortage.

[00:39:39] Home ownership in Canada is increasing the affordable we have the highest priced income ratio among the G7 and since this is funny there's a graphic I mean we'll talk about it because since 2015 Canada's rental and home price growth outpaces all G7 and euro area countries as demonstrated by the following PIR and price to rent ratios PRR graphs both trends point towards growing demand for rental housing to temper the rise in housing costs in Canada.

[00:40:08] And if you've said it a million times on the show we're heading for rentors economy that eludes to basically an inflation driven case shaped recovery.

[00:40:16] If you want to survive that you kind of have to be the person who owns the hard asset so you're benefiting from inflation which by the way the bank of Canada in that Montage policy report I mentioned earlier the bank of Canada said that they now expect so first they're like oh yeah we expect inflation to hit target range in 2021 or 2022 now then it was 2023.

[00:40:36] And now it's 2025 in their most recent report. Just a single and crossing crossing it out and right the next year too.

[00:40:44] I mean a recession is the only thing that's going to get it there and I think that stuff going on in the red sea right now is it's a bit of another one of those supply chain disruptions like we saw in co-journ co-vide right so anyway hit me with this report and then we'll talk about these charts because they're they're kind of depressing.

[00:41:00] So due to the shortage, poll ownership in Canada is becoming more expensive Canada has now the highest price. I think I just said yeah you did okay. I'm making a reread stuff so let's just dump down here to the first chart here the price to income ratio chart.

[00:41:16] Yeah so I posted these on Twitter and I was like no matter how you slice it Canada is one of the worst places to invest in real estate in the G7 but sucks because we're the Canadian real estate investor pod customers supposed to say it's a great place to invest in there are great places.

[00:41:29] In Canada to invest which is going to be contextualized in this report. We'll try and get there soon as well. As a look to this list we should be the Italian real estate investor.

[00:41:40] Yeah well that's price to income so well so basically the first chart shows price to income which is measuring how expenses are relative to incomes it goes like this. So Canada 165 price to income ratio Germany 128 France 113 UK 112 Japan 103 US 94 Italy 88

[00:41:59] So we have the worst price to income ratio in the G7 now talk to me about the growth that we've seen in that.

[00:42:06] Yeah so Canada's price to income ratio has grown 49% well the USA has grown 40% where Germany has grown 37% and the OECD countries as a total have grown by 28%.

[00:42:22] And unfortunately we've also seen the most growth in price to rent ratio which is what we care about as investors since 2015 house prices relative to rental income have grown by 62% Canada 53% in Germany 42% in the USA 40% across the OECD 34% in the euro area 30% in Great Britain 29% in France and only 5% in good old Italy neck.

[00:42:51] I know you want to do that to the motherland. Yeah so there's they go on this housing structure key indicators I think we're getting short on time here so I do want to jump to just that the last I want to go through the markets quickly.

[00:43:08] Yeah I was thinking let's go to markets as a teaser because there's so much like this we're not even halfway through look like our notes on the show here.

[00:43:16] So I think we we yeah let's let's touch on the markets because I love I love a lot of these markets and Dan you and I so these markets so let's do this and then we'll we use this as kind of a teaser to say that we are going to do a part two on this hopefully with someone from Kushman on to actually talk about this and we can do a deeper dive into these markets.

[00:43:36] Yeah do you have it up in front of you are we looking at primary secondary and tertiary we looking at the stable as you further down so yes stabilized yields so 70%

[00:43:45] of the high-ish rents in here in the market so give me that list and you're Nick I know you and I both were grinning you know we read this in our listeners are going to know we were sending these to each other be like look at pay I think this like page five I sent it to a bunch of the.

[00:44:03] bunch of the guys I was like page five yeah they'll you'll know why when we see this okay. Wow they exposed us now now we actually have to compete with people on properties of them.

[00:44:13] You know to me to me this just means the good people at Kushman were have been listening to the podcast for a long time took what we said made it much more eloquent but it in a package and made us reread what we've been saying for a long time.

[00:44:25] Yeah I need to get their methodology because I would just love to recreate the same list coast to coast but anyway and we're going to figure it out we're in talks of cement that we're going to be like let's just do okay here or I'm just going to read these top five okay the first one Thunder Bay.

[00:44:42] Su-saint Marie. Chatham Kent and then we've got Sudbury and Cornwall absolutely love to see yeah couple couple beauty towns for sure big smile on my face there's a ton of other stuff in the list those are just the top five right there there's probably another 20 plus on this list on there's 34 in total.

[00:45:02] I think maybe with the part two of this episode then we we kind of really dive in on on these markets and I'd love to get you know whether it's Samantha or whoever graces us with their presence from Kushman to help us do a deeper dive on this but.

[00:45:17] Yeah I think I think I mean I could talk about this for another hour or two but we we try to keep these episodes around 45 minutes so yeah the only other thing I would mention is they also I will end that second profitable strategy which is to develop which is something we talk about a lot here but then they basically say you know markets with a 6% development yielder higher would be attractive to investors given you know the.

[00:45:39] Exit cap rates capital costs etc. I'm they used something called the yield on cost is basically a metric that investors used to calculate to assess a project based on all of the costs that you put in so.

[00:45:49] I paid this much for the project this is my return my my income on it that's the yield yield on cost yield on top of cost that's pretty profound right that's all these things sounds so complicated then we just like take a minute to think about them it's like okay.

[00:46:05] The one the one last thing I want to do so on that yield to cost and where the best markets to develop in will read those and then we'll shut her down.

[00:46:13] Well it's the same five there's a different or I know but come on is it let's just read okay five it's two same re number one and so again remember this becomes a function of the cost to develop in that area as well.

[00:46:24] This is where it becomes a little bit more dynamic so sues a Marie thunder bay and sues a Marie looks like over an 8% development yield on cost by the way yeah thunder bay just below an 8% yield on costs.

[00:46:34] Sudbury cornwall north bay and chattam Kent again so great markets stay out of them that there's not enough room in there for everybody top oh eight alt teams as well.

[00:46:46] Now I'm getting great markets we're gonna call it here everybody thanks so much for listening we will we will let you know when we get part two of this one out.

[00:46:54] We've already reset the cushman on it and I think we're I think we've settled up that we're having someone on correct in.

[00:47:01] Yeah I I think we had to reschedule last week so hopefully we'll be on short or in discuss this in a little bit more granular detail but I feel like this was a good start to kind of give everybody the meat of the report so that we can discuss it a little bit more.

[00:47:15] I don't know just more detail on some of these markets yeah and again get a get a third third opinion in here anyways on that note thanks so much for listening everybody hope you got a ton of value out of this report go check it out we'll link it in the show notes and more to come on this.

[00:47:31] 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.

[00:47:45] Licent number one zero three one seven agent license M two one as zero zero four zero three seven. Dino photos are 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.