The Cost Of Building A House & The 10 Most Affordable Markets

[00:00:00] Welcome to the Canadian Real Estate Investor, where hosts 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.

[00:00:16] My name is Nick Hill and I am joined every Tuesday and Friday by my dear friend, Daniel Foch. And today we are covering some breaking news and some other stories that you should be aware of here in the Canadian real estate economy.

[00:00:33] So the primary question is, are people going back to work? We look at the occupancy levels for downtown Toronto and we see what's happening. How does Canada match up against US cities? And I actually got some extra data for Australia, which seems to be leading the charge.

[00:00:49] Did you see that in the fact? I almost put that in here and I was like, ah, but I love that you did that. So yeah, we stack it up to Australia and other US cities to look at what's happening with Toronto.

[00:01:01] We also look at the manual life chief economist who said in a bold statement that it will take at least a decade before housing in Canada gets to affordable levels. Yeah. I, uh, that's Francis Donald that you're mentioning by the way, probably my one

[00:01:19] of my favorite Canadian economists. And I know she's, uh, she was actually on my, uh, my previous podcast and, uh, she's mentioned that she likes my tick tock videos. So hopefully she catches wind of this episode. I would love to have her on someday on the show.

[00:01:31] Would we consider her a friend of the show? Everyone's a friend of the show. I think you're either a friend of the show or a foe of the show. So next we look at development charges and the cost to build a home versus what

[00:01:42] the government wants them to be sold at to hit affordability metrics, which is a popular topic in the province of Ontario, especially right now. Exactly. And then finally, so that it's not all negative stuff here, we look at a recent

[00:01:57] report from Zolo where they outline the 10 most affordable markets to buy a home here in Ontario. So stay tuned for that at the end of the show. But before we get into that, as is tradition, let's read a quick review and remind you of a few things.

[00:02:13] So five stars, this review is entitled great, great perspectives, great banter, great voices from why me via Apple podcasts. So this is just a friendly reminder that your episode or your, uh, your reviews can be short and sweet and we will still read them on the show.

[00:02:31] Please, please leave us one by Apple podcasts or just give us five stars on Spotify. I think we have a lot of five star reviews on Spotify as well. Yeah. I believe we're up to like five, almost 600, which is, which is just amazing.

[00:02:44] Um, but before we get into the show, a couple of announcements, if you haven't heard already, Dan and I giddy up. We are going to the Calgary stampede and we are hosting a big bad event there along with our partners, Cash & Homes, Kelvert, Mick, and sponsored

[00:03:00] by the best paint company in the world, Sherwin Williams. So if you like cowboys and paint and the podcast and all that kind of stuff, and just having fun in general and talking to other real estate investors, go and sign up for that because there's only 200 spots.

[00:03:19] And I think there's 40 or 50 that were literally taken up yesterday. So, uh, that is just one event out of the series of events that we have 22 other 21 other cities across the country. If you are interested in attending an event or interested in getting

[00:03:34] involved in possibly hosting an event, reach out to us and, uh, we would love to have you on board. Yeah. 100%. Next up, what we've got the free webinar coming up on the 19th, uh, available on both of our free and paid school programs and check out realist.ca

[00:03:53] as well, if you just want to learn more about real estate investing. Highly encourage you to check out the free online community. There's great stuff happening there. Great, great conversations, lots to learn. And then finally, if you, if you just want to invest or have

[00:04:08] questions about buying or selling or getting a mortgage, we don't talk about this much, but I'm a real estate professional and Nick is a mortgage professional. And so we would love to help you. And if we can't like, you know, we will send you to the most qualified

[00:04:20] person that we have in your province because you know, you need to be licensed on a province by province basis. We, and we've been, you know, I had people we've sent deals to in. Edmonton. We just closed some deals. You've done deals in Vancouver, right?

[00:04:34] Nick working on a live one in Winnipeg with a new investor client. We just found an amazing investor focused realtor out there. She knows the market like the back of her hand. So yes, you know, Dan, it's funny.

[00:04:44] We, uh, if you put it like, yes, so what do you do? Like I'm a mortgage agent. I mean, we do many other things, right? We, we run the course, we run the events, we run the podcast, et cetera, et cetera.

[00:04:55] But at the very end of the day, we do help investors and we service them by being a mortgage agent and a real estate agent and being able to direct those clients, whether we can help them or whether it's someone in our

[00:05:09] network, our goal is for you to achieve your real estate goals. And we do that by helping people across the country. So as I said, I have a client, good friend that is looking at, uh, he's been looking for a while in Ontario.

[00:05:23] We looked at a lot of different markets, couldn't find one. And now he is looking at stuff in Winnipeg. It's like hitting the 1% rule, like the triplex is hitting the 1% rule. So really cool stuff out there.

[00:05:36] If you want to get involved or work with Dan and myself, please reach out. That's what we're here to do. But without further ado, Dan, I think it's time we get into our first story here. Yeah. First story Toronto offices.

[00:05:48] Are they opening back up the SRA Toronto office occupancy index? That's a mouthful would allude to the answer to that question being yes. So if you go to their website, srra research.org strategic regional research

[00:06:06] alliance, they show the office occupancy index as of May 15th, which is a month ago, so there should be another one coming out shortly, but it shows that the peak day, it's a really cool chart actually. One of my favorite charts.

[00:06:18] So it shows basically COVID or say office occupancy as of the pre COVID baseline average weekly is now at 65%. The peak day is Wednesday. As you can tell, if you've ever tried to drive on any road in the city of Toronto on Wednesday, 75%.

[00:06:37] The low day is Friday, which is 37%. So does Toronto have the strongest return to office in North America? From my perspective, and I posted a tweet on this Toronto's office return to office is outpacing all us Metro markets per when you compare this similar data to US data.

[00:06:59] The US Metro office occupancy shows Austin Metro with a 45 to 72%. So lower on, on the average as well as the highest, but higher on its lowest occupied Chicago being second with 29 to 69 Dallas 41 to 67. Houston 27 to 65 top 10 average for, I guess we'll go to New York as well here.

[00:07:28] That's 26 to 63%. Top 10 average for the US 31 to 60%. Everybody else, every other major city you can think of in the US would be below that average. And so Toronto is actually outpacing all of those cities. Now somebody posted in the thread. Do you have it up here, Nick?

[00:07:45] That, that the Australian, yeah. Okay. Can you, can you give me those ones? Cause I thought Canada was going to have it. Oh, you don't know. I have it here. So I can just, okay. Yeah. You, you pull it up. Yeah. Yeah.

[00:07:54] So in, in the Twitter thread that I posted, uh, somebody beauty named Bill McEachran actually shout out to bill said, uh, Australia seems to have the hardest core RTO return to office Australia office occupancy by CBD market in Q1 of 2024 compared to pre COVID levels.

[00:08:14] So I've got Sydney at 84% on peak day, 77% on average weekly. Melbourne is way behind at 62%. Well, but still 75% on AV or sorry, on peak day. Um, average is 62% Brisbane average weekly 83%. This is Perth is this is a crazy one. Perth is at 93% of pre COVID occupancy.

[00:08:38] They're basically fully back to work. Yeah. You know, I, I struggled to understand this because like in Australia, I mean, look, Canada, Australia, similar in a lot of ways. Okay. The one major difference that comes to everyone's mind is the weather.

[00:08:56] And I thought the, you know, the Aussies down under would be like, hell no mate, I'm staying. Okay. I'm just, I was good. No, keep it going. Come on. I'm going to the beach. So there was some shrimp on the Barbie. Is that what you're going to say?

[00:09:10] Yeah, literally like shrimp on the Barbie, the beach, you know, dingoes and the, and the, you know, uh, but seriously, like I thought for sure that Australians, especially compared to Canadians who, you know, we get a couple of months of what would be Australian type weather a year.

[00:09:25] I thought that, uh, Australians would be like, Nope, you know, we don't need the office. We're good outside and we'll keep working from home, but very interesting. I wonder what the sentiment or the driving factors are over there.

[00:09:36] It's, uh, maybe we'll return to this after a bit more research Dan and do a full kind of return to office. Yeah. Would you say we are, we will return to the office conversation? Yeah. The RTO see. Yeah, something like that.

[00:09:51] So, um, I mean, yeah, Toronto is, is outpacing at least in North America, Australia, we're not beating, but yeah, I guess you, you kind of had an interesting article that you popped in here in response to this, which was in regards to especially government.

[00:10:07] Cause I mean, there's been some pushback from the unions and it is funny cause it's like the government who was originally the one saying don't go to work and now they're saying do you go to work? And it like, what do you want?

[00:10:20] Hit me with this headline and read me some of this article. Yeah. So this is from the global mail, which does put out a lot of great, uh, real estate related content. The article is titled nearly half of the federal government's office space could be converted to housing.

[00:10:36] So up to 45% of the office buildings owned and leased by the federal government, which has vowed to transform much of its commercial space into residential dwellings could be turned into apartments. And this was said by a top architectural firm that has a lot of

[00:10:50] expertise in conversions such as these. And that architectural and design firm is Gensler, which has analyzed hundreds of buildings in more than 150 North American cities and worked with Canadian jurisdictions, including the federal government said that a significant share of the federal office portfolio has

[00:11:10] the characteristics that can make them suitable for that type of conversion. Now, Dan, we've talked about that type of conversion before on the show. And you know, the overall conclusion for the most part is that stuff is difficult.

[00:11:25] Now a lot of the space the federal government owns and leases is in buildings constructed in the sixties and the 1970s and those generally have a smaller floor plate, floor plate, the breadth of the building and access to natural light, two critical features that help make an

[00:11:42] office to residential conversion possible. Now just think about that for a second, right? Smaller floor plate. You, that just means more access to windows instead of a, you know, 25, 30, 50,000, a hundred thousand square foot floor plate where, you know,

[00:12:00] from the elevator, you are walking a minute or two, just to get to actual window or actual natural light. Some offices are just never going to be converted no matter what they're more likely to be torn down. So this is some pretty good news.

[00:12:15] Dan hit me with what Gensler's global leader of building transformation says here. It is interesting as well. Like I saw, there was some examples where they were hollowing out the building. Like I know people use the word hollowing out as like a hollowing

[00:12:30] out of the downtown if offices got closed, but they would actually, cause the floor plate was so big, they were creating like this like cavern in the middle that had natural light going into it. So you could have units on both sides.

[00:12:41] I don't know, like cause that's getting rid of your elevators and whatever. But, and I would imagine probably a lot of walking if you're living on the 10th floor, I guess. But yeah. So Stephen Painter, Gensler's global leader of building transformation

[00:12:53] and adaptive reuse said housing is the best option for the federal buildings because there isn't commercial demand for many of the properties the government currently owns and leases. It really is the only way forward. He said provided the 45% estimate to the Globe and Mail.

[00:13:07] They're just the least desirable of all office space. He's done work for Ottawa, but also mentioned, or he didn't, didn't want to provide details, but mentioned the 45% estimate is based on previous analysis that they completed for office buildings around the world.

[00:13:21] And I think, you know, one of the, I think we've mentioned this on the show before, but like one of the interesting illustrations of this is how Calgary has like a lower office occupancy or like, sorry, had a higher office vacancy rate, but has more people back

[00:13:38] to the office or a higher percentage of return to office compared to Ottawa because of the nature of the work. So oil and gas, natural resources are actually seeing the highest return to office. And that's based on a, I can't remember who did that study.

[00:13:52] It was one of the big firms. I was like, they're like Accenture or Deloitte or McKinsey. I'll pull it up, but whereas government work is seeing the lowest return to office, right? And so Ottawa is having like a really hard time getting these downtowns back.

[00:14:06] Whereas, you know, Calgary is seeing it, I mean, Calgary is ripping for other reasons, but and Calgary was already converting six million square feet to residential at the same time. So anyway, the article mentions that the globe identified some buildings.

[00:14:21] So do you want to talk to me a little bit about that? Yeah, of course. I just want to highlight one piece here, you know, Stephen Pager. I love how we just kind of had that little jab in there saying that when referencing the federal buildings,

[00:14:35] just calling them, they're just the least desirable of all office space. Yeah, they don't have the pool tables and the beer on tap and the kombucha on tap and stuff. I mean, I guess it would be kind of as people who kind

[00:14:49] of routinely take jabs at the government, I can't see it would be a hard. It's a lot harder for the government to get away with beer taps and ping pong tables, I think, and slides. You know, I mean, I think you and I would probably have

[00:15:01] some concerns with that as taxpayers if that's the office they were running. Couple Instagram posts, I'm sure about some of this. So yes, anyways, back to the article here, Dan, the Globe and Mail identified 154 larger buildings that were three stories and taller that were close

[00:15:19] to housing located in certain cities, towns and municipalities with more than 100, sorry, 10,000 people making them potential candidates for housing, either through residential conversions or by developing housing on underused space on the existing land that those buildings currently sit on. Now back to Stephen Painter, again,

[00:15:40] Genzer's global leader of building transformation and adaptive reuse. So this guy knows a thing or two about this topic. He estimates that converting up to 45% of the federal government's office buildings could produce about 50,000 housing units, which is crazy. That is the equivalent to 100 condo towers.

[00:16:04] So yeah, you know what? That could help. That could help things. Yeah, and that references, at the beginning of that article there, they reference the 154 larger buildings from another special piece they put out called Wasted Space, which it's called Wasted Space. Could Canada's underused public land

[00:16:27] be the key to solving the housing crisis? And it says Ottawa wants affordable housing on every piece of federal land, so how much of it is out there? And a Globe article analysis found enough to house 750,000 people, which is interesting because that's really half of what our population

[00:16:43] grew by last year, but it's still a difference. They're gonna learn pretty quickly, I think, that land isn't the problem probably, that construction costs and a bunch of other things. But anyway, I'm gonna read two paragraphs from the top of this article,

[00:16:54] and then we'll jump to the next one that kinda segues nicely. Near Halifax's downtown core, a shabby patch of land lounges in the middle of what urban planners call a superblock. City staff looking for future housing have been coveting this parcel for a decade.

[00:17:08] It's close to bus routes, connected to services, and large enough by their calculations to contain a cluster of towering apartment buildings with green space to spare for the 4,000 people who could live in them. Instead, this 14 acres of prime housing real estate

[00:17:22] hosts a one story Canada Post mail sorting depot and a parking lot full of trucks. Now that is a good use of space. Where are we gonna put those trucks? The city has grown up busy with new construction while the block with the post office property languishes

[00:17:38] like the slacker neighbor who gets in the way while you're trying to work. Wow, whoever wrote that, that is some good stuff right there. Yeah, that's a well written article and a great report. Anyway, so let's segue over to the next thing here which came from.

[00:17:55] I believe it came from the Dow Jones newsletter and Dan this is going back to your favorite economist here. Yeah, and it was Paul Viera on Twitter who's a journalist with Wall Street Journal. Great guy, I've done some work with him.

[00:18:08] That was actually, he was the first guy to put me in Wall Street Journal which I'm very grateful for so shout out to Paul. Awesome. Yeah, so says 10 years to get housing affordability back and that's a quote from Francis Donald

[00:18:19] who's just been on a social media tear lately like just absolutely crushing it with the content, putting out great, great takes and says, Manulife chief economist, Francis Donald says, it is going to take at least a decade before housing in Canada gets to affordable levels.

[00:18:33] She says Canada is struggling and that required or it will require low rates relative to the US for an extended period. So let's read this excerpt from the Dow Jones newsletter because it talks about this economic identity which I think is really interesting,

[00:18:49] especially like, I mean, I know and you know, we're obviously back. We're still trying to figure out our identity. We're going through a phase mom. But it's, you know, I mean, like you and I are very much benefactors of this being a thing, right?

[00:19:02] Like the fact that we could grow to one of the largest podcasts in Canada from talking about the Canadian real estate investor, it talks about this economic identity of housing becoming problematic, Manulife investment management chief economist, Francis Donald says some of the features

[00:19:19] of Canada's economy, most notably it's a reliance on housing to drive growth are now becoming problematic. She tells a Canada US conference that it could take a decade or longer for the housing market to become relatively affordable again, following a decades long run up

[00:19:35] in fueled by rock bottom rates. We are struggling at home, says Donald who is Canadian, adding that per quarter household formation is running more than double relative to new homes built. And actually I think the original interview that I did with her was really talking about

[00:19:50] people moving from cities like Toronto to Montreal, which I believe is like kind of the, one of the moves that she made and talks about that. Cause she's like a millennial as well, right? So it's not often where you get people

[00:20:03] in these economist positions who are really in touch with like the day-to-day struggle of younger people. And so that's one of the reasons why her analysis really fascinates me. Said household formation per quarter, household formation is running at more than double relative to new homes built.

[00:20:19] The gap is growing every single month. She adds that Canada is likely going to see a rerating of interest rates with rates needing to be structurally lower to keep the economy afloat. And that has implications for the Canadian dollar, she adds. So tough, tough slug ahead for Canada

[00:20:34] based on those comments. Yeah. Yeah. I mean, look, although this sucks, obviously, it's not really a shock. And if you've been following along the show for the last few years, this shouldn't be a shock to you either. It's taken us a long time to work our way

[00:20:51] into this problem, right? We just did an episode on Merbs, which was the multi-unit residential building program back in the seventies. And that was literally the last time we really cared about building enough homes. It's taken a long time to work away into this problem. And guess what?

[00:21:05] It's going to take us a long time to get out, especially when we are not seeing the cooperation that we need to from our governments who are now pushing for affordability, but seemingly don't really understand how it works.

[00:21:22] And that's a great segue into our next story here, Dan. This one is from Global News titled, developers say Ontario's new affordable housing prices will mean selling homes at a loss. And I don't think that's too much to ask. Go build homes and sell them at a loss.

[00:21:37] Why, you know, no, I'm kidding. Of course that's way too much to ask. Why would anyone ever do that? It is so funny, right? Cause people are always like, oh, you know, realtors are so greedy. Like they just want to make money.

[00:21:47] It's like, well, or like developers are so greedy. It's like, oh, like as opposed to everyone else who goes to work and does their job for free every day, like, you know. Yes. Everyone out there is working pro bono. Oh man.

[00:21:59] So Ontario's bid to build new affordable housing amid a cost of living crisis is hitting a bump as builders turn their noses up at a list of affordable sale prices released by the government for developers who want to qualify for particular rebates that the government is offering.

[00:22:17] So at the beginning of this month, June, the Ford government here in Ontario released its definitions of affordable housing for every municipality in the province, setting the price developers would need to sell at if they want to have some of those taxes and fees refunded.

[00:22:35] Yeah. So the definition is broken down by housing type and location across the entire province. In Toronto, for example, a detached house would need to be sold at $366,500. I'm buying. To be considered affordable. I'm done. Yeah. I'm done. Yeah. Sign me up. I'll buy six.

[00:22:54] And then therein lies the problem, right? So yeah, for that to be considered an affordable home and therefore excluded from some development fees. It would need to sell for $438,300 in Ottawa and $434,800 in Mississauga. This is the ironic part, right? Because Toronto, it's based on income, right?

[00:23:15] And so Toronto has a lower income rate even though the prices are higher. Yeah. So Toronto, Ottawa, so Ottawa is a good example where people are seeing some MLI select deals being done in cities like Ottawa, Mississauga where people are using the affordability stream,

[00:23:32] not just the energy efficiency stream. Ottawa, Kitchener Waterloo, I think. I was just on the phone with a friend of mine who's doing one there and they're using the affordability piece as well as the energy efficiency. So they're not as impacted by the changes to MLI select

[00:23:47] which we're gonna, hopefully we'll have Max on here to talk about that once he's done actually dealing with these changes because I think there's like a, you know, until the 19th basically they're just, everybody's just rushing to submit applications.

[00:23:59] But yeah, anyway, I don't think I need to dive too much more into this other than to say just reading those numbers aloud makes it obviously pretty clear to people that that's not gonna happen. Yeah, well let's do a bit of a deeper dive

[00:24:13] and a bit of a comparison here. Yeah, give me the math on that. Because those prices are just so far off from what the average price of a detached, this is all detached homes as well, by the way, right? This isn't like starter condos, these are detached homes.

[00:24:29] So again, Toronto needs to be sold at $366,500. Well that's compared to the average price of a detached home, this is supported by CREA, Wawa, every other piece of data out there that I could find to make sure these prices were good. Toronto, 1.275.

[00:24:46] So literally almost a million dollar difference. Ottawa's not as bad. Ottawa needs to be sold at 438,000. Well that's compared to the average price of a detached home currently at $758,000. Couple hundred thousand dollars delta there. Mississauga, this one is just so bad it's comical.

[00:25:08] Mississauga detached needs to be sold at 434,000 in order for developers to get some of those rebates and tax breaks and DCs waived. Well that 434,000 is compared to the average price of a detached home in Mississauga right now at 1.39 million, so again almost another full million dollar delta.

[00:25:31] I think we've got a little bit of a bridge to gap right there. A bridge to gap, yeah. Is that what they say? A gap to bridge, there you go. A gap to bridge, nice, there we go. Something like that. I think the bridges have been burned

[00:25:43] while we're on bridge idioms. Yes. And what is it, Crimea River or whatever, Justin Timberlake, the bridge? Avril Lavigne standing on a bridge. So Richard Lyle who is a friend of the show, he's actually a friend of the show. Love it.

[00:26:01] He was kind enough to have me speak at the RezCon Residential Construction Council of Ontario event a while ago talking about these affordability issues and he's quoted here saying, it's impossible for developers to avoid losses on any house built at those prices.

[00:26:16] Which I like, you know, and he said even if the fees were waived. He says I don't see that in Toronto. He told Global News. So, and I like, you know, here's the problem that you're likely gonna end up with if this even materializes into anything.

[00:26:29] But with MLI Select, you're kind of seeing the same thing take place where when CMHC uses the affordability to measure a unit, they don't count unit sizes. So all we're seeing is people saying, oh, we can, whatever, I'll just build

[00:26:43] the cheapest unit I can and that will be, will qualify for the affordability piece. The outcome of policy thinking like this that is, you know, where we're saying, oh, $366,000 unit which is just laughable on its own. Somebody's just gonna say, oh, like, you couldn't even build that

[00:27:01] and even without development charges. But, you know, there are some units in like a Hamilton as an example where, you know, you can get units in the fours, right? It might be achievable to build a unit in that price range but they're gonna end up just building

[00:27:16] like the smallest units because their input costs are visible on a per square foot basis, right? So every square foot of construction I build, I have to spend a certain amount of money. And so I can easily get numbers to shrink

[00:27:29] if I just build less square footage, right? It's like play, if I wanna get a lower golf score, I just play less holes, right? Like I can always beat you if I'm playing nine and you're playing 18, right? So, yeah, I know.

[00:27:44] Genius, genius method, I never thought of that. Yeah, I know. So that's how I shoot under 100 in golf. I just play nine holes. The case study of the costs for a home in Vaughan shared with Global News by the Building and Land Institute

[00:27:59] or Industry and Land Development Association or BUILD suggest developer could lose hundreds of thousands of dollars if they sell a detached house at the government's affordable rate. Well, yeah, I mean, good thing that nobody's gonna do that, I guess, right? So to qualify for fee rebates,

[00:28:13] developers would need to sell a detached house for 531,000 in bond based on the income there. The average price of land for a single-family home in the city is $482,000. So literally more than they're telling you to sell just a unit for. And construction costs are estimated at just shy

[00:28:31] of 500,000 and municipal fees are 168,000 with provincial and federal taxes coming to 139,000. The land transfer tax is 25,000. And in total the average costs calculated by BUILD come to just over 1.3 million for a home that would have sold or they'll have to be sold at $531,000 or less.

[00:28:54] So I'm not a- That's good math. I'm not a mathematician or a mathematician, but I know that even I know that this isn't gonna work. You know, Dan, there's girl math, right? There's all the post-broad girl math. There's boy math. I guess this is government math.

[00:29:13] Government math, baby. There you go. Okay, so obviously that is just pure ridiculousness. Onto our last article here, Dan. And now we're gonna finish things off here with a positive note. Our friends, yes, friends of the show as Dan and I are both contributors to Zolo,

[00:29:34] they put out a list of the 10 most affordable markets in Ontario. The article starts off by saying many Canadians are leaving Ontario for more affordable regions, east and west. And on the other hand, many first time buyers move on uppers and downsizers

[00:29:55] are still trying to figure out where to purchase an affordable property here in the province of Ontario. So to help the good people at Zolo, Jordana Kay and her team analyzed economic data from 97 cities and then ranked their data to find the most affordable cities in Ontario

[00:30:13] to buy a home. They consider things like population growth, the average sales price, economic strength. So we're gonna get to that list, but let's just do a quick reminder, Dan. Price to income ratio is one of the metrics that they use.

[00:30:26] So can you just remind our lovely listeners what that is? Yeah, so price to income ratio kind of goes back to what we were just talking about. Price to income ratio is a way of measuring affordability. The home price by the median household income,

[00:30:41] the result of this is the result is a ratio that helps gauge affordability of a housing by a specific region. What does a house price to income ratio indicate? It would indicate if it's high that housing prices are relatively expensive compared to the income levels of residents.

[00:30:56] Toronto would be a really good example of this. We were just talking about Toronto low income, high house prices. It can indicate housing affordability challenges that may imply that residents have to allocate a larger portion of their income towards housing costs. Yeah, wonderful, thank you, Dan.

[00:31:11] Now before we get into that list, they rank each one of these areas on the following criteria. So let's just quickly go through that and then we'll jump to the list. First one is housing affordability. For the house to be affordable, home prices must be low

[00:31:26] and the people living in that city must also earn enough to pay their bills. Wow, what a life. To measure this, we examined each city's average income and compared that to the average price for a home and that gave us what Dan just explained,

[00:31:41] the price to income ratio. Of course, cities with lower price to income ratio are more affordable. Now the next one here, Dan, is economic strength. What did they look at there? For economic strength, they examined each city's current and potential economic strength.

[00:31:57] So this would consider things like jobs or home prices in the area may be low but if the economy in this city is struggling, you might want to think twice about moving there. That means buyers need jobs and a city with chronically high unemployment won't support workers.

[00:32:10] So to assess a city's economic growth, they gathered current employment rates. Love it. The final thing that they looked at here is population growth. A city's population will grow if there are jobs and places to live and places to spend time and raise a family and do things

[00:32:29] and have just a general good quality of life. So higher growth rates are assumed to result in more employment opportunities, therefore making it easier to buy a home in theory. Now what Zola did is they took data from Stats Canada census from 2016 and 2021

[00:32:46] to calculate each city's population growth. The simple assumption is that the higher the population growth, the more employment opportunities offered in that city or location, the more employment opportunities, the more economically stable the city is for home buyers looking to enter the market.

[00:33:04] Okay, now we are gonna get into the top 10. Dan, do you want to have the honor by starting us off with the first one which is also a large city? Yeah, so this would be a large city just outside of Ottawa. Is it Nepean?

[00:33:20] How do you say it? Do you know? Nepean? I don't know. We should know that. It's bad. 124,000 in the past. Just throw it on me, my pronunciation. I don't know if I believe the population growth thing there either where it's like if there's more population growing,

[00:33:34] it could also mean that the job market is becoming saturated, right? And maybe your unemployment rate would rise. City of Toronto is a really good example of that. Toronto has the highest unemployment rate in the country. It's not on this list so it doesn't really matter

[00:33:47] but it has the highest unemployment rate in the country and it's experiencing incredibly quick population growth, right? So anyway, Nepean. I'm sorry if you live there and I'm not saying this right. Feel free to correct me. I'm sorry, I should have looked this one up. Average home price, 572,000.

[00:34:06] Average household income. These Ottawa areas are just absolutely crushing it with the average household income. I'm surprised it's not just $105,000 which is like that, the kind of top earning potential for public sector I think it is. They should all just be that but. Home price to income ratio, 6.69

[00:34:23] and the unemployment rate is 4.9% there. Give me the next one. Half of these are just Ottawa and surrounding area, greater Ottawa. Literally, yeah. It's funny. The next one is, I don't know, 20 minute drive and I drive through this every time I go to Ottawa. Carleton Place.

[00:34:40] Considered one of the smaller cities on the list. Average home price, 555,000. Average household income, 100,000. Home price to income ratio, 7.93 and the unemployment rate as of March 2024 is 5.1%. The next is Kanata, also in the greater Ottawa area. Average home price, 810,000 with an average household income. You have 146,600.

[00:35:06] Home price to income ratio, 8.66 and the unemployment rate, 4.9%. Yeah, Kanata taking the lead on the home price. That's by far the most expensive home price on this list. The next one, which is considered a small city, Tilsonburg, 588,000 is the average home price. The average household income, below $100,000

[00:35:29] but getting there, 87,000, which makes it a bit of a struggling home to home price to income ratio at 9.6%, right? We really wanna keep that number under 10 and then the unemployment rate, 3.8%. Next is Arnprier, home price 482,000 income 92,000. Home price to income ratio 7.38 and an unemployment rate of 5.1%.

[00:35:57] Number six on the list here, Rockland, $638,000 for the average home, $111,000 for the average household income. That puts the home price to income ratio 8.52 with an unemployment rate under 5% at 4.9. I'm just gonna jump over Paris, Ontario because it's basically the same as what you just mentioned for Rockland.

[00:36:17] Paris, of course. Paris, Ontario, yeah. Yeah, the Paris in the world that everybody knows about. Ottawa is next and one of the only three large cities on the list and the other two being Nepean and Kanata. $688,000 home price, $115,000 income, 8.61 home price to income ratio, 4.9% unemployment rate,

[00:36:42] which is really like there's a lot of government jobs. We're seeing every employment thing that comes out, more government jobs happening, right? Mm-hmm, mm-hmm. Okay, second last one on the list. Oh, actually Ottawa and Ingersoll seem to be tied here, interestingly enough. 561,000 for a home in Ingersoll, $99,900.

[00:37:04] Right, you guys couldn't have just made an extra hundred dollars and gotten that up to the six figures, eh? $99,900 the average household income, which puts the home price to income ratio at 8.32. Lower unemployment, actually the lowest on the list here, 3.8%. Dan, finish us off with number 10,

[00:37:26] a very northern medium-sized city. Yeah, this is probably the outlier because it's like, you know, I mean it's in Ontario but it's closer to Minnesota and Winnipeg than it is to the remainder of Ontario. Thunder Bay, if you weren't guessing based on my geography there. $365,000 average home price,

[00:37:50] $87,000 average household income, 5.8 price to income ratio and a 4.3% unemployment rate. So yeah, I mean not a bad market and interestingly connected to kind of the resource economy of Canada there as well. Yeah, I mean look, my takeaways from this list are,

[00:38:10] we hear so many people, I can't find deals, everything's too expensive and hey, listen, I agree finding deals is a lot harder and everything is more expensive but when you look at the data, when you look at the country, when you look at the different geographies,

[00:38:23] there are deals, there are affordable markets and it's just gonna be a bit more work to find them. So appreciate Zolo for putting together this great study as they always do and appreciate all the other sources that we pulled from today for this news article.

[00:38:42] Any closing remarks, Dan? Yeah, I don't really have any closing remarks other than make sure you check out our free webinar. I guess it'll be, it'll have, the live will have been done by the time we release this episode but go check out the recording.

[00:38:55] It was on June 19th and just go to realist.ca if you wanna join the free group and see that recording. Distress deals. Distress deals, free webinar and yeah, and check out the free realist group as well. There's tons of good content

[00:39:08] and there are tons of good people to meet. I think we have over 500 members. Make sure you get her to a meetup. The next meetups on July 9th, we're gonna be in Calgary for that meetup and then we're gonna start traveling around to different meetups each month.

[00:39:20] I don't really have much more to add than that so see you next week. 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

[00:39:36] and a partner in the G&H Mortgage Group. License number 10317, agent license M21004037. Daniel Foch is 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.