REAL ESTATE – CANADA – ANALYSIS AND

COMMENTARY- OCTOBER 2016

BY: PAUL YOUNG, CPA, CGADATE: NOVEMBER 17, 2016

BIO

WORK EXPERIENCE• CGA SINCE 1996• 26+ YEARS IN CORPORATE FINANCE AND ANALYSIS• 8+ YEARS IN ACADEMIA • 11+ YEARS IN FINANCIAL SOLUTIONS• 11+ YEARS ANALYZING GOVERNMENT POLICIES• EMAIL: PAUL_YOUNG_CGA@HOTMAIL.COM

AGENDA

• HOUSING STARTS• HOUSING PRICING INDEX• HOUSING RESALES• HOUSING / AVERAGE PRICES• MORTGAGE RATES• HOUSEHOLD SPENDING – 2014• HYDRO RATES• GOVERNMENT POLICIES

SUMMARY – CANADA REAL ESTATE – OCTOBER 2016• CANADIAN HOUSING STARTS PULLED BACK TO 192,900 ANNUALIZED UNITS IN OCTOBER

FROM 219,400 IN THE PRIOR MONTH, ROUGHLY IN-LINE WITH EXPECTATIONS. BOTH URBAN MULTI-UNIT AND SINGLE-UNIT STARTS WERE DOWN IN THE MONTH, AND ALMOST ALL REGIONS OF THE COUNTRY BUT ONTARIO PULLED BACK

• BRITISH COLUMBIA IS THE BIG STORY, WITH STARTS FALLING SHARPLY TO 27.6K AFTER PUSHING RECORD LEVELS (NORTH OF 50K AT ONE POINT) EARLIER IN THE YEAR. OCTOBER’S TALLY BRINGS ACTIVITY BACK DOWN TO THE VERY STABLE (AND FUNDAMENTALLY SUPPORTED) RANGE SEEN BETWEEN 2010 AND MID-2015

• IN A SEPARATE REPORT, CANADIAN BUILDING PERMITS FELL 7.0% IN SEPTEMBER, WITH LOWER NON-RESIDENTIAL ACTIVITY OUTWEIGHING A MODEST GAIN ON THE RESIDENTIAL SIDE. THE BIGGER PICTURE IS THAT NON-RESIDENTIAL ACTIVITY CONTINUES TO FADE, WHILE GOVERNMENT ACTIVITY IS STILL HOLDING RELATIVELY STABLE.

Source – BMO

HOUSING STARTS

• SOURCE: BMO AND SCOTIABANK

RESALE MARKET

Source – RBC.com

HOUSING PRICE INDEX

Source - http://www.crea.ca/housing-market-stats/national-average-price-map/

HOUSING PRICE INDEX

HOUSE (AVERAGE PRICE)

Source – Scotiabank Economics

AVERAGE PRICES

• SOURCE: SCOTIABANK

MORTGAGE RATES

MORTGAGE

HOUSEHOLD SPENDING

• SOURCE: STATS CANADA

HYDRO RATES

• SOURCE: HTTP://WWW.ONTARIO-HYDRO.COM/ELECTRICITY-RATES-BY-PROVINCE

ROOFING PRODUCTS• IF MUSK’S CLAIMS PROVE TRUE, THIS COULD BE A REAL TURNING POINT IN THE EVOLUTION

OF SOLAR POWER. THE ROOFTOP SHINGLES HE UNVEILED JUST A FEW WEEKS AGO ARE SOMETHING TO BEHOLD: THEY’RE MADE OF TEXTURED GLASS AND ARE VIRTUALLY INDISTINGUISHABLE FROM HIGH-END ROOFING PRODUCTS. THEY ALSO TRANSFORM LIGHT INTO POWER FOR YOUR HOME AND YOUR ELECTRIC CAR. 

• “SO THE BASIC PROPOSITION WILL BE: WOULD YOU LIKE A ROOF THAT LOOKS BETTER THAN A NORMAL ROOF, LASTS TWICE AS LONG, COSTS LESS AND—BY THE WAY—GENERATES ELECTRICITY?” MUSK SAID. “WHY WOULD YOU GET ANYTHING ELSE?” 

• MAKE NO MISTAKE: THE NEW SHINGLES WILL STILL BE A PREMIUM PRODUCT, AT LEAST WHEN THEY FIRST ROLL OUT. THE TERRA COTTA AND SLATE ROOFS TESLA MIMICKED ARE AMONG THE MOST EXPENSIVE ROOFING MATERIALS ON THE MARKET—COSTING AS MUCH AS 20 TIMES MORE THAN CHEAP ASPHALT SHINGLES.

• SOURCE - HTTPS://WWW.BLOOMBERG.COM/NEWS/ARTICLES/2016-11-17/MUSK-SAYS-TESLA-S-SOLAR-SHINGLES-WILL-COST-LESS-THAN-A-DUMB-ROOF

GOVERNMENT POLICIES – REAL ESTATESOURCE: HTTPS://WWW.FRASERINSTITUTE.ORG/BLOGS/TO-ADDRESS-SKYROCKETING-HOME-PRICES-ONTARIO-GOVERNMENT-COULD-REDUCE-BARRIERS-TO-BUILDING• HOW IS THE LIBERAL GOING TO MAKE CITIES MORE AFFORDABLE? LET’S LOOK AT THE COSTS OF HOUSING:• LAND PURCHASES (SO WHERE IS ALL THE EXCESS LAND IN TORONTO/MONTREAL/CALGARY/EDMONTON/VANCOUVER/ETC.? IT DOES NOT EXIST UNLESS YOU PUSH

DEVELOPMENT OUTSIDE TO THE SUBURBS.• HOW ABOUT THE GREEN BELT LEGISLATION? HTTP://WWW.MAH.GOV.ON.CA/PAGE195.ASPX. YES, THERE IS PROVINCIAL MATTER, BUT IT DOES IMPACT ON PRICE FOR

LAND/HOUSES• HOUSING COSTS – HOUSES ARE MADE UP CEMENT. WOOD, ETC. THAT REQUIRED CONSTRUCTION. SO, HOW IS LIBERALS GOING TO REDUCE THE LABOR/MATERIAL OR

PRICE OF LAND COSTS?• BIDS/ASK – LOW INTEREST RATES HAVE MADE BIDS/ASKS RIDICULOUS FOR HOUSES AS SUCH HOW IS LIBERALS GOING TO FIX THIS ISSUES? REAL ESTATE PRACTICES ARE

GOVERNED BY PROVINCIAL LAWS, HTTP://WWW.THEGLOBEANDMAIL.COM/REPORT-ON-BUSINESS/ECONOMY/HOUSING/THE-REAL-ESTATE-BEAT/ONTARIO-REAL-ESTATE-REGULATOR-TO-INTRODUCE-NEW-BIDDING-PROCESS-RULES/ARTICLE23604736/

• BROWN SITES – THERE ARE MANY SITES THAT NEED TO BE CLEANUP BEFORE THEY CAN BE TURN INTO LAND USED FOR RESIDENTIAL.HTTPS://WWW.FCM.CA/DOCUMENTS/PRESENTATIONS/2007/WEBINARS/BROWNFIELD_REMEDIATION_IN_CANADA_A_CATALYST_FOR_SUSTAINABLE_COMMUNITY_DEVELOPMENT_EN.PDF. THIS LINK IS OLD, BUT STILL MENTIONS THE NEED TO CLEAN UP SITS. SO, IS LPO GOING FUND THE CLEANUP VIA HIKING TAXES

• HIGH DENSITY HOUSING - HTTP://WWW.THEGLOBEANDMAIL.COM/REPORT-ON-BUSINESS/ECONOMY/HOUSING/TORONTO-VANCOUVER-CONDO-OWNERS-LOOK-TO-CASH-OUT-OVER-NEXT-FIVE-YEARS-CMHC/ARTICLE24562790/. ARE LIBERALS GOING TO LOOK AT PURCHASING MORE CONDO UNITS OR ENCOURAGE CITIES TO BUILD HIGH DENSITY HOUSING, LIKE IN THE PAST JANE/FINCH OR PAISLEY/MISSISSAUGA? I THOUGHT THE CITIES WANTED GET AWAY FROM LOW INCOME HIGH RISES

• HOW IS LPC GOING TO DEAL WITH ISSUES LIKE PROPERTY TAXES/HYDRO RATES/GAS COSTS/INFRASTRUCTURE? OOPS, LPC/NDP WILL HIKE THE GAS TAX BY 1 CENT, RIGHT?HTTP://WWW.CTVNEWS.CA/POLITICS/MULCAIR-PROMISES-TO-GIVE-CITIES-EXTRA-CENT-FROM-GAS-TAX-1.2410101. FYI – I AGREE SOME OF THE ISSUES ARE PROVINCIAL JURISDICTION,.

• SELLING OF SCHOOLS/CLOSES/ARC – THERE IS LIKELY LAND THAT COULD BE LEVERAGE VIA SCHOOL CLOSING. THIS IS ANOTHER AREA THAT SHOULD BE CONSIDERED AS PART OF HOUSING DEVELOPMENT.HTTP://WWW.TDSB.ON.CA/PORTALS/0/2015%2004%2021%20FSLAC%20MINUTES.PDF 

• MORTGAGE RULES – IS LPC GOING TO REVISIT THE MORTGAGE RULES?HTTP://WWW.CBC.CA/NEWS/BUSINESS/HOUSING-MARKET-SOFTENING-EVERYWHERE-BUT-TORONTO-AND-VANCOUVER-BMO-SAYS-1.3019181. IT SEEMS TO ME THAT YOU HAVE TO BE CAREFUL ON REFORMING RULES TO FAR AS HOUSING STARTS HELP THE ECONOMY!

• IF MORE LAND IS USED FOR RESIDENTIAL THEN HOW WILL THAT HELP ATTRACT NEW BUSINESS INVESTMENT? HTTP://WWW.INTERNATIONAL.GC.CA/ECONOMIST-ECONOMISTE/ASSETS/PDFS/DATA/INVESTMENTS-INVESTISSEMENTS/FDI_BY_NAICS/FDI-INWARD-STOCKS-BY-NAICS-INDUSTRY-ENG.PDF