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The vast majority of new purpose-built rental housing in Canada relies on CMHC-insured loans to make them financially feasible. In 2024, CMHC estimated that their construction financing programs backed an estimated 88% of new rental starts across the country.
But anyone in the industry will tell you that the terms in which these loans are made available to developers are constantly changing. And I think it's pretty clear that many of the changes being made are intended to push, maybe force, developers into building some percentage of affordable homes as part of their projects.
At the political narrative level, this makes sense: Canada needs more affordable housing. But it's important to remember that homes pegged to below-market rents are not financially feasible to build on their own. So, unless equivalent subsidies are being somehow provided, the remaining market-rate homes will be forced to shoulder the additional costs.
We talk about this a lot on the blog (see inclusionary zoning posts), and I don't see it as an equitable solution. But there's also the problem of it further choking off new housing supply. And my sense is that that's exactly what is happening. It's only getting harder to underwrite new rental housing — certainly in cities like Toronto.
This will have the opposite effect on overall affordability. It also increases the probability that my supply predictions will prove roughly correct. I can't see a world where new rental supply is able to step up and fill the gap being left by new condominiums, a large portion of which was serving as new rental housing.
Toronto is on a path toward a severe housing shortage, and it's very hard for the private sector to do much about it in the current market environment. When that will change remains to be seen.
Cover photo by Darren Richardson on Unsplash
The Financial Times published an article (paywall) over the weekend about the Nobu Hospitality Group.
It stated that they have some 50 restaurants, 40 hotels, and 20 residential projects (i.e. branded residences) either open or in development around the world. One of the first of these branded residences was here in Toronto. And as of July 2024, which was a major liquidity event for the company, it was valued at US$1.3 billion.
According to group CEO Trevor Horwell, their approach always starts with a restaurant: "It's an upside-down business model where the restaurant is the social engine. If we believe a Nobu restaurant can become a genuine social hub for locals, then the hotel and residences can follow."
I like this business model because as we talked about a year ago on the blog, "everything is branded." Knight Frank out of the UK estimates that the number of branded residences around the world is going to go from 611 this year to around 1,020 by 2030. So it seems destined to become a bigger part of our business.
But the other reason I'm drawn to it is because it's a good business to be in. If you own a brand that has value, you can do licensing deals all around the world — which is what Nobu is doing — and not take on the same equity risk that developers typically take on. It's capital-light.
However, the trade-off risk is that you're dependent on the continued attractiveness of your brand. If Robert De Niro ceases to remain involved and/or Nobu just loses some of its cachet over time, then the business won't do as well. But that's true of any hospitality-type business, or any brand for that matter.
Since at least 2008, scientists have warned that unchecked groundwater pumping for the city and for agriculture was rapidly draining [Iran’s] aquifers. The overuse did not just deplete underground reserves—it destroyed them, as the land compressed and sank irreversibly. One recent study found that Iran’s central plateau, where most of the country’s aquifers are located, is sinking by more than 35 centimeters each year. As a result, the aquifers lose about 1.7 billion cubic meters of water annually as the ground is permanently crushed, leaving no space for underground water storage to recover, says Darío Solano, a geoscientist at the National Autonomous University of Mexico, who was not involved with the study.
Some of the largest cities in the world, including São Paulo, Mexico City, Cape Town, Bangalore, and Tehran, are today facing critical water shortages. In the case of Tehran, the situation is so dire that Iranian president Masoud Pezeshkian has publicly said that the country now has no choice but to move its capital from Tehran to the southern part of the country:
Amid a deepening ecological crisis and acute water shortage, Tehran can no longer remain the capital of Iran, the country’s president has said.
The situation in Tehran is the result of “a perfect storm of climate change and corruption,” says Michael Rubin, a political analyst at the American Enterprise Institute.
“We no longer have a choice,” said Iranian president Masoud Pezeshkian during a speech on Thursday.
This will be expensive, and it won’t solve all of the country’s problems, but forcing a bunch of people out of the city will help to relieve some of the localized pressures. Tehran has a population of nearly 10 million, and the metro region is estimated at over 14 million, making it the second largest city in the Middle East.
Of course, there’s a city-building lesson in all of this: If you’re at this stage of capitulation, it means you’re too late. Water scarcity is about physical scarcity, but it’s generally also a failure of governance, infrastructure, and demand management. Proactive adaptation is always cheaper, easier, and safer than waiting until the last minute to adopt desperate measures.
Cover photo by Behnam Norouzi on Unsplash
