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

I recently started reading Marginal Revolution. This recent post, called "Illegal Immigrants Didn't Break the Housing Market; Bad Policy Did," covers many of the things that we talk about on this blog:

If “fixing” housing scarcity means blaming whichever group is politically convenient, you end up cycling through targets: illegal immigrants first, then legal immigrants (as Canada has done), then the children of immigrants, then wealthy buyers, then racial or religious minorities. Indeed, one wonders if the blame is the goal.

If you actually want to solve the problem of housing scarcity, stop the scapegoating and start supporting the disliked people who are actually working to reduce scarcity: the developers. Loosen zoning and cut the rules that choke what can be built. Redirect political energy away from trying to demolish imagined enemies and instead build, baby, build.

As a developer, I naturally chose the most self-serving excerpt to quote, but that doesn't mean that what Alex Tabarrok wrote is incorrect. Blame is, of course, the goal. Such is the reality of politics. Here's another excerpt, this one from one of Howard Mark's investing memos:

I've always gotten a kick out of oxymorons — phrases that are internally contradictory — such as "jumbo shrimp" and "common sense." I'll add "political reality" to the list. The world of politics has its own, altered reality, in which economic reality often seems not to impinge. No choices need to be made: candidates can promise it all. And there are no consequences. If something might have negative consequences in the real world, politicians seem to feel free to ignore them.

This is why immigrants are blamed, foreign buyers are banned, rent freezes are proposed (counterproductive), and we continue to do very little to actually fix traffic congestion in our cities, among an endless list of other things. The real solutions are simply too politically inconvenient; it's more advantageous to blame scapegoats.

Meanwhile, our problems persist.

I woke up this morning to an email from one of our partners with a link to this article talking about a three-storey, 10-unit housing project (plus garden suite) that was just refused by the Committee of Adjustment here in Toronto. It's five minutes from a major subway station. Why?

Because it's always easier to blame someone else.

Cover photo by Frames For Your Heart on Unsplash

Real estate may be local, but a lot of markets appear to be correlated. I felt that way this past summer when I was meeting with developers in Paris and I continue to feel this way when I read articles about other markets. Here's a recent one from Building Salt Lake talking about the state of Utah's multi-family market.

Based on the article, cap rates appear to be in the mid-4s for newish product, which is too low right now:

Investors aren’t jumping at the 4.6 cap deals they can typically find in Utah today, she added, when they could get over 5.5 in other major markets.

“Salt Lake, a 4.6 cap, I personally think it’s a little mispriced relative to where else we can put our money,” Schultz said.

This means that there aren't the asset trades to support new development. To justify ground-up development, developers need to see a positive spread between their development yield and the exit cap — one that compensates them for the additional risk of construction. If that spread isn't there, or if it's unclear what it might actually be, development shuts off.

Rents and values coming down also doesn't help:

Back in 2022, which was the peak of the market, you could underwrite double-digit rent growth on a typical 250-apartment deal Downtown. Now, he said, “we’re seeing that effective rents down about 8.25%.”

Overall multifamily values are down 26%, King said, though he added that’s not indicative of every single project or every deal. He also said that decline came after four years of record supply and double-digit rent growth.

What should be clear from these excerpts is that Salt Lake City is not at the point in the cycle where developers are jumping to deliver new ground-up multi-family product. They're at the point in the cycle where firms are looking and hoping to buy distressed assets below replacement cost.

Cover photo by Saul Flores on Unsplash

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

I recently started reading Marginal Revolution. This recent post, called "Illegal Immigrants Didn't Break the Housing Market; Bad Policy Did," covers many of the things that we talk about on this blog:

If “fixing” housing scarcity means blaming whichever group is politically convenient, you end up cycling through targets: illegal immigrants first, then legal immigrants (as Canada has done), then the children of immigrants, then wealthy buyers, then racial or religious minorities. Indeed, one wonders if the blame is the goal.

If you actually want to solve the problem of housing scarcity, stop the scapegoating and start supporting the disliked people who are actually working to reduce scarcity: the developers. Loosen zoning and cut the rules that choke what can be built. Redirect political energy away from trying to demolish imagined enemies and instead build, baby, build.

As a developer, I naturally chose the most self-serving excerpt to quote, but that doesn't mean that what Alex Tabarrok wrote is incorrect. Blame is, of course, the goal. Such is the reality of politics. Here's another excerpt, this one from one of Howard Mark's investing memos:

I've always gotten a kick out of oxymorons — phrases that are internally contradictory — such as "jumbo shrimp" and "common sense." I'll add "political reality" to the list. The world of politics has its own, altered reality, in which economic reality often seems not to impinge. No choices need to be made: candidates can promise it all. And there are no consequences. If something might have negative consequences in the real world, politicians seem to feel free to ignore them.

This is why immigrants are blamed, foreign buyers are banned, rent freezes are proposed (counterproductive), and we continue to do very little to actually fix traffic congestion in our cities, among an endless list of other things. The real solutions are simply too politically inconvenient; it's more advantageous to blame scapegoats.

Meanwhile, our problems persist.

I woke up this morning to an email from one of our partners with a link to this article talking about a three-storey, 10-unit housing project (plus garden suite) that was just refused by the Committee of Adjustment here in Toronto. It's five minutes from a major subway station. Why?

Because it's always easier to blame someone else.

Cover photo by Frames For Your Heart on Unsplash

Real estate may be local, but a lot of markets appear to be correlated. I felt that way this past summer when I was meeting with developers in Paris and I continue to feel this way when I read articles about other markets. Here's a recent one from Building Salt Lake talking about the state of Utah's multi-family market.

Based on the article, cap rates appear to be in the mid-4s for newish product, which is too low right now:

Investors aren’t jumping at the 4.6 cap deals they can typically find in Utah today, she added, when they could get over 5.5 in other major markets.

“Salt Lake, a 4.6 cap, I personally think it’s a little mispriced relative to where else we can put our money,” Schultz said.

This means that there aren't the asset trades to support new development. To justify ground-up development, developers need to see a positive spread between their development yield and the exit cap — one that compensates them for the additional risk of construction. If that spread isn't there, or if it's unclear what it might actually be, development shuts off.

Rents and values coming down also doesn't help:

Back in 2022, which was the peak of the market, you could underwrite double-digit rent growth on a typical 250-apartment deal Downtown. Now, he said, “we’re seeing that effective rents down about 8.25%.”

Overall multifamily values are down 26%, King said, though he added that’s not indicative of every single project or every deal. He also said that decline came after four years of record supply and double-digit rent growth.

What should be clear from these excerpts is that Salt Lake City is not at the point in the cycle where developers are jumping to deliver new ground-up multi-family product. They're at the point in the cycle where firms are looking and hoping to buy distressed assets below replacement cost.

Cover photo by Saul Flores on Unsplash