Rents are on the rise with a lack of rental stock and the stress test limiting potential buyers. So, what better time to bring on President of Bullpen Research and Consulting Ben Myers. Having worked in international markets, studied rental data, and advised big-time developers, Ben offers a unique perspective on Canadian real estate markets. Tune in for the best opportunities in Vancouver, Toronto and beyond! We are going BIG… get it, cause Ben. Giddy up!
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Tell us about yourself.
I am a residential real estate housing analyst. My company does most of its work for developers or lenders who want our help to evaluate unit mix and unit sizing at different stages of the buying and building process. I also work with rentals.ca and do rental analysis on a monthly basis, which is great information for the public. I’ve been in real estate research for 15 years starting in Dallas, Texas before coming back to Canada. And in 2017, I started my own company, Bullpen Research & Consulting.
Why real estate?
I moved to Texas on a baseball scholarship. I played for a couple of years and ended up hurting my arm. I had no idea what I wanted to study in university but decided on economics because I loved it. I ended up landing a job in Dallas tracking the real estate market. It was a fascinating time in that market and my career launched from there. You could buy a single detached home on a huge lot for $60,000. So it was a big shock moving back to Toronto and seeing the prices here.
What are the biggest housing differences moving from Texas back to Canada?
People always want to know why prices are so high in Toronto and Vancouver. The reason why we see lower prices in places like Dallas Fort Worth is that the jobs aren’t concentrated all downtown. There’s not water or mountains pulling people into one area. You can spread out.
Whereas Toronto is more condensed with most of the jobs in the downtown core. That puts upward price pressure on the downtown housing market. The greenbelt has taken out a lot of development land and we have municipalities where it’s hard to service low-rise housing. In Dallas, developers are getting large projects approved in under six months. It’s a very different market in terms of the products that are being built.
Most of the new housing supply in Toronto and Vancouver is high rise apartments to accommodate new growth. It costs more to build a highrise than a small suburban property. The land is more expensive, the building costs are more expensive, it’s risky and it takes a lot longer. All of those factors lead to higher pricing. Any market that transitions away from sprawl, and they all will eventually, will see higher price points.
Is the culture around housing different?
It’s all about what you grow up expecting. If you grew up in a single family, large lot property, you generally want to keep living that lifestyle. I never heard anyone in Dallas say they want to buy a condo. There’s also not the same desire to live downtown. Walkability isn’t talked about down there.
Can you tell us about your analytics and what kind of data you’re looking at?
I look at individual listings with information such as pricing, size, unit type, etc. I try to get as micro as possible to see what’s driving rental rates. I then try to chop the data up as much as possible. What are the individual units selling for and why?
I also work with Buzz Buzz Homes that has information about the buying market, not just the rental market. I look at the floor plans that people are interested in, what size, what price, etc.
Let’s say we have a building that is 85% sold and they have three years until completion. The developer isn’t worried about selling those remaining units because they assume they can sell at a higher rate by the time the units are ready. So they price them accordingly, with 2022 pricing. The problem is when a current developer looks at those 2022 prices and tries to set their current pricing by those inflated numbers. That’s not accurate pricing in the current market.
I try to concentrate on what people are looking at or want to buy now, instead of an asking price that might not reflect 2019 pricing. I try to take as many data points as I can and make recommendations based on those.
Do you invest in real estate yourself?
The very first building I bought, the building got canceled! Currently, I do not have any real estate units. I try not to admit that but it’s the truth. I have failed as a real estate buyer because I’m too cautious. I used to worry that if I owned real estate, people would view me as being biased. Which was a silly fear! I’m kicking myself now that I didn’t buy those units back then that I knew were underpriced. It is what it is and I’m looking to finally make my first pre-construction condo purchase in the next couple of months.
What are you looking for when you’re buying? Is it the same process you use in your analytics for developers?
Everyone buys for different reasons. I’m buying this unit because it’s close to my office and I may use it or rent it out. I want to be able to walk to work and that was key for me in looking at that building. Some investors only want to be in prime markets while others prefer burgeoning markets with a longer hold time. It’s a different process.
Being close to transit is essential in Toronto and Vancouver. For me, I don’t even want to be on transit; I want to walk to work. So my process might be different from some investors.
Are you still seeing opportunities in the market?
In the downtown Toronto market, they’re fully priced. I look at what the price is now and what the price will be at the time of occupancy. It’s a leap of faith in some markets. I’m a bit more inclined to tell first time investors to look at places like Scarborough, where the new subway extension will be, or Kitchener-Waterloo, where there’s a big tech boom. Look at markets where they are making an investment in the workforce or transit.
The break even point on rent in some of these downtown projects requires a lot of rent growth. We are attracting a lot of population growth in Toronto, same as Vancouver. People complain about pricing but they aren’t willing to move and new people are coming in. In the long run, I’m still bullish on values. Investors with long timelines might be willing to invest in something that won’t cashflow for the first few years.
How do you compile the data for rentals.ca and where is pricing going?
It’s all data from rentals.ca. Their website is very easy to use and there’s lots of information to include. The Toronto section is huge with lots of listings, so I’m confident in those analyses. I have a year’s worth of information to go on and it’s just huge growth.
Purpose built rental apartments in the GTA are up over 15% and Vancouver is 10%. It’s even higher than what I forecasted; 10% for Toronto and 6-7% for Vancouver. People thought I was being too bullish with those forecasts, especially as housing prices were coming down. But people aren’t buying – they’re renting. They have to live somewhere. The mortgage stress test has kept a lot of people from qualifying for the home that they want. For some, if they can’t buy that, they’ll continue to rent. That adds demand and drives prices up.
We’ll see more supply coming into Toronto in the next few years. We’re on a four year lag in terms of sales and completion. I don’t expect double digit rent growth in Toronto next year but I do expect it to be very strong. There’s also the cultural change of young people not wanting the burden of owning and preferring the flexibility of renting.
The lifelong renter is now more of an acceptable position.
I just gave a presentation in front of an investment group and they’re very excited about the Canadian rental market. They say the quality of renter has gotten better. They’re more likely to pay their rent, not trash their units, etc. But there are a lot of bad landlords out there and there are a lot of bad tenants.
Where do you see rents going in the next 3-5 years in Toronto and Vancouver?
I see them continuing to go in excess of inflation – more in the 3-5% range. Vancouver has more purpose built rentals than Toronto does, but not as many condos. Vancouver may even have enough supply to satisfy demand in a couple of years. Toronto has record numbers of units but is still unlikely to meet demand. RBC came out with a report stating Vancouver is 3800 vacant units short of a 3% vacancy rate. 3-4% vacancy is what you see in a healthy market. Toronto is 9100 vacant units short!
The report also looked at how many more units you need per year to satisfy demand and it was 22,000 for Toronto. So we still anticipate rents increasing in Toronto, but not to the same degree as in recent years.
They say, “You never hear about a rent bubble.” Is that true?
Yes, because generally a bubble is built off speculation. The tenant market doesn’t have that because you can’t really flip properties. There is an advantage to getting in before rents go up, but there isn’t a bubble. It’s not speculation driving up rent or foregin investors. What’s driving up rent is simple supply and demand. Some of the units will be vacant or foreign owned but not all of them. Most will be occupied and lived in by locals.
I don’t anticipate rents falling off anytime soon. And they never have. Even in the worst of our recession in the 1990s, rents hardly went down. In Calgary, where they built a lot of units and had 8% vacancy, rent only decreased for one year and now they’re back up again. So many people are renting units below market value because of rent control, which keeps the overall rents going up as people move out and the landlords raise rents.
Are you more safe-guarded in urban centers?
Yes, and that’s a global phenomenon. If rents start to fall, people will flock to prime locations. In a strong market, people will live wherever they can afford but in a bad market, they’ll head downtown.
With the data you have, if you were looking outside of Toronto or Vancouver, where in Canada would you want to invest?
Montreal. It’s a fantastic city and investors are taking note. It’s a very strong rental market. Quebec has always accepted renting as a lifestyle.
Do you have a property type you focus on?
I always prefer a one or two bed condo. That’s the best way to go. Studios are cheap to buy but there’s high turnover. One bedrooms are typically inexpensive to buy and easy to rent since it’s entry to market. They’re typically easy to resell. Look at transit – something close to transit is ideal. Can someone commute from your property? Is there an employment centre, a university or a hospital nearby? An area that attracts younger people who are looking to rent is ideal.
5 Wire (Toronto edition):
Favourite neighbourhood: Queen West
Favourite Bar or Restaurant: Wimpy’s Diner (where he takes his kids)
One book you recommend everyone read: Books by Eckhart Tolle or Michael Lewis
One piece of advice you would give your 18-year-old self: Buy some real estate
Something you have purchased for under $1,000 that has had a positive effect on your life: Sneakers (Ben is a Sneakerhead) or sports equipment for his kids
Find out more at https://www.bullpenconsulting.ca/