Thank you.
REALPAC: Who are we? We're a 55-year-old trade association representing institutional real estate owners, almost every pension fund in Canada, every major TSX-listed real estate REIT and real estate operating company, all the banks and all the lifecos through the lending group. Just call it institutional real estate, generally income-producing real estate, and all asset classes, including multi-family. Our members would own probably a quarter of a million residential units, coast to coast, as long-term holders and investors.
Today you're focused on housing starts in relation to federal housing programs. I want to take a moment for definitions and on what the forward-looking definition ought to be as opposed to housing starts. For those of you who were here when Mr. Moffat spoke, I think he went through a technical definition of what a housing start is. What I would say about housing starts generally is that they're a trailing indicator of economic activity. A housing start represents a decision made two, four or five years ago based on a budget that the developer hoped would come to fruition. When you think about purpose-built rental, how could that be a risky proposition? It's risky because the costs change between the time you commit to the project and the time it's available for rent-up to an end-user.
Headline starts can look healthier than the future pipeline. If you really wanted to have a forward-looking indicator, you would look at sales of new for-sale housing and you would look at commitments to build purpose-built rental, probably through CMHC loan programs. If you look at that data now—I would commend a more recent BMO economics report on this—there are so many purpose-built rental projects under way that we arguably have a bit of an oversupply. We will have a bigger oversupply if we keep the current immigration levels in the years to follow. BMO says there are 180,000 units coming with purpose-built rental projects under construction in this country.
Urbanation says that the vacancy rate in Toronto, the GTHA, is around 5%. The availability rate is around 8%. Economists think the equilibrium rate for purpose-built rental is between 3% and 5%. That's the number at which both sides have choice. We'll have rental units that are vacant, and we'll have perhaps even more aggressive pricing, usually in terms of rent-free periods, as the owners of these apartment buildings hunt for new tenants for these buildings. While the spring economic update announced some increased funding for purpose-built rental loan programs, I'm speculating that some of it might go unused because the demand will wane.
I'm already reading a headline from Nova Scotia that Killam properties says they're not building any more projects. Why? It's because the economics don't work. If you have rents falling, there are rent-free periods that you have to give and the project economics don't then make sense, particularly given the risks, why would you proceed? That's the rental market situation I think we're coming to.
What's happened in our industry is a bit of an immigration whipsaw. Three years ago, we had somewhere between 1.3 million and two million immigrants. That includes temporary foreign workers and students. I've seen both numbers. It's somewhere in between. Rent spiked, as we all know. We had some projections of how much new supply we would need in both for-sale housing and for-rent housing at that time, but again, quoting a more recent BMO economics report, we are now into a net-negative immigration scenario in this country.
How can we be net negative? Well, it's because the international students have to leave and we've cut back on temporary foreign workers. It's easy to see, when you have net-negative immigration, where the renters are.
They're not here, and that's why you're seeing a lot more rent-free periods. We need immigration to be part of the discussion on housing, and it has to be normalized.
Finally, I would talk about demand-side stimulus, the GST rebates. They're very useful, but it's too early to say whether they'll be successful, particularly given that the extra GST rebate ends in March.
I look forward to your questions.