New Government efforts to stop a housing crash and to increase housing affordability could be beneficial to local retailers and their landlords.
Affordable Housing Initiatives
The CIBC’s deputy chief economist, Benjamin Tal, has recently posed that government intervention is necessary to avoid worsening affordability crisis in major Canadian cities. Rents have been increasing at a higher rate than home prices, and master-planned affordable housing projects are being viewed by some as essential for offering some relief to residents.
Canada may have the space to build, but so far affordable housing projects haven’t worked very in the US. It’s worth noting that average rent in San Francisco is around 30% higher than the Greater Toronto area and those rates are now down $300 to $600 per month over the last couple of years.
Data from Zillow suggests the San Francisco housing market is already peaking, as almost 5% of sellers are lowering their asking prices and at least one major tech firm has announced it is paying workers $10,000 to relocate out of the city.
Unlike the U.S, Canadian retailers have been unfazed by online shopping trends. Some Canadian retailers have already been expanding their floor space with Freshii’s planning to triple its number of locations, after reporting rising sales figures.
Even more notable is the fact that Amazon is expanding offline. In its latest venture the giant retailer has begun to move its digital grocery shopping business to physical stores and more local distribution centers. Amazon now has grocery kiosks, hybrid supermarkets, Amazon Go stores and has documented plans to open as many as 2,000 physical stores.
New Mortgage Rules
New mortgage regulations dictate qualifying rates as well as minimum down payment requirements on home mortgages. Even though some Canadian mortgage lenders may be advertising interest rates in the 2% range, authorities require those borrowers to qualify at the higher Bank of Canada posted rate for 5-year fixed rate loans, which is currently hovering around 5 percent.
Under these new mortgage rules, the typical homeowner would have an additional surplus of almost $700 per month, based on the average home value of $551,400. This significant increase in disposable income will strengthen consumer confidence, resulting in increased spending at local shopping plazas.
Amazon’s expansion into retail bodes extremely well for retail businesses and shopping plaza investors. Consumer spending and retail profits could also be boosted by a combination of access to more affordable housing and surplus of disposable income on a monthly basis. These trends are signaling a great time to diversify into retail commercial real estate as a means to generate consistent income in the years ahead.