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Down to Business podcast: What our politicians really need to do to make housing affordable

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Down to Business podcast: What our politicians really need to do to make housing affordable

Welcome to Down to Business, a weekly podcast from the Financial Post.

Canadians love to talk about real estate, and it’s become a hot topic on the campaign trail, with the Liberals and the Conservatives both promising to make it easier for people to buy a home.

For the next few weeks, Down to Business will look at the business issues taking centre stage in the federal election, including housing, energy and telecommunications. Housing is up first.

Peter Gilgan, founder and CEO of Mattamy Homes, the largest privately held residential construction company in North America, talks to host Emily Jackson about what he thinks of the election promises, the state of real estate in Canada and and how he’s diversifying his assets.

You can listen below — or on Apple PodcastsSpotifyStitcher and Google Play, where you can also subscribe to get new episodes every Wednesday morning.

If you have any questions about the show, or if there are topics you want us to tackle, email us: downtobusiness@postmedia.com.


Emily Jackson: You are the homebuilding guy, 40-year career in this. I’ve got to wonder what is your view on the housing market in Canada right now?

Peter Gilgan: Well, there isn’t one market, housing markets are very local. And the provinces that I’m most familiar with are the ones which we’re invested in which Ontario and Alberta, and they are two different tales. But Ontario, I think the housing market is generally very, very strong. And I would call it healthy. As you know, we went through a downturn in volume in 2017 and 18, there’s good indication that the market is stabilized. And getting back to normal, right? What was going on before the downturn was not sustainable. It was not driven by the normal economics of why people buy homes, I felt it was very unhealthy. And I’m pleased to see actually that we had that correction in the market. And we’ve now returned to a very healthy market where people are buying homes for the right reason. In other words, live in them.

EJ: What do you think is driving the demand now and recreated that demand after that little slump?

PG: Jobs. People moving to the urban centers in particular, and people moving into into the province, because many job opportunities. It’s easy to argue that Toronto has become a rather sort of liberal city in many respects. And with that liberal attitude comes an attraction to people, what our friend Richard Florida would refer to as a creative class. And that’s where the jobs are in the new sectors of the economy with those jobs come need for new housing, obviously

EJ: Need for housing. And I mean that that shows the difference between Alberta and Ontario, right. The other market that Mattamy operates in…

PG: There’s a dearth of the new employment there, that’s for sure.

EJ: When it comes to that slump, we saw it happened after the stress test for mortgages was implemented and after interest rates started to rise again. We’ve since seen interest rates reverse, but the stress test is still there. I’m wondering what you think of that government policy and the other interventions that have been put in place in B.C. and Ontario, the foreign buyers tax.

PG: Actually, the foreign buyers tax, I think it’s sent a signal to the market, I don’t believe that foreign buyers are or were as significant a participation rate as they were in B.C. But still, it just sent a signal to the market by the provincial government saying, “Hey, we can do things to meddle with what’s going on here.” The next step up is a speculation tax act, like we had in the early 70s here in the province. And for us, that was a little bit too draconian. I actually councilled the provincial finance minister time, and that was probably a step too far. But maybe a signal needed to be sent. That in conjunction with the stress test had an influence. But I would argue that even without those two things, the bubble was going to burst, you know, it can only, inflation in house prices went on for three or four or five years, at triple, at least, or quadruple the rate of general inflation. And that is just not sustainable over time. Paychecks are what pay for houses for most people. Paychecks are going up at 3%. House prices can’t go up at 13% for long.

EJ: I think that insanity it felt like in the prices has been such a story. For the younger generations, house prices to income ratios are about 10 to one now compared to the 1970s. They were about four to one correct. That makes it you know, it makes it pretty challenging to buy a home here in in Canada’s biggest cities, at least. I’m wondering what you think of this generational gap and how boomers have experienced homeownership and how Millennials are now experiencing the attempts to get into the homeownership market or the different ways they’re going about that?

PG: Well, I think there’s a lot of barriers have been put in the way that didn’t exist when I was I was a young man. I bought my first house when I was I think 21 maybe 22. I certainly didn’t have a lot of money for down payment. In my parents generation before, it was sort of like, you know, if one income earner, usually the man, had a decent job, you could buy a little bungalow somewhere you saved up and you could buy a little thousand square foot bungalow somewhere. And unfortunately, those times are gone. And I think there’s a couple of influences. There’s obviously the sort of the globalization of the economy and how Toronto has become more of a an interesting place for employment and drives up, you know, house prices and so forth. But I think more importantly, and more of an influence I should say than that, is that well intentioned government policies, I’m certain they are well intentioned, have perhaps over meddled in letting the free market economy address housing needs. The result has been, at particularly in the lower tiers of government at the province and the lower tiers, put such an incredible constraint on supply of housing, and the time it takes to get to market. Both of those things, just a pure lack of supply and how long and arduous and costly does to get that supply through the system has absolutely exacerbated the problem by two x at least.

EJ: Now, I used to cover City Hall and Vancouver. So I’ve heard a lot of developers frustration, you could almost see the steam coming out of their ears. What sort of policies are you speaking about here?

PG: You know, how long do we have? It’s everything from… First of all, government needs to decide at all levels, is an adequate housing supply and a free flowing supply of new housing a net benefit to society or not? Does that facilitate people getting in houses, facilitate people being happy with their lot in life or not? And government sends mixed signals about that, quite frankly. There’s other issues at play that that just don’t consistently recognize the importance of housing to lubricating an economy. I think many people underestimate the complexity of the housing industry, and how important it is to supporting the economy. I could recite a variety of things. But it’s really, I’d say, rather than cooperation, there’s been a spirit of confrontation that’s set in, in the last, say, 15 years in particular. And it’s that spirit of confrontation, mistrust, the inability to work together, I go so far, sometimes as to say just simple jealousy, or whatever it is, that seems to have been a bit pervasive. Many times, and you shake your head and say, you know, this is not going to end well for the buying public.

EJ: In a sense of getting them more supply. Is this kind of an opposition to more density? Is that the solution you’re talking about here?

PG: That’s certainly part of it. But it’s not just it, there’s two, there’s two factors. There’s curtailing the amount of supply and it’s also as importantly, the amount of time it takes to bring this supply to market. Right. And I would say that if you took identical circumstances, whether it’s a tract of vacant land or a redevelopment proposal, and if you took that a similar property two decades ago, and tracked the approval, timelines, the number, the number of approval steps, and the timeline for each one of those approvals for 20 years ago, and today, you’d realize that today, it’s at least twice as long overall.

EJ: You’ve seen this firsthand. I mean, you started building homes in the 1970s. You spoke a bit about mixed signals from the government on what they’re trying to achieve here. We’re obviously in the middle of an election campaign. We’ve seen the government put forward some conflicting, somewhat conflicting proposals here. There’s an incentive for first time buyers to try to entice them to get into the market, increasing the amount the government will essentially loan them for purchases up to 750,000 bucks. Then on the other hand, you have the Liberals proposing a nationwide foreign buyers tax of 1% on non-Canadian non-residents. One of those policies would stimulate the market, one would presumably cool it down. Where do you think the right measure is?

PG: The right measure is for government to say, let’s get out of the business, let’s reduce regulation, let’s decide and stick to our decision that if housing supports the economy and creates a healthy electorate and a satisfied electorate, then let’s be supportive, not without regard to neighbours, not without regard to neighbourhoods, and absolutely not without due regard to the environment. But let’s get on with it. Rather than, I think in many cases, it’s, “If I don’t make any decision, I can’t make any mistakes. So let’s defer making any decisions. No one can get mad at me for that, except that one organization and they don’t vote.”

EJ: It’s that the short term need to please the people that are voting you in tomorrow, I suppose. What do you think, though, politicians always tend to talk about homeownership in a in a bigger way, you know, it’s still two thirds of Canadian households own their home. It is still pitched as this goal, even though it seems to be getting increasingly out of reach for the younger generation specifically. Do you think given all these external factors, that home ownership is still something we should be aspiring to?

PG: Well obviously. I mean, I hope so. But I believe that traditionally, it built the country or certainly supported the building of the country. And, you know, why did people work hard? Why did people work two jobs and overtime and, you know, come to this country, for what they called an opportunity. What was that opportunity? That was an opportunity for many of them to own a property, and a place to raise their family to us and live in for generations, etc, etc. It’s traditionally been a big motivation. Now, there is a sector of economy today in society today and younger generation who have strong signals that they’re not as interested in ownership as they are and experiences and so on, so forth. So that may account, frankly, for a little bit of the reduction in the percentage of the population own homes, the size, the affordability, and I think we have to recognize that as well. But that doesn’t preclude us from the obligation to facilitating a decision by them if they want to own a home, to not stand in the way. That’s what we as government, or as the electorate, the government representing us. There’s too much of that going on today.

EJ: What do you see as some of the big trends going forward, homeownership acknowledging that the way your business started building single family homes, and a lot of that has been in the suburbs, that probably isn’t going to work given constraints on land, or at least not at this scale it has worked in the past. How do you see trends in homeownership going forward?

PG: Sure. Okay. So first of all, you know, we have an international business, about half of our business is outside of Canada in United States. And that’s a whole different ballgame. Absolutely. We also have a very significant and wonderful business in Ottawa, we’re the second largest home builder in Alberta, although the market’s not so big today. Speaking of Canadian markets is one thing, but even if we want to narrow the conversation down to the big urban center in Canada called Toronto…

EJ: Yeah, I think I think it’s good to talk about I mean, Toronto, Vancouver, Montreal. Two thirds of Canadians live in those three cities. All three cities are constrained by water.

PG: Correct. Fill it in. Just kidding.

EJ: Peter Gilligan says to fill in Lake Ontario, everyone breaking news on the pod. But I think in those markets, where people are moving and are living, I think that that that will be an interesting place to focus on on how you see the trends of homeownership progressing there.

PG: So there’s a lot of things at play. There’s certainly the dearth of single family. Single family probably represents maybe 25% of what we build in Toronto. Today, we build all sorts of attached product ranging from you know, traditional townhomes through a lot of flat-over-flat six story high-rise, and so forth. So we’re kind of in all those spaces. And that’s going to continue, there’s absolutely no question about that. I think our job as an industry, and we need the support and co-operation of government at all levels to pull this off, is to create a more livable environment in basically what’s becoming more vertical communities. I believe my company, we did a quite a good job of doing that in the lower density space. We have a lot of work to do, I think in higher density space, to create things that are more than just boxes in the sky.

EJ: The box in the sky problem is such a huge one when it seems the units keep getting smaller and smaller. And then we have census data coming out saying, hey, more people are living alone than ever before. I always look at that and kind of chuckle and think, of course, it’s because all these condos are essentially closets. Not even a reasonable size closet, some of them so

PG: Many and many, by the way, very poorly designed.

EJ: Oh my gosh, they’re awful. So I’m wondering what you think of how these units are designed, in a way?

PG: So we’ll just do a little tiptoe through the tulips on this one. Okay, so where do you live, we live inside the unit. Okay, so what we should be doing, and I’m sort of spilling the beans here a little bit. But what I want to see us do is I want to see us design the most livable, 500, 600, 700, 800, 900 square-foot unit. Give that design to the architect and say now you fit it inside the walls of your tower, rather than the other way around. We did the same thing at Mattamy on the single family front. We started with what the people want to live in. We designed the inside first, the skin around that second, the lot fabric third, the street system fourth, rather than what’s normally done, which is the complete opposite of that. So we went right to the heart of where you live as the start. We need to do the same thing around high-rise living. Now, of course, in the in the low density stuff, as in the high density stuff we ran into a lot of, “Well, that’s not how we do things. We have regulations, we have this and that.” And we were able to over time convince many municipalities that there could be a better way. We need to do the same thing with the higher density stuff. And that’ll probably mean breaking some of the traditional rules about how big footprints are and how big plate sizes on towers, because it is artificial sizes sometimes. If it can’t be over 7,500 square feet on a point tower, yeah, but if 8,200 square feet will fit on the site and it creates more livable spaces inside and the economics of it work, what’s the problem? And it really isn’t one, except we’re bound rules and nobody knows why they’re even put in the first place.

EJ: I think it’s it will be an interesting conversation that shakes out in these big cities, as more and more people are coming here, you know, we’re expected to add.

PG: So it’s it’s building a livable unit, and building a livable community for those units to coexist in. That’s a start of it. But I also think that going forward, we’re going to look at integrating a lot more services as part of purveying to to you as a, as a young consumer, a lifestyle. So we have a whole sort of laboratory in the back, a whole group of non-traditional people working on what we’re calling ‘lifestyle solutions.’ And housing, a house or a place to live, is part of that solution. But what we’re hoping to be able to do in the future is is offer you a whole suite of things that make your life sweeter, no pun intended, and less less of a burden for you to do things that you’re not really expert at. And that we can do, you know, on an industrial scale more easily and more cost effectively, and deliver to you something more than just a place to live, but a place to have a life, so to speak. It’d be really interesting. So a lot of fun. And we’re spending a lot of brain damage, figuring out, you know, we’re looking at, we’ve compiled a list of 120 things that might be considered as value adds

EJ: Well, it’s interesting, you know, to think about what the different demographics want. How do you see the future of the suburbs? Where do you see that going?

PG: So I believe they’ll always be a suburbs, I believe that they’ll be a certain people that want to live there. And there’s lots of great reasons. It’s a great place to raise a family, certainly, and and there’s a lot of employment in the suburbs as well. So why live downtown and reverse commute to the suburbs to go get to your job. Having said that, obviously, in certain the context of the big cities in Canada, we have these physical constraints on development. In some cases, I would argue that some of the constraints are, let’s call them metaphysical. Those that know me will certainly vouch for the fact that I’m as ardent an environmentalist as 99% of the population. So I’m not a “cut them all down” kind of a guy. But I also recognize that there are many cases where protecting the environment is not really being addressed realistically, in terms of the solutions that might be available.

EJ: Are we speaking about the Greenbelt here?

PG: We’re speaking about things like the Greenbelt. My company, we don’t own one acre of land in the greenbelt, so it’s not like, “Get my land free for development.” I’m just saying that, what is it about the environment we’re trying to protect? In some cases, let’s say in the Oak Ridge Moraine, it’s around the watersheds, right, so it’s the headwaters for all of our rivers running into the Toronto basin. And the idea of ensuring that those waters are not polluted at headwaters, notwithstanding how polluted they are downstream, makes a lot of sense. But if you were able through modern science to absolutely eradicate the possibility that happened, what’s wrong with developing that land or some of that land? I would say there’s nothing wrong with it. I would say that the net benefit is that you’re reducing commute times, reducing the commute times has an obvious social benefit to people involved, and obviously an environmental benefit. So if a guy doesn’t have to commute to Barrie and he can commute to wherever’s closest but right now just verboten? That’s a good thing.

EJ: In the environmental aspect. It has to be this larger equation of total land use and transportation as well. I want to shift gears a little bit and talk about Mattamy Asset Management. This is something new that your company has started,

PG: I can give you my standard joke on that.

EJ: What’s the joke?

PG: Yes, ma’am.

EJ: Ha. With that, it’s the first time you’re diversifying away from the housing industry. Why? Why now?

PG: Well, our business, our housing business in Canada and the United States, generally speaking, is extremely healthy run by fantastic management teams. And we’re doing very, very well, thank you very much. It’s just things just came together at the perfect time in my life to say, I’m going to start to listen to the advice that I’ve been given for the last 20 or 30 years about not putting all your eggs in one basket. It just so happened that with the confluence of having terrific people who can actually run the home building business, I would argue better than I ever could, I kind of had to find something else to do with my time. I’m being a little facetious here, but it allowed me to scratch some itches that have been there for decades.

EJ: Gotcha. So it’s more personal than because of the kind of pause in the housing market?

PG: It had nothing to do with the pause in the housing market. This plan was incubated years ago. But pauses in the housing market, I’ve been through so many of those, I recognize that they come and they go, I don’t even blink. You try and prepare for them, of course. And we did, I think really, really well for the pause in the Toronto housing market. We sailed through that beautifully, but they come and go and this is more of a 10, 20, 30 a generational view of things or an intergenerational view of things. It was really time.

EJ: What sort of things are you diversifying into?

PG: So it’s right across, we’re in six or eight different classes of assets that were invested in every you know, everything from venture capital to securities and debt, so on so forth. But a lot of it will be rather entrepreneurial, starship type of stuff.

EJ: What kind of what kind of entrepreneurial stuff are you interested in?

PG: Well, I’d have to kill you. It’s roughly speaking, it’s things that are that have a huge technology aspect, that have a sustainability aspect, have a convenience aspect, a fluidity aspect. And especially when you can connect some of those things together to create a suite of value add services. It’s these businesses that were incubating or considering incubating. Some of them would be for the benefit of our core business, but many of them would be have a much broader implication to, in some cases, new home ownership across the continent. In some cases, to anyone who’s owning a home, regardless of how old it is as, creating a more convenient package of services for people to enjoy while they’re going through their lives.

EJ: Okay, so it’s still to be announced. Peter, thank you so much for taking the time to join us. I really appreciate it.

PG: You’re welcome. My pleasure.

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