'Difficult to get your head around' the barriers to building homes: RioCan CEO
RioCan, typically known for its retail footprint, is now focusing on growing its residential portfolio
The head of one of Canada's largest real estate investment trusts (REITs) is looking to build more desperately-needed homes in the country's major cities but says lengthy planning processes and excessive fees are standing in the way.
"These challenges are difficult to get your head around," Jonathan Gitlin, chief executive officer of RioCan REIT (REI-UN.TO), told Yahoo Finance Canada in an interview.
The time it takes to build a multi-unit residential building, particularly in Toronto, "will blow you away," he said, adding that it can sometimes take upwards of eight years from the initial application for the project to completion.
It’s a very problematic situation, particularly when you're in a community that is so starved of rental housingJonathan Gitlin, RioCan CEO
Gitlin also takes issue with the amount of levies, taxes and other fees required to build condo towers and apartment buildings, on top of elevated construction and financing costs.
"We, as developers, are no strangers to inflation, because the truth is we've been seeing double-digit inflation on construction costs for the last seven or eight years, not just the last one year. So if anything, (construction costs) have actually tailed off but interest rates have doubled so that's obviously a huge line item expense that has made it more difficult to build," he said.
"And then you've got these levies. So you have to pay the province, the region and the city a lot of money when you build."
"It's a very problematic situation, particularly when you're in a community that is so starved of rental housing," he added.
RioCan REIT, known as a major retail-oriented landlord, has now turned its focus to expanding its residential exposure.
The bulk of its revenue comes from the retail sector, with only three per cent coming from residential, a number Gitlin aims to increase.
The company has 10 development projects underway, all located in southern Ontario and mixed-use residential, meaning the buildings have a residential and retail component.
Gitlin wants to see $55-$60 million of the company's net operating income come from residential by 2026. That number stood at $4.3 million as of the first quarter.
RioCan is "progressing well" on that target, according to Veritas Investment Research analyst Shalabh Garg, in a note published on Friday following the company's first-quarter earnings results.
Policies help 'incrementally'
The need for more affordable housing is acute as higher interest rates, tight supply and increased immigration push home ownership and rentals out of reach for many Canadians.
All tiers of government have rolled out policies over the years aimed at improving the housing situation with little to show for it, evidenced by eroding affordability for homebuyers and record-breaking rental prices.
Some of the more recent policies include the federal government's First Home Savings Account and Ontario's More Homes Built Faster Act.
These are all steps that help "incrementally," Gitlin says.
Overall though, it needs to be a collaborative effort between all stakeholders, including the industry, government, banks and the Canada Mortgage and Housing Corporation, he says.
"We all have to work together to create solutions that are meaningful, because I really do think we're facing a housing crisis and we're all very responsible. We all want to do this but, you know, it's tricky to unwind processes that have been around for a very long time," he said.
The bottom line, Gitlin says, is housing demand in the long run isn't going anywhere and more supply is needed.
"We really want to build it and we're doing everything we can to mitigate some of those challenges," he said.
Michelle Zadikian is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @m_zadikian.
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