The current boom in Canada’s purpose-built rental building construction may soon be over.
A report from the Building and Land Development Association (BILD) says while we are seeing a record number of purpose-built rental completions right now, that’s expected to fall and we are headed for what experts say is a housing crisis worse than what Canada saw from 1991 to 1993.
“You’re looking at a shortfall of dedicated rental apartments versus population growth,” says Justin Sherwood, BILD’s communications and research officer. He adds that the financial viability of building them in Ontario and in the GTA has been challenging for quite some time.
“The City of Toronto really needs to start taking a look at what some of its neighbours are doing,” says Sherwood, adding purpose-built rental apartments have picked up in places like Mississauga and Vaughan following changes to municipal taxes and fees.
“The rates of return that you’re getting don’t enable these projects to be financially viable,” says Sherwood, “and don’t attract the investors necessary to build.”
As the population continues to grow, “but you’re not adding housing, over time that leads to supply challenges,” he adds.
According to the report, “with condo investors pulling back significantly,” purpose-built rentals are expected to contribute most of the new rental supply in the next decade.
However, the report goes on to say that to deliver at least an additional 100,000 rental units on top of what the market is already on track to deliver, purpose-built rental construction starts need to increase by about 16,000-19,000 units per year.
The cost to build these projects is an impediment as “the rate of return is too low,” says Sherwood.
Higher interest rates, consumer behaviour and rising costs to build have led to a boiling point, where “many housing projects have become unviable in the GTA.”
To help alleviate the costs, Sherwood says all three levels of government have “levers” they could use.
For example, lowering property taxes for purpose-built rental projects, unlocking reserves that exist to support the delivery of housing, and eliminating or reducing the fees or development charges for rental and mixed-use projects.
If governments want to help, Sherwood says they can look at “how they’re introducing costs into those projects and address them.”
If they can reduce the cost, that helps improve the returns to make them more attractive for institutional investors, says Sherwood.
The City of Mississauga has “taken some very deliberate steps,” says Sherwood, such as eliminating all development charges on large, purpose-built rental apartments, which fundamentally change the cost structure.
“The City of Toronto is dead on arrival, there’s no way (the needed housing) is going to get built any time soon,” says Sherwood, adding that action is required by all three levels of government.
“We’ve been trying to advise governments that this point is coming and that housing starts are going to fall,” he says, adding that he feels the issue hasn’t been getting the attention it deserves.
“I’m genuinely concerned that we are going to look up and there are going to be no cranes in the sky,” says Sherwood, “And the population is going to keep on growing as we head into an even worse housing crisis.”
