There’s been a 75% increase in rental construction in Toronto over the last decade
Story by: Alexandra Posadzki, The Canadian Press
For the past two decades, developers in Canada’s hottest real estate markets have busily erected shiny new condominium towers while construction of rental buildings has stagnated.
But with the appetite for condos beginning to wane and sky-high home prices leaving home ownership out of reach for many, developers and institutional investors in Toronto and Vancouver are increasingly setting their sights on rental units.
“It’s a significant shift,” says Shaun Hildebrand, vice-president of condo research firm Urbanation.
The firm says there are eight rental buildings currently under construction and 37 more proposed in the Toronto area, containing a total of more than 11,000 units. That’s a nearly 75% increase over what has been developed over the past decade, says Hildebrand.
Some Toronto projects that were originally planned as condo towers will be built as rental buildings instead, including Urbancorp’s Kingsclub condo complex on King Street West and a proposed 49-storey tower at Bloor and Sherbourne called The Selby.
The new development proposed at the site of Toronto’s iconic Honest Ed’s store will contain no condos — only rental units.
In Vancouver, more than 1,000 dedicated rental units have been constructed each year over the past few years, according to data from the city.
“There just needs to be more rental stock because there’s such a demand for it,” says Kevin Hoffman, senior vice-president at Aquilini Development and Construction Inc.
The company is currently putting the finishing touches on of three towers that will form its downtown Vancouver rental community, the Aquilini Centre. It also has two other rental projects underway — a heritage building restoration in Vancouver and a 700-unit building in Montreal.
Adam Kasoy, senior managing director at real estate services company Colliers International, says many people simply can’t afford to buy homes, especially in Toronto and Vancouver, where home prices have defied gravity.
The average price of a detached home topped $1.1 million in Toronto and $1.4 million in Vancouver last month.
That’s left many potential buyers stuck in the rental market, keeping vacancy rates low and pushing rent prices higher. In Toronto, condo rents have climbed 15% over the past five years, said Hildebrand.
“That’s what investors and developers were waiting for — the big jump in rents,” said Hildebrand.
Developers have also discovered that many renters are willing to pay a premium to live in a well-managed rental building, rather than renting a condo from an investor who could force them out when it comes time to sell.
Renting from an investor has other drawbacks, as well. It can be tricky to get a hold of the owner when repairs are needed, and many investors lack the knowledge required to be a good landlord.
“Condos are not the best setup for the landlord-and-tenant relationship,” says Gavin Lottering, who has been living in his downtown Toronto condo for about two years and is looking to make the switch to a rental building. Lottering’s landlord recently tried to hike his rent to help cover condo fees. “I had to explain that the landlord and tenant act ties rent increases to the consumer price index,” he said.
Toronto condo rental market less competitive – Good news for renters, bad news for landlords
A new report by condo research firm Urbanation suggests Toronto’s condo market has become more renter friendly due to a glut of supply and shifting demographics. Although the number of units rented in the first three months of 2015 grew by 11 per cent compared with a year ago, the report says new listings shot up by 21 per cent as a slew of newly completed condo units came on the market. Meanwhile, average rents grew at a slower pace and even declined in some neighbourhoods — perhaps a surprising development in a city where the booming real estate market continues drive up already sky-high prices for homebuyers.
Condo rents grew by 1.1 per cent annually to an average of $2.37 per square foot across the city, but declined in several submarkets, including the downtown core, where they slipped by 2.1 per cent. The statistics come just as the rental apartment market is poised to spike, after stagnating for the past decade while developers focused on building condo towers. Urbanation says eight rental buildings containing a total of 2,458 units are currently under construction in the Greater Toronto Area, with another 34 projects containing 6,723 units proposed. That’s a 75 per cent increase over the number of rental units developed over the past 10 years. Urbanation senior vice-president Shaun Hildebrand says population growth among people in their 20s and 30s, who comprise the bulk of the city’s renters, has slowed. “The supply is coming at a time when some of the demographic forces are perhaps not as supportive as they were last year, and the slight reduction in interest rates may have caused some people to decide to buy instead of rent,” Hildebrand said. Despite the fact that competition between landlords to fill condo units has got tighter, Hildebrand says he doesn’t expect a significant uptick in vacancies. Lower mortgage rates mean that investors who have purchased condo units in order to rent them out will have more flexibility to lower their rental rates, he said.