Report on purpose-built rentals in GTA paints dire picture on future housing conditions

Condominiums are seen under construction in front of the skyline in Toronto, Ont., on Tuesday October 31, 2017. THE CANADIAN PRESS/Mark Blinch

A new report on purpose-built rental construction in the GTA paints a dire picture of future housing conditions, if all levels of government don’t make changes to keep up with the growing population.

The Building and Land Development Association (BILD), which co-authored the report, says all levels of government have to step up in order to match rental supply with demand amid a population boom.

The report found that overall, there continues to be a deficit on purpose-built rental construction and supply in the GTA, compared to projected population growth and demand.

This conclusion is the same as a report from 2023, which predicted a deficit of about 114,000 units. This year’s report projected an additional deficit of approximately 121,000 units for the next 10 years, bringing the total to approximately 235,000 units.

“The deficit is not going away,” Justin Sherwood, BILD’s senior vice president of communications and research, told CTV Toronto. “What that means, from a purpose-built rental perspective, is not enough dedicated rental apartments are being built to meet demand for all the GTA.”

A purpose-built rental property is housing that’s built specifically to be used as a long-term rental. They are typically larger multi-unit properties that are professionally managed by a management company.

There has been some promising action taken by certain levels of government to help remedy the situation. In Sept. 2023, the federal government waived HST on new purpose-built rental construction. This was matched by the Ontario government, which accelerated the construction of purpose-built rental projects.

Sherwood says that while there’s currently a record number of completions happening, the viability of purpose-built rental is eroding thanks to cost inflations, construction and declining rents. In turn, this will lead to a decline in purpose-built rentals in the coming years.

“You’re getting a big chunk of rental housing coming in the next year and that’s going to slow down tremendously,” says Sherwood.

Some municipalities throughout the GTA, like Mississauga, Peel and Vaughan, have taken targeted steps to reduce development charges and property taxes. Mississauga, for example, has reduced property taxes and completely waived development charges on large purpose-built rental apartments.

Development charges are fees applied by municipalities and regional governments for infrastructure, which can add $80,000-$90,000 to the cost of an apartment.

“It significantly changes the economics of building and running those apartments,” says Sherwood.

Between the added costs imposed by government and the rising costs of constructions, a disconnect is making projects financially unviable to build, which will make it hard to attract investors to finance them, he said.

Sherwood says that will have a noticeable impact on the city’s landscape.

“We’re rapidly approaching a point where you’re going to look up in the sky and all of those cranes that we have seen for the last decade that have been building apartments in condos and other things are going to be going away,” he says.

In order for this to turn around, the report emphasizes the importance of creating economic conditions that support the creation of new housing.

On the federal level, this would mean making sure that Canada Mortgage and Housing Corporation programs are in place to make construction loans less risky, and looking at ways to give incentives to municipalities to lower their development charges and property taxes

On the provincial level, Sherwood says the government is working on adjustments to development charges under Bill 17, which will take time to work its way through. They’ve also deferred the applications of development charges until first occupancy, which means delaying the time when the development charges are paid.

“That has a positive impact because it reduced the amount of interest a developer would have to pay on construction loans,” he says.

On the municipal level, it would mean re-evaluating the property tax structure and making sure it isn’t putting purpose-built rentals at a disadvantage, Sherwood said. Additionally, it would need to examine how it assigns fees added to new housing, outside from development charges, and how to reduce them.

The report was co-authored by BILD along with real estate consulting firm Urbanation and cost consulting firm Finnegan Marshall.