In the midst of a global pandemic that’s been so challenging for rental property providers and residents alike, it’s been difficult to focus on anything else for those of us in the rental housing space.
The sheer scale and scope of the impact of COVID-19 on the rental housing sector has made it easy to forget that the pandemic will pass. But it will. And the problems and issues that faced rental property owners and those seeking quality rental housing prior to COVID-19 will remain, further exacerbated by recent events.
Rental housing is in hot demand not just in Ontario; it’s a trend that’s growing worldwide. In the post-pandemic world, when many people may be struggling to get back on their feet financially and some may have even sold homes to stay afloat, it’s likely that demand for such housing will probably increase.
The Canadian Mortgage and Housing Corp in fact says, it’s going to urgently promote measures to accelerate the supply of rental housing across the country due to the alarming number of coronavirus-related mortgage deferrals across the country.
According to an upcoming study we commissioned at FRPO with Urbanation, the rental housing supply gap in Ontario has quickly grown to a level today that is more than twice as high as originally calculated. Factors such as outsized economic momentum in the province, reduced homeownership rates and much stronger than anticipated increases in population growth have pushed the demand for rental housing well above 40,000 units per year as the decade came to a close.
Net migration to Ontario has been a particularly large contributor to the upward adjustment, having reached over 200,000 persons in each of the past two years- doubling the annual average recorded during the preceding five-year period.
The FRPO-Urbanation report made projections based on a multitude of data from Statistics Canada, the CMHC and other sources. Under the study’s projection for rental demand and supply, the Ontario market will require approximately 42,000 units to be built annually until 2031, but will be delivering approximately 24,000 units per year, resulting in a shortfall of approximately 18,000 units per year.
That’s despite the growing demand for what’s known as purpose-built rental housing- housing designed and built expressly as long-term rental accommodations.
A PWC Canada report earlier this year found that demographic and economic trends are favoring purpose-built rental housing. And Local Logic, a Montreal-based company that tracks shifting lifestyle demands of renters, sees more families renting rather than owning, which is also resulting in a demand for more diverse rental properties.
In addition to the aforementioned net migration factor, the fact that many Baby Boomers are looking to downsize and choosing to rent, and millennials are finding the option of renting an attractive and potentially more affordable alternative to buying a home, are also contributing to the trend.
So what to do about the lack of inventory?
High demand and scant supply are making it more attractive for developers to consider building and investing in purpose-built rental housing. The Ontario government’s removal of rent controls on new units as of Nov. 15, 2018, for example, is also helping to fuel more investment in rental housing.
But difficulties in getting financing can still be an issue for those seeking to develop purpose-built rental housing. Lenders often feel more comfortable financing condo complexes since they require developers to pre-sell most of the units in the planned project. There’s more certainty and peace of mind for lenders since the developer leverages the commitment to purchase pre-built units and the deposits from interested buyers.
With purpose-built rental housing, on the other hand, developers complete construction before renting out the units. That means securing financing for purpose-built rental housing can be more difficult, and that’s why condo construction in Ontario is predominant in the residential construction sector in the province’s larger communities.
From January 2018 to June 2019, for example, Statistics Canada found there were 48,934 condominium starts in Ontario compared to 12,412 rental starts.
Will that change in the post-pandemic world? It’s hard to say, but one thing is certain: Ontario is trying mightily to close that gap.
Since taking office in June 2018, the Ford government has made significant progress on improving the viability of building more rental housing across Ontario. Most significantly, it passed Bill 108, which was designed to incentivize the creation of more affordable rental housing in Ontario. It’s also amended the development approval process so shovels can get in the ground more quickly, something that is desperately needed if we hope to address our housing crisis.
This type of leadership will hopefully mean those looking to rent will soon have more choice and more options in the province of Ontario, where stakeholders have recognized the need and seem intent on filling it.