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Stairs lead down from Parkway Forest Dr. to Sheppard Ave. East where the Don Mills subway station and Fairview Mall are a short walk away.Fred Lum/the Globe and Mail

Minto Group, Diamond Corp. and RioCan and other developers are gearing up to build more apartments in Toronto after the Ontario government scrapped rent-control rules for new residential buildings.

The November policy change came less than two years after it was introduced by the previous Liberal government, making it easier now for developers to recoup their costs. Previous regulations had capped rent increases on apartments built after 1991.

“It has helped us quite a bit,” said Ed Sonshine, chief executive of RioCan Real Estate Investment Trust. “With rent control off, it is encouraging us to build more and faster.”

The addition of hundreds of new apartment units should help alleviate at least some of the pressure for housing in a city with a rental vacancy rate at 1 per cent and soaring costs of rent. However, it is unclear whether it will be enough to bring rental prices to more affordable levels – an issue the city has been grappling with.

Soaring demand and a lack of places to live has spurred an unprecedented level of building activity at a time when interest rates are rising and businesses are worried about a potential slowdown in the economy.

As of the end of September, nearly 11,200 apartment units, which are purpose-built for renters, were under construction in the Greater Toronto Area, according to real estate consultancy Urbanation. That is in addition to the approximately 67,600 new condo units, which are bought by homeowners or investors and can be rented out, that were under construction in the third quarter. According to Urbanation, this is the highest number of units under construction in more than a decade.

RioCan, one of the country’s largest mall owners, is branching out into apartments by turning some of its existing retail spaces into apartment buildings.

The trust was developing a low-rise apartment complex in the popular King West area of Toronto when the rent-control rules were unveiled in spring of 2017. After assessing the new policy, RioCan turned the units into condos and sold them. “It is not something we like to do,” Mr. Sonshine said.

It is a similar story with Toronto developer Diamond Corp. When the rent-control measures were introduced, Diamond was unsure how to continue with its apartment project near a midtown subway station.

“It was up in the air about whether we would proceed with condo or rental, the size of the units, what it would look like,” said Diamond CEO Stephen Diamond. “Now that it will be free of the controls, we are just going back to the original plan of rental,” he said.

For Minto, it means the possibility of turning two massive residential projects into apartment buildings. Minto is trying to secure municipal approval to increase the size of two of its existing apartment complexes in the Toronto region.

One set of buildings is near a park in the west end of Toronto, where there are 750 rental units. Minto wants to build an extra 700 units. In another area north of the city where Minto has 490 units, the developer wants to add an additional 200 units.

“We would like to make those rentals,” said Minto CEO Michael Waters. “The change in rent control makes those projects a lot more viable,” he said.

The housing shortage has pushed the average rent of a one-bedroom condo above $2,000 a month in the Greater Toronto Area during the third quarter, according to Urbanation. Meanwhile, the average rent of a studio topped $1,800 a month and the average rent of a two-bedroom was above $2,700.

It is unknown whether the new rental units will be considered affordable. The Canada Mortgage and Housing Corp. defines affordable housing as costing less than 30 per cent of before-tax household income.

RioCan, Diamond and Minto plan to list their residential units at market prices. Developers say they cannot make a profit if they charge below market prices because development costs are so high. But they believe that increasing the supply of rental units will help drive down rental prices.

Toronto’s mayor, John Tory, believes that is only part of the solution. “Building more purpose-built rental is part of the solution, alongside the construction of new affordable rental housing,” said Don Peat, a spokesman for the mayor.

RioCan’s Mr. Sonshine has told investors he is thinking about turning more of his malls into apartments geared toward lower incomes.

“It is important for society that more affordable rental housing be created in the Greater Toronto Area for those younger and older people who are not investment bankers or cannabis entrepreneurs,” he said on a recent conference call to discuss financial results.

But Mr. Sonshine says it is not yet economical for his company to build such projects because of the high cost of development.

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