Canada needs to build more rental housing. A lot more

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The final tally of the wildest year ever for Canadian housing is in and the numbers – fuelled by high demand, low supply and rock-bottom interest rates – show records across the board, from the volume of properties sold to the stratospheric prices paid.

The cost of a typical Canadian home hit $811,700 in December, up an astounding 26.6 per cent from a year earlier, according to the Canadian Real Estate Association. That was the biggest increase yet in a two-year pandemic housing price boom, and it also far exceeds the pace of price rises in 2017 and 2006. And almost 667,000 existing properties changed hands last year – 20 per cent more than in 2020, itself a record sales year.

One-word description: mania.

Established owners may be smiling, but the longer the situation goes on, the more it puts homeownership out of reach of others. That means renting is becoming the only option for more and more people – especially younger Canadians.

The City of Vancouver, where prices first went ballistic some years ago, is in the lead on this trend: More than half of all households in the city rent, including three-quarters of new households.

The rental market is also tight and expensive, but there is one bit of good news: After decades of barely any construction of new, purpose-built rental housing, more apartments are finally being built, from coast to coast. It’s not yet enough – but the trajectory is at least moving in the right direction.

Across Canada, there’s been a boom in housing starts, a record of more than 270,000 in 2021. That’s well above the average of the previous four years. The welcome jump is propelled in large part by new rental units. A rolling average shows annual completions of new rentals pushing past 60,000 a year, topping the annual level of condo construction. This is a major shift. For decades, detached homes and condos accounted for almost all new housing in Canada. And this hopeful trend is accelerating, with more than 100,000 rental units currently under construction.

It’s a good beginning, but the problem is Canada has been underbuilding for decades – especially in rental housing.

Scotiabank reports Canada has the lowest number of private dwellings relative to its population among Group of Seven countries, with the housing deficit especially acute in Ontario. The general shortage puts “upward pressures on prices and rents,” according to Scotiabank. Current levels of construction will not be enough to solve the problem any time soon, “given the size of the gap to be closed.”

Another challenge, for rentals specifically, is the economics of getting units built. A recent Canada Mortgage and Housing Corp. study shows that, even in an era of high rents and low vacancies, factors such as land costs and parking requirements make rental construction relatively less attractive to developers. The growing number of new rentals under construction suggests developers are finding solutions, but to encourage more construction, more change necessary.

Canada can look back to successes in the 1960s and 70s. Ottawa helped to drive the building of a huge number of rentals – through measures such as grants, cheap loans and tax breaks. All that vanished in the 1980s. Rental construction just about stopped for a generation, alongside other policies such as rent control. Individual condos rented out by investors filled some of the gap, but such rental housing is precarious.

Since 2017, the federal government has put on a push to change things, with a focus on loans for rental construction. But the scale of the problem is currently bigger than the solutions being offered by both Ottawa and the provinces.

Facing an election this spring, Ontario’s Doug Ford government has struck a housing affordability task force whose primary goal is “increasing the supply of market-rate rental and ownership housing.” Its report is due Jan. 31. Early suggestions point to the possibility of it proposing big changes, including forcing cities to accept looser density rules – which will get more housing built, especially rentals, in existing neighbourhoods. However, it remains to be seen if that is what Ontario will deliver.

When housing prices go up by more than 26 per cent in a single year, it should be a five-alarm emergency. This mess was decades in the making. It will take years to fix. The time to start the work was yesterday.

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