After decades of slow or almost no growth in new purpose-built rental construction, the Greater Toronto Area may be in the middle of a mini-surge as a range different players are finding creative ways to keep some of the region’s land from turning into another new condominium.
With one of the tightest rental markets in the country, one of the most expensive home ownership markets and a booming population, it should be no surprise that the Toronto region has pent-up demand for rentals. What’s new is that the math for builders is finally starting to make sense to build new rental – particularly in the luxury and premium rental market – which is leading to an uptick in supply in levels not seen since the mid-1990s.
According to data from real estate analysts Urbanation Inc., six projects and 1,723 units began occupying in 2017, but it projects that in 2018 nine projects equalling 2,669 units will be delivered.
There are also 162 proposed rental projects across the GTA, which could add up to 34,054 units. Of that, approximately 27,000 are in city of Toronto, and almost 17,000 are even more centrally located in the boundaries of the old city of Toronto.
The region never stopped building rental housing, but as a 2017 Ryerson City Building Institute report noted, its only in the past two years that the market has seen more than 2,000 rental construction starts per annum since 1994.
“New market rental is badly needed in the downtown,” said Cary Green, chairman of Greenwin Inc., which just announced that it won a request-for-proposal to build 700 units of rental as part of the Provincial Affordable Housing Lands Program in exchange for keeping 30 per cent of the building affordable for 40 years. The site, near Bay and College, is the kind of downtown land the company could only dream of acquiring in the open market. “It’s very challenging today – we’re competing with the condo market. They can pay more money for the land than the rental market has been able to in the past,” Mr. Green said.
The competition between condos and renters for land is why some of Canada’s biggest pension funds and insurers are teaming up with the the region’s biggest landlords to squeeze new rental buildings onto their existing properties.
“Up until the mid-2000s, a lot of the landlords or owners would grow by purchasing existing rental assets,” said Drew Sinclair, Principal at SvN Architects and Planners. “Now, the cost of building is less than the cost of buying. That’s a really dramatic transition.”
Earlier this year, Minto Capital, a part of the builder and landlord Minto Group, announced one its first new-build rental buildings in years was nearing completion in Oakville: 1235 Marlborough is a 14-storey tower on the grounds of its existing Marlborough complex in the College Park neighbourhood at Trafalgar and Upper Middle Road.
“We’re catering to two markets: students with a roommate or downsizers that are coming from larger homes and can’t envision their lives shrinking into a one bedroom,” said Ben Mullen, vice-president of asset management, who said the building has 144 units, 97 of which are two-bedroom (starting at $1,675 a month) and 46 are three-bedrooms (starting at closer to $2,000).
Mr. Mullen said that major landlords such as Minto have two options to increase the value of their portfolios: “reorientation,” which means renovating old buildings with more attractive modern amenities to enable charging higher rents; or intensification, which means squeezing a new building onto the existing land, which also lets it charge higher rents. “We are seeking rents that are greater than our existing building,” he said. “ This is the only one that would fit at Marlborough. We have a couple other we’re working on in the GTA that are very similar.”
Mr. Sinclair, whose firm has consulted on planning and design for many of these landlord companies, said there are 2,700 high-rise apartment buildings in the city of Toronto alone, the majority of which are “tower in the park” configurations ripe for intensification. “There’s a huge amount of potential for a significant amount of rental housing to come online,” he said.
But the ability to charge premium rents in the GTA is also what’s drawing in new players, such as condominium builders Camrost Felcorp Inc., which added a luxury rental building – 101 St. Clair – to its redevelopment of the Imperial Oil headquarters.
The market they are after is “that Forest Hill homeowner who doesn’t quite want to make the full commitment. 101 St. Clair is the toe in the water to see if this lifestyle is right for them,” said Joseph Feldman, director of development at Camrost. He said 101 St. Clair is about 50-per-cent leased, but while one-bedroom suites start at $2,295 a month, some of the larger 1,500 or 2,000 square foot units hit $5,500, or even $20,000 a month for its highest-end pads.
“We are hot on the market, we believe, in the product that we build. We’re on the verge of pulling the trigger on another purpose-built [in the company’s new community in Leaside], “ he said. “The joke in our office is that in the past 41 years we’ve built 11,000 units – imagine if we kept all of those as rentals.”
While it might not seem like high-end units perform a useful role in solving the affordability issues that rental usually addresses, Altus Group chief economist Peter Norman suggests a different way to think about it. “The city itself is 650,000 units strong. That’s the size of the rental stock in the GTA. If you don’t provide at the high end, it’s a cork in the bottle; nobody can move up.”
That said, the luxury market might not be able to address the growing region’s needs.
“If we’re starting to build more housing, more rental, there is a bigger opportunity there than if we’re just focusing on the luxury market,” said Graham Haines, research and policy manager for the Ryerson City Building Institute, one of the authors of a report that suggested the GTA needs to add 8,000 new purpose-built rental units a year until 2041 to keep up with population demand. If the majority of new rental units go for premium rates, “Obviously, our lowest income people are pushed further and further down the property ladder,” Mr. Haines said.