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File photo of condo construction work in downtown Toronto.

Peter Power/The Globe and Mail

The Globe's Real Estate Beat offers news and analysis on the Canadian housing market from real estate reporter Tara Perkins. Read more on The Globe's housing page and follow Tara on Twitter @TaraPerkins.

Canada appears to have a shortage of affordable rental housing, and condos are a big part of the problem, the Organization for Economic Co-operation and Development says.

"Rising house prices have worsened affordability disproportionately for renters, who tend to have lower incomes than homeowners," the OECD says in a report that it released Wednesday about Canada. The proportion of pretax income over and above 30 per cent that households are spending on shelter is much higher for renters than for homeowners.

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"Maintaining a dynamic stock of good-quality and affordable rental housing is important for supporting labour mobility and immigration as well as good social, health and educational outcomes," the OECD says.

It points to the fact that condo construction has increasingly been crowding out apartment construction over the past decade. And, while many of those condos wind up being rented out, they tend to have higher rents and be a less stable supply of housing for tenants.

"Condominium buildings compete for the same multi-residential zoned land as rental apartment buildings," the OECD says. "Private developers have favoured condominium development over purpose-built rental buildings because of the higher returns and lower risk involved."

Developers can pre-sell condo units that haven't been built yet, whereas they must wait until an apartment building is complete to see what demand will be like from tenants. Also, taxes are higher on new apartment buildings than they are on condos, the OECD says.

Another point is that developers who are planning to build and own an apartment building in Ontario, Quebec, British Columbia, Manitoba and Prince Edward Island must contend with provincial rent controls (whereas if they build a condo building, they sell the units, and individuals who choose to rent theirs out contend with rent controls). But the OECD suggests that this is not the main problem, noting that the apparent emergence of rental supply shortages is not limited to provinces with rent control.

Cities with low vacancy rates – or shortages – at the cheaper end of the rent spectrum include Calgary, Ottawa, Quebec, Regina, St. John's, Saskatoon and Winnipeg, it says.

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