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Over 1,000 planned rental housing units converted to condos in reaction to new Ontario rental rules; Ontario faces shortfall of 6,000 units per year in rentals

A new Urbanation study indicated “rental housing supply will continue to diminish and vacancy rates will drop further unless at least 6,250 additional new rental units are built each year for the next decade, in addition to the expected level of new development.” This is despite the fact that 32.6% of all condos are used as rental units in Toronto (according to CMHC, Urbanation Inc.)

Vacancy rates in Ontario are already at critical low points — 1.3% in the City of Toronto, according to CMHC 2016 Rental Market Survey. The report appears to attribute an ongoing expected shortage, in part, to Ontario’s new rental rules, introduced by the Wynne government. The combination of new rent controls and restrictions on foreign investors is expected to continue to hamper supply.

 

CMHC Urbanation data showing Condominiums versus purpose-built rentals. Even though 32.6% of condos end up as rentals, the report sees a shortage of 6,250 units each year, in part due to the reluctance of investors to embrace the rental market with the new rental caps.

 

The report, commissioned by the Federation of Rental-housing Providers of Ontario (FRPO), clearly illustrates the rental supply crisis, as do the number of cancelled purpose-built rental projects in the GTA.  Before the introduction of Bill 124 earlier this year, proposed rental projects were at a 25 year high with 28,000 units in the planning pipeline.

Since then, at least 1,000 planned rental units have already been cancelled or converted to condos, among them the already-under-construction King Portland Centre. The King Portland Centre has converted its 130 residential suites from rental market to Condominium.

 

 

Ontario needs 34,000 new rental units per year

The report identified: “Demand for renting purpose-built and condominium apartments in Ontario is projected to average 34,000 units annually in the coming decade, leaving a supply shortfall of over 6,000 units per year under the baseline development outlook. Without an immediate doubling of rental construction from current levels, further declines in vacancy and intense competition for available units is expected. The delayed increase in required rental development to offset demand could result in an annual supply gap reaching over 10,000 units within 10 years. Without any changes in the supply outlook, a cumulative deficit of 62,500 rental units is expected to be amassed in the coming decade.”

 

32.6% of condominium units end up as rentals currently.

 

To address this problem, FRPO today launched its ‘Rent On’ campaign encouraging Ontarians to ask the provincial government to take measures to allow for more housing choices for renters by introducing amendments to Bill 124.

Ontario’s scarce rental housing supply combined with the escalating house and condo prices have created a housing crisis in our biggest cities,” said Jim Murphy, president of FRPO. “The only solution is for Ontario to build itself out of this situation. This begins with our provincial leaders working with industry to identify and implement policies that create more purpose-built rental units, not less.”

Demographic trends in Ontario are leading to ever increasing demand for rental housing. Millennials, new immigrants, and aging boomers are all increasingly likely to rent, particularly given the high cost of homeownership. The report notes that “projections indicate a substantial imbalance between rental demand and supply in the Ontario marketplace over the next decade, which could reach potentially crisis levels in the absence of a meaningful increase in new purpose-built [rental] development.”

 

Condominium pre-sales continue to grow. About 1/3 of these will, fortunately, become rental units if current trends continue.

 

Increasingly, Ontarians are choosing to rent for the lifestyle benefits and flexibility – especially among millennials and seniors. Kate Burkholder is one of the many millennials currently searching for an apartment. Having just moved back to Toronto, she was devastated that finding a rental was so hard. “Moving back to Toronto from Vancouver, I was excited to find a better cost of living. Needless to say, I panicked when I realized there are next to no rental options. I am now looking at buying a condo outside of the city so I can afford to maintain my lifestyle.”

‘Rent On’ is a public engagement campaign designed to educate Ontarians about the economics of rental supply in the province, its impact on the real estate market, and how more units can help. The end goal is to put pressure on decision-makers to ensure there are adequate rental housing options.

“This study truly underscores the urgency of Ontario’s current rental housing supply situation,” added Murphy. “If our government leaders fail to act now to address this crisis in a meaningful and sustainable way, the results will serve to further impact Ontario’s economy, such as through additional strain on our cities’ transit infrastructure as people are forced to commute further and further to find more affordable housing options.”

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