The projection for rental housing demand in Ontario has doubled in a few short years to create a supply gap north of 40,000 units, driven by a propitious economy, falling homeownership rates and mass immigration, according to a report from Urbanation and the Federation of Rental-housing Providers of Ontario (FRPO).
Net migration to the province has surpassed 200,000 people in each of the past couple of years and, in the process, doubled the five-year average. Moreover, the number of projects in the development pipeline has risen, and while the COVID-19 pandemic has, in the interim, stifled the delivery of both condo and purpose-built rental units to market, the supply chasm is, and will remain, wide.
“Ultimately,” read the report, entitled 2019 Ontario Rental Market Study: Revisiting the Supply Gap & Opportunities for Development (Summer 2020), “it has become evident that the current pace of purpose-built rental development and the amount of supply derived from condominium investors is grossly insufficient to bridge the gap and satisfy rental demand over the longer-term in the province.
“Under the updated outlook for rental demand and the improved trajectory for supply, it is estimated that Ontario will be underbuilding new rental housing by a magnitude of over 20,000 units per year during the period to 2031, which will occur even under an optimistic scenario for rental housing construction.”
The aforesaid “optimistic scenario” pertains to recent housing policies that would see rentals—again, condo and purpose-built units—double to 27,500, which would cut the deficit by a third from 2027-2031.
Perhaps unsurprisingly, the Urbanation and FRPO report stated that, short term, the majority of these rental units will be built in the Greater Toronto and Hamilton Area, and specifically in and around Toronto, where monthly rents have averaged at least $3,000.
“In the medium-term, new purpose-built rental supply based on current development applications will remain mostly centred in the City of Toronto, although projects will be more evenly dispersed across the city,” continued the report. “The 905 Region, however, will continue to represent a marginal share of overall rental development based on the current pipeline of planned projects. Furthermore, only 19% of total proposed purpose-built rentals were approved for development.”
Urbanation, for its part, identified 950 sites, which presently hold purpose-built rental buildings, that could, through infill development, add 176,074 units.
“Most identified City of Toronto sites were located outside of the downtown core in more affordable areas, and 35% of total potential infill units in the GTHA were located within 800 metres of a current or future rapid transit station,” added the report.
Urbanation determined that only 8% of such sites are affixed with development applications, meaning that 161,266 units could still be built elsewhere.
Unfortunately, such a promising opportunity comes with a caveat: the economics, even if there were zero land costs, wouldn’t justify redevelopment, claims the report, because achievable rents outside Toronto’s core wouldn’t offset development and operating costs.
Still, the idea has merit.
“However, the sheer size of this identified inventory creates an important source of potential supply that should not be overlooked,” said the report. “Although the assumptions used in identifying candidate sites and development capacity can be considered conservative, even cutting the calculated additional supply by one-third leaves roughly 100,000 potential units to be targeted for rental development, noting that these figures did not account for additional infill sites located outside the GTHA.”
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