urban growth

Tackling the challenges of urban growth

What to expect from Canada’s rental market in 2020
Tuesday, January 14, 2020
by Erin Ruddy

As rents continue to climb in Canada’s major metropolitan areas, “creative” and “collaborative” solutions will be needed to tackle the challenges of urban growth. This is the general consensus among the 16 housing professionals and experts consulted by Rentals.ca as part of the 2020 Rental Market Predictions report.

With average rents at the national level expected to climb 3 per cent, affordability and low vacancy rates will continue to make life difficult for Canada’s renting population. In 2019, the crowded rental market was mostly made up of millennials seeking ideal locations and favourable amenities; immigrants finding their way in a new country; and baby boomers retiring, downsizing and selling their homes to capitalize on the equity.

But they aren’t the only groups influencing the market. “As more families continue to rent as opposed to buy, we see renters for larger homes are willing to sacrifice their ability to take transit or walk to get their groceries in favour of being located near a quality school,” observed Vincent-Charles Hodder, CEO of Montreal-based Local Logic. “We expect the rental markets to perform very strongly in areas close to schools in 2020.”

According to forecasts, rents will continue to be highest in Toronto and Vancouver, where vacancy rates hover around an unhealthy 1 per cent. Most surrounding cities of the GTA and Greater Vancouver are also seeing rising rents as more people opt to trade in the higher costs of big city rents for cheaper locales with longer commute times.  Rents are also increasing in Montreal, Ottawa and Halifax, where vacancy rates are under 2 per cent.

Veteran housing analyst Ben Myers, president of Bullpen Research & Consulting, is calling for all sides of the housing debate to “do a bit more reading on solutions that have actually worked and more research on what policy changes have not worked.”

In the report, Myers points to the mortgage stress test, expanded rent control, changing AirBnB legislation, rapid population growth, and record rental housing construction as the main factors that will continue to disrupt the balance between supply and demand nationally. “We expect the market to continue to be undersupplied overall in Canada in 2020,” he said.

Here are some of the housing trends he predicts for this year:
• More renovations of older run-down apartments, as rent growth has been high enough to justify those investments;
• More rental apartment starts, with a greater focus on smaller units, more affordable units and more shared amenities;
• More alternative rental options like laneway suites, tiny homes, co-living developments;
• And, more buildings sold as condominiums to individual owners who agree to lease all suites in the building in a pooled rental arrangement (popular in university towns).

Myers also stated he “wouldn’t be surprised” if corporations started buying condominiums to ensure they have close-by housing for their incoming graduates. “It would be a great recruiting tool to have properties available within walking distance of their offices.”

In addition to these trends, housing analysts will be closely tracking experimental and innovative projects, such as Sidewalk Labs in Toronto and the Squamish Nation development in Vancouver as more creative developments emerge to tackle the challenges of urban growth.

Supply constraints

Don R. Campbell, senior analyst with the Real Estate Investment Network and the president of Cutting Edge Research, believes the landlords’ market we’re seeing in many regions across Canada won’t be changing anytime soon, citing “government at all levels vilifying independent, real estate investors and entrepreneurs” as a major reason.

“It seems the narrative that surrounds the terms ‘real estate investor’ and ‘entrepreneur’ in Canada has been changed from ‘thank goodness we have them’ to ‘they are the problem in this world,” he said—adding that elected officials “gain political points” while putting a burden on housing providers with more taxes, regulations and tighter rules on rental property financing.

And while we are seeing an increase in purpose-built apartment buildings in most city pipelines, it’s simply not enough to match the growing need. In a recent study from Ryerson University’s Centre for Urban Research and Land Development , Toronto grew by more than 77,000 residents by the end of July 2018. That was more than the next three cities combined: Phoenix, AZ; San Antonio, TX and Fort Worth, TX.

Tony Irwin, president of the Federation of Rental-housing Providers of Ontario (FRPO) sees Toronto’s lack of available rental housing as dire. “We are in a housing crisis. We have to do things that are extraordinary. And, we need to do things with immediate impact.”

Some of his suggestions include:
• Developing “Unicorn Sites”, properties with one or two towers that have room for a third or even a fourth;
• Streamlining the city’s development approval process;
• Engaging with communities — NIMBYs and tenants’ groups — sooner in the development process;
• Bringing Toronto’s outdated zoning codes up to date, such as considering rental-only zoning as done in Vancouver, and more as-of-right zoning.

Meanwhile, Vancouver City Councillor Jean Swanson has a different take on what’s needed to improve her city’s affordability issue. A supporter of rent control, she believes that restricting landlords from raising rents when a unit changes tenants takes the profit motive out of evictions.

“We would have fewer evictions, and rents would be lower,” she said, adding that the real construction push should be for non-market housing. She also acknowledged that she would like to see the city zone for rental only. “This might lower the property values, but we could build co-ops, and that’s what people want — cheaper land and cheaper financing,” she said.

Like Swanson, Rich Danby, owner of Rich Ottawa Investments and ROI Construction, sees housing affordability as the biggest issue in his city but has other solutions in mind. For starters, he points to the stress test. “The stress test for mortgages is crushing the first-time homebuyer market and is having a negative impact on the trade-up market, as well.”

In addition to changes to the stress test, Danby said he would like to see new policies in Ottawa that would consolidate and simplify the process of new construction. Currently, when a buyer closes on a building, he or she has to pay the Harmonized Sales Tax (HST), then apply for a rebate through the Canada Revenue Agency (CRA). The HST combines the federal goods and services tax (GST) with the provincial sales tax (PST) into a single value-added sales tax.

“It doesn’t make sense to pay HST and then get a rebate,” Dandy said. “It should just be a reduced tax-rate or rolled into the price and financed as part of the transaction.”

Click here to download the complete 2020 Rental Market Predictions Report.

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