Canada needs more multi-suite purpose-built rental units
The housing shortage across Canada dominated the front pages in 2019. By the late summer, the national sales-to-new-listings ratio hit 0.6, which indicated a sellers’ market according to Morguard’s 2020 Economic Outlook. As noted by RBC’s “Big city rental blues: a look at Canada’s rental housing deficit,” Canada’s top urban markets have historically had a vacancy rate of just over 3% along with zero real rent increases – nominal rent rising at the rate of inflation – yet a large number of these major metropolitan areas are currently resting below this vacancy rate. A factor that continues to drive prices up.
When looking at these ongoing housing market trends, the need for greater multi-suite purpose-built apartment supply has spiked in Canada’s major cities. As rents continue to increase, people are looking for long-term renting options for stable living situations without the expensive commitment of home ownership. Increasing demand for condo-quality rentals and limited inventory have demonstrated that sustainable, long-term investments in multi-suite purpose-built properties are attractive to investors.
Population growth is generating demand for multi-suite purpose buildings
The need for multi-suite purpose-built properties in major cities has prompted developers to reassess their investment decisions with increased frequency. In an everchanging housing market, builders are turning their attention toward traditionally less-appealing, long-term multi-suite rental apartment investment options, having historically invested in short-term condominium developments to build and immediately sell.
Canada’s population growth rate for 2018/2019 was 1.4%, which was the highest level recorded since 1989/1990 (1.5%) and the highest among G7 countries according to Statistic Canada’s 2019 population estimates. During 2018/2019, Canada also admitted among the highest levels of immigrants and non-permanent residents in the country’s history.
According to the Ryerson University’s Centre for Urban Research and Land Development’s 2019 report entitled, “Something to Think About: What Is Driving Declining Population Mobility in the Greater Toronto Area?” total residential mobility declined in all six of Canada’s largest metro areas between 2006 and 2016. A consistent relationship was found between the decrease in supply of new housing and the decline in owner mobility in all six metro areas, leading to homeowners and renters remaining in their current places longer.
Changing labour markets are leading to a concentration of talent in major cities
Vancouver, Montreal and Toronto are a few major cities feeling the impact of an increased population. Job market trends in these cities of the past several years are part of a societal shift toward technology-related careers and have been attractive destinations for companies providing high paying jobs. With a strong education system increasing the number of tech workers in Canada, these areas are projected to have long-term growth, an increased number of workers and, as a result, higher demand for units in multi-suite purpose-built properties.
In other regions, such as the Prairies, the rental housing market has higher vacancy rates with more frequent cyclical variation and weaker economy fundamentals of late. Often impacted by uncertainty in the job market, workers in the region often have a “wait-and-see” approach before determining whether to settle down or make the investment into a home, thereby increasing the demand for rental options.
Opportunities in the market for solid investments
Across the country, the multi-purpose residential market is experiencing increased rental demand for newer developments and renovated properties, including in markets with low vacancy rates across the country like Toronto. The recent redevelopment work for the residential complex The Heathview — the first purpose-built rental in mid-town Toronto in 40 years — represented rental accommodation ideally suited for renters looking for options in today’s market: new construction in a prime location with historically low vacancy rates.
Despite the changing market, investing in multi-purpose developments continues to be an attractive option. Developers are achieving full capacity in multi-purpose properties, with additional demand across the country. With the expectation that more standalone multi-family rentals will be built because of these factors, we can expect to see more developers integrating long-term rentals into larger mixed-use projects as well to capitalize on this demand.
Keith Reading is director of research at Morguard Corporation, a major North American real estate and property management company. It has extensive retail, office, industrial, hotel and residential holdings owned directly and through its investment in Morguard North American Residential REIT, Morguard Real Estate Investment Trust, and Temple Hotels Inc. Please visit www.morguard.com or follow on LinkedIn.