March 13, 2015 8:10 am
Updated: September 9, 2015 10:55 am

The rental crunch: How a lack of apartments is affecting Canadian cities

View of apartment buildings in downtown Toronto.

Credit/Canadian Press

Recently in Toronto, Westbank Developments proposed a new project on a prime piece of downtown real estate, the current site of the landmark Honest Ed’s department store. It will include shopping and residences – but no condos. All 1,000 units in the cluster of new buildings will be rental.

In Toronto, where over 10,000 condo units were completed in January alone, the mere fact that a developer is proposing a rental-only residence raised eyebrows.

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“You don’t have a culture which builds a lot of rental,” said the project’s architect, Gregory Henriquez. Many developers prefer to build condos because it’s an immediate return on their investment, he said.

“Our developer here has a long-term attitude where they’re going to have to put a significant amount of capital in and it’s going to have to stay there.” And with historically low interest rates, it’s cheaper for the developer to borrow money to build – making the up-front costs lower.

Even aside from the business case, said Henriquez, renting has certain advantages over purchasing a home. “It’s more affordable and it also provides flexibility,” he said.

Toronto, like many Canadian cities, needs more rental units. Half of Toronto households currently rent their homes, said David Hulchanski, professor of housing and community development at the University of Toronto. From the end of World War II up until 1984, the federal government had a program to subsidize rental developments, he said. After that, as the federal government scaled back its funding programs, new rental developments largely dried up.

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Federal funding helped to build the distinctive 20-storey 1970s concrete towers clustered around many of Canada’s big cities. And even now, they remain a huge stock of housing for many residents. One-quarter of Toronto households still live in these aging buildings, according to Hulchanski.

But cities are getting bigger and the cost of buying a home keeps climbing – out of reach for many. “Homeowners have double the income of renters,” said Hulchanski. Where then, are renters going to live?

In Toronto anyway, it’s far too early to say whether more developers will consider building rental units. Westbank’s project is just a proposal at this point, and while there was a recent case of a planned condo building switching to a rental, two cases don’t make a trend.

But, other Canadian cities are recognizing the need for more rentals and have policies to encourage them.

Subsidizing rental construction in Vancouver

“We were well-aware and have been for some time that housing costs are off the charts in Vancouver and in Metro generally,” said Geoff Meggs, a city councillor in Vancouver.

“If you do the analysis, you see that people who have a reasonable household income, even as high as $60,000 to $80,000 of family income a year, are not going to be able to have the money to even buy a small condominium in our market.”

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“So if you’re going to meet the housing needs of frankly a majority of the population, you’re going to have to build rental,” he said.

So Vancouver came up with a policy to wean developers off of condos. The Rental 100 housing policy waives certain development costs and eases parking and unit size requirements in an effort to encourage developers to build more rentals. In return, developers agree to keep the building rental-only for 60 years or the life of the building: whichever is longer.

“We did what we can and I think it’s starting to make a difference,” said Meggs. He said that roughly 1,000 rental units per year are being built in Vancouver and the city expects that trend to continue for the next four years. And despite criticisms that the city isn’t doing enough to keep the rents for these units low (he says they lack the tools to be able to subsidize rents long-term), he thinks the policy has seen some success.

It does cost the city though. “We’ve foregone several millions of dollars of development costs and things like that but we’ve achieved thousands of rentals. And so we don’t see it as a loss,” said Meggs.

Squeezed out of the city

Not having enough rentals has real effects on people’s quality of life.

Without enough rental stock, said Meggs, Vancouver becomes “a city for the elite and super-rich. And all the people necessary to make the city work end up commuting.”

“And because we have a significant amount of sprawl in some of our cities, they’re commuting a tremendous part of the day just to get to a job, and they’re paying a big chunk of their take-home earnings to pay for that transit cost.”

Hulchanski said that a lack of rental units also contributes to overcrowding: several families sharing the same apartment. And as a lack of supply pushes rents higher, people can go into “shelter poverty,” where “paying for your housing is putting the rest of your life into poverty, from adequate food to prescription drugs or whatever.”

Even policies that hope to increase the supply of market rentals leave one important piece out of the equation: affordable or subsidized housing, aimed at the lowest end of the market. There’s a need there too – for example, the current wait time for a two-bedroom apartment in Toronto’s rent-geared-to-income housing is five to ten years.

How to fix the problem

To help mitigate the problem, Meggs wishes that the federal and provincial governments would kick in more cash to rental and social housing initiatives.

“The only real solution is the restoration of federal and provincial housing programs.”

Other solutions have been proposed, of course. For example, many condos are rented out. So, having more condos could add to the overall rental stock in a city.

Except it doesn’t really work that neatly, said Hulchanski. “First off, we’re growing, so there is a need and demand for housing of all types,” he said. “Second, is just think about divorce and separation, right? If there is a separation one party goes and rents probably. Or if there is a marriage, maybe they had two rental units and now they have one. So there are so many things going on. We’re not a stagnant city.”

Tenants who rent a condo often don’t have the same legal rights and protections as they would in a traditional apartment building either, said Hulchanski. Although the laws vary from province to province, most such tenants can be kicked out more easily and their rents can be raised by larger amounts and more often than in a rental building.

“Analysis shows that people who are renting out a condominium are typically speculating on the value of the condominium, they’re not landlords,” said Meggs. “So in four to five years, they flip and sell to someone who wants to live in the apartment. So this contribution to the rental stock, it’s not insignificant, but it’s not permanent and it’s not cheap. It’s the most expensive in the rental market.”

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