Garry Marr: Renting in Canada is better than it has been in years, but for how long?
It might be the worst time for rental construction developers to take their foot off the pedal, given that rental housing is still often described as unaffordable, but it could happen for some smaller players in a market where national asking rents have fallen every month for almost a year and a half and are at a 33-month low.
“We’ve been talking in the industry about the supply cliff starting in 2028,” Ben Myers, president of Bullpen Research & Consulting Inc., said. “We will be significantly undersupplying the market. It is inevitable that rents and prices will turn around at that time and go back up, but the pace of which I don’t know.”
Benjamin Tal, deputy chief economist of CIBC World Markets, said most apartment projects currently are ”low-hanging fruit” made possible because they had already started or were built on land already owned by developers.
Myers said the financial wherewithal of companies matters more these days, and more developers have switched from condominium projects , which are sort of quasi-rentals in places like Toronto because investors tend to rent out units.
“Every developer is looking at rental, but only so many can do it because it has a significant up-front cost,” he said, adding that condo developers can borrow against the deposits and contracts from purchasers. “You can forecast rent, but you are not sure what they are going to be in the future, and you don’t know what the rate will be for refinancing your construction loan. There are a lot more unknowns.”
Using the formula that rent should be no more than 30 per cent of income, it still seems expensive out there, so it’s not hard to see why developers might get skittish even as Canada Mortgage and Housing Corp. (CMHC) is still touting the need for more supply.
Rentals.ca said asking rents in February fell for a 17th straight month, down to an average of $2,030 nationally, representing 29 per cent of renter household income, which is below the affordability benchmark for the first time in more than six years.
CMHC earlier this month said year-over-year housing starts were up six per cent in February to an annualized level of 259,000, driven by record rental apartment construction that included low-rise apartments, multiplexes, row homes, stacked townhouses and accessory suites.
The problem, said Tania Bourassa-Ochoa, deputy chief economist at CMHC, is that those numbers are not forward-looking.
“Whatever we see in activity today is from decisions made a year or two ago,” she said. “These are from interest rates that were coming down and demand that was quite strong. Fast forward a few years and the situation has changed.”
Bourassa-Ochoa said there really is “this effect of taking your foot off the pedal,” which means a slowing of development.
For now, there hasn’t been a period such as this for apartment construction in decades, and there are 193,000 units under development, not a small number given there are 2.2 million existing units nationwide. Those units will be occupied this year and next, which is helping drive down rents. There are also another 140,000 units under construction, half of which could end up in the rental market.
“It’s just a lot harder to find tenants,” said Bourassa-Ochoa, predicting rents and occupancy will fall. “With that in mind, we expect purpose-built rentals to slow down a bit. It’s worrisome.”
All that supply is good news because it has improved affordability, but she said the risk is that developers will slow down and a supply shortage may return in three or four years.
A key difference could be that many developers in the marketplace have a long-term lens, one more focused on stable returns in the multifamily rental market.
Howard Paskowitz, senior vice-president of development and public affairs at Starlight Investments, Canada’s largest apartment landlord with about 50,000 units, said his company still has “thousands” of units planned.
“We do maintain a long-term vision and are less influenced by short- and medium-term market fluctuations than other developers,” he said, adding that variables such as rising interest rates or softening rates are factored into forecasts.
But Starlight is heavily focused on infill development, leveraging existing properties in its portfolios to avoid high land-acquisition costs. Paskowitz said reduced condo construction should help the rental industry because it will reduce costs due to less competition.
“We are very encouraged by the increasing dialogue and tangible action in the reduction of development charges,” he said, adding that it has proven key to some Toronto-area projects.
He said the company’s investment philosophy is centred on long-term ownership and management, distinguishing it from the condo sector that focuses on immediate sales.
“We design our rental communities to hold for decades,” he said.
Tal said many of the projects underway today involve land owned by the company, but the purpose-built market will reach a peak if some aspects of the regulatory environment do not change.
“Things will change and that includes development charges,” he said.
He said such charges could be cut 100 per cent in some cities. Toronto development charges were about $130,000 per apartment unit in 2025, according to CMHC data.
Tal said construction costs are also falling fast.
“Those two factors can offset the decline in rent,” he said. “That is a situation where more supply could come.”
He also believes that if rents keep falling, people who were “doubling up” — sharing apartments with roommates, living with parents or delaying moving out — will be enticed to move out.
The number of housing arrangements that can be described as doubling up has risen by an estimated 20 per cent from 2011 to 2021, reaching more than 17 per cent of the population, according to a report by Tal.
Hugh Gorman, chief executive of Ottawa-based Colonnade BridgePort, said analyzing the rental market needs to focus on more than the Toronto market and its massive number of unsold condos.
“We do have a robust pipeline,” he said, adding his group just launched a project two weeks ago. “We do see the demand side of the equation continuing to grow. We are not getting to the point in Ottawa where demand is exceeding supply. A bit of the Toronto narrative is creeping into the rest of the (country).”
Gorman said there is some pressure on rents, but construction costs have come down and developers with a long-term view are also now willing to accept a lower yield or return on their investment.
“We are way more conservative on rent growth,” he said. “But we are bullish. We believe we have the right product with an amenity-rich product in transit.”
Today, it’s better to be a renter than it has been in years.
“Most apartments are offering one or two free months’ rent,” Giacomo Ladas, associate director of Rentals.ca, said, referring to empty units on the market. “It’s not the same as it once was. But what really impacts the rental market are condos. There are more condo units (for rent) than (traditional) rentals available. It’s thrown a real loop into it.”
Those shoebox condo developments have shrunk, and the units will find rentals eventually, but Canada will still need more apartments in the long term, and that’s where developers with a long-term view might save the day.
There is still enough profit in the market to build more units and for renters, that means more choice and, hopefully, more affordability.
• Email: gmarr@postmedia.com