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According to the report, the early influx of purpose-built units led to a noticeable increase in average rents in parts of Canada
Published on November 20, 2023 • 4 minutes reading time
Housing construction in London, Ontario. Photo by Mike Hensen/The London Free Press/Postmedia Network files
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The good news for renters is that there will be more and more purpose-built rental units, driven by federal and provincial tax breaks for builders. The bad news is that these units probably aren’t cheap.
The latter finding was highlighted by the latest monthly rental report from Rentals.ca and Urbanation Inc., which found that in parts of the country, including Alberta, Nova Scotia and Quebec, an early influx of purpose-built units led to a noticeable increase in rents Average rents in October.
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“These provinces have experienced a combination of strong population growth and a large influx of new rental supply at above-average market rents,” the report said.
In October, the average apartment rent in Alberta rose 16.4 per cent to $1,686. Likewise, average rent in Nova Scotia rose to $2,097, a 13.6 per cent increase from last year, while Quebec followed close behind with a 13.3 per cent increase to $1,977.
The national average rental price was $1,889 per month, according to the report.
According to the Canada Mortgage and Housing Corporation, a total of 36,292 new rental housing completions were completed in Alberta, Quebec and Nova Scotia in the 12-month period ending October 2023, collectively accounting for 55 per cent of Canada’s total rental housing completions in that period.
“Brand new buildings are increasingly featuring better finishes, strong locations, better design and better floor plans. You know, most of the rental inventory in Canada was built in the 1960s and 1970s. “So it’s not hard to understand why newer rental buildings command higher rents than the overall market average,” said Urbanation President Shaun Hildebrand.
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This may be a sobering thought for governments that have sought to facilitate the construction of dedicated rental housing as concerns about housing affordability grow.
In September, Prime Minister Justin Trudeau announced that his government would no longer impose the Goods and Services Tax (GST) on new rental housing projects, effectively reducing labor and material costs for builders.
In November, the Ontario government followed suit and unveiled plans to eliminate the entire provincial share of eight per cent of the Harmonized Sales Tax (HST) on qualifying new purpose-built rental properties – part of its plan to build at least 1.5 million homes by 2031.
Currently, Ontario offers a rebate of 75 percent of the provincial HST paid, capped at a maximum of $24,000. Under the proposed changes, that rebate would increase to 100 percent of the provincial HST, with no cap.
However, the high cost of new units could undermine the idea that PBRs can solve the country’s affordability crisis.
In Ontario, where these concerns are greatest, October rent increases were more modest, rising 4.6 per cent from a year ago to an average of $2,492. The increase compared to the previous year was 6.6 percent in September.
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Although purpose-built rental properties play a significant role in the GTA market, there has been a lack of new units coming to market in recent years.
According to the Construction Industry and Land Development Association (BILD), PBRs make up 41 percent of the GTA’s rental housing stock, but only 14,853 such units were added in the last decade. This corresponds to just nine percent of the total growth in rental apartments.
Prices for those being built are well above market levels, Hildebrand said.
“When we track the leasing of new purpose-built buildings in the GTA, the average rent for these units is more than $3,100 per month,” Hildebrand said.
In the fourth quarter of 2022, average rents in new purpose-built apartments were $2,929, which requires an income of $117,000 for affordability, well above the average rental household income of $80,000 in 2021, BILD said in a Report published at the beginning of the year.
The agency questioned whether demand for new rental housing would increase as expected given rising costs.
“There are arguments that overall rental demand growth for newly built rental units would be lower than forecast because rental prices in new buildings are considered unaffordable for the average renter,” the report said. “In other words, the GTA would not necessarily need 312,000 new market-rate rental units for new construction over the next decade.”
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The report found that the fastest-growing renter segment over the past decade has been those earning over $100,000, a cohort that has doubled between 2011 and 2021 and now makes up 89 percent of rental household formation.
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