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Lowest construction activity since the second quarter of 2021
Published on October 25, 2023 • 3 minutes reading time
The sun sets behind construction cranes in Toronto. The number of dedicated rental units under construction in the GTA fell to 18,267 in the third quarter. Photo by Peter J. Thompson/Financial Post
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Rental construction in the Greater Toronto Area hit its lowest level in nine quarters in the third quarter, just as the federal government announced legislation to eliminate GST on dedicated rental projects to spur growth.
The number of purpose-built rental units under construction in the GTA fell to 18,267 in the third quarter, according to a report released Oct. 24 by real estate consultancy Urbanation.
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This represents the lowest level of construction activity since the second quarter of 2021 and is nine percent below the peak of 19,994 units under construction in the first quarter of 2022.
“The recent GST announcement will provide a much-needed boost to new rental housing construction in the GTA, but given recent trends, it is clear that much more help is needed to improve the economics of building rental,” says Shaun Hildebrand, President of Urbanation said in the report. “Constructing new purpose-built rental housing should be a priority policy goal in the fight to improve housing affordability in Canada.”
The decline in rental construction has been particularly pronounced in the GTA’s more affordable areas, particularly Region 905. These regions have been hit hardest by increased costs because rents have not been high enough to make new developments financially viable. In the third quarter of 2023, the number of rental units under construction in the 905 region fell 42 percent from its recent peak in the first quarter of 2022, when 5,083 units were under development.
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However, Urbanation remains cautiously optimistic about possible improvements in the rental market in the near future.
“The removal of GST on new rental housing is likely to improve construction activity in the future. As of Q3 2023, there were a total of 41,034 approved purpose-built rental units in the pipeline in the GTA that had not yet begun construction, including 10,113 units in Region 905,” the report said.
Against the backdrop of declining construction activity, rental prices in the GTA continued to rise. Condo rentals averaged $2,937 in the third quarter of 2023, while purpose-built rental units completed since 2003 fetched even higher rents of $3,143. Both market segments recorded an annual increase of nine percent in the third quarter. Although this rate was slightly slower than in recent quarters, it was still well above the historical average, creating affordability issues for many residents.
Despite rising rents, the vacancy rate in the GTA’s commercial rental buildings completed since 2003 remained low at 1.8 percent between July and September. This rate fell only slightly from 1.8 percent between April and June and was below two percent for the seventh quarter in a row.
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As the GTA struggles with rising rental prices and a tight real estate market, there is a glimmer of hope on the horizon.
“There could be a short-term supply relief on the market, as 13 rental buildings with a total of 2,639 units are scheduled to be ready for occupancy in the fourth quarter of 2023. This exceeds the 1,739 units completed in the third quarter of 2023 and represents the highest quarterly total for new rental deliveries in 30 years,” the report states.
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