Ontario Facing Shortage of 200,000 Rental Units Over the Next 10 Years

Toronto Condos

It’s hard to ignore the most recent news headlines lately: “Average rents in Toronto are down, while vacancy rates rise.”

But, is this an accurate picture of the overall rental market in the GTA? Unfortunately, the answer is a bit more complicated.

The latest rental market report from the Federation of Rental-Housing Providers of Ontario (FRPO) and Urbanation show that Ontario is facing a shortage of 200,000 rental units over the next decade.

The current rental housing supply gap in Ontario has actually doubled since 2017. We’ve witnessed record population increases, strong job growth, and lower homeownership rates.

All of these factors have pushed the demand for rental housing higher than what FRPO initially forecasted back in 2017.

The report shows that in order to meet demand, the Province needs to play catch up with lagging rental construction activity that has worsened the rental crisis.

So the most recent news headlines are a bit misleading because we’re making conclusions based on facts during a pandemic.

Analysts are expecting that the pre-pandemic demand for housing will return once the economy rebounds from the reopening of borders.

As a result, we should see a return of higher levels of immigration into the Province that will make this rental supply gap “unavoidable.”

Delays with planning approval process

Delays With Planning Approval Process

FRPO President and CEO Tony Irwin describes it as a “wake-up call” for those involved in the development approvals process.

A report released back in 2017 by Ryerson University and Ontario builders showed that planning approval processes have delays as long as 28 months for some condo projects.

These delays in building and land development actually increase the cost of new homes.

Municipal regulations that limit housing supply create higher prices, which are then passed down to consumers when they’re buying a new condo.

On average, it takes builders about 10 years to complete a project in the GTA from start to finish. What’s interesting is that since the 2006 Provincial Growth Plan came into effect, the supply of new homes in Ontario has always fallen behind demand.

As a solution to this problem, FRPO recommends that the Ontario government and local municipalities find other infill development opportunities. This will enable the completion of construction of rental buildings on available land where structures already exist.

A big advantage of doing this is that these projects can be built without purchasing land, which is one of the biggest costs when it comes to rental construction.

But, what’s even more interesting is that data from an exercise conducted by Urbanation found that there were 950 purpose-built rental sites that could accommodate infill development throughout the GTHA, and that a little over 176,000 units could be built on these sites, which would increase the current rental supply by 40%.

Urbanation’s data also found that 35% of potential units at these sites in the GTHA were only 800 metres away from current or future rapid transit stations, which is in line with the Ford government’s efforts to create more transit-oriented communities.

Ontario Facing Shortage of 200,000 Rental Units Over the Next 10 Years

Why Does it Take So Long To Build?

There are many reasons for building delays. For the City of Toronto, the main reason is because they have one of the lowest numbers of planners and some of the longest approval times for residential development applications out of 18 regional municipalities.

This is a problem across the GTA and in the end results in increased home costs for new buyers.

In fact, a BILD Municipal Benchmarking Study by Altus Group released on Tuesday found that government fees and delays added between $58,000 and $87,000 to the cost of a 2,000 square foot single-family home in the GTA. For high-rise condo units this additional cost was between $44,000 and $66,000.

Not only that, but development charges and planning fees add an additional $93,700 to an average low-rise home and $57,800 to high-rise condos.

BILD found that when you combine taxes from different levels of government, including HST and Land Transfer Tax (LTT), the total burden of government fees, taxes and charges total almost 25% of the cost of a new home in the GTA.

While the Ontario government has taken positive steps to address some of these issues through the Housing Supply Action Plan, the truth is that there’s still more work to be done to ease the rental supply gap to bring us back to a more balanced market.