As analysts weigh the potential impacts Ontario’s expanded rent control measures may have on apartment construction in Toronto, a design firm that works with developers suggests the city’s rental market can overcome the challenges that capped rent increases bring.
“We believe there’s a key reason why developers are placing big bets on purpose built rental — Millennials want a life that’s rich with experience because success is no longer equated with owning your own home,” says Figure 3, in an email statement.
The fact that some would-be buyers in Toronto are getting priced out of home ownership, as well as the flexibility renting offers, are also creating demand for rental housing — and then there’s the demographic element, the interior-design firm’s VP of residential says.
“I think that that Millennial thought process of not feeling like they have to lock into anything is really putting them in a position where they actually don’t want to be tied down,” Figure 3’s Dominic DeFreitas tells BuzzBuzzNews.
Toronto’s tech industry factors into the demand equation. Millennials working in tech have been known to move from city to city and country to country to pursue opportunities, and renting makes doing this easier.
“There are several industries that would require people to relocate,” DeFreitas says, noting government jobs as another example.
Baby Boomers are also creating demand for rental units in Toronto, DeFreitas says, noting one project Figure 3 is doing interior design work for as an example.
The Well, a large-scale, mixed-use project by Tridel, RioCan, Diamondcorp and Allied Properties coming to downtown Toronto, is targeting an older demographic for its luxury rental components, DeFreitas says.
“The other thing that we’re seeing with that generation… is that they want to be downtown, they want to be where the action is,” he explains.
“Some of the younger people often think that as you get older you want to move out of the city, you want to be up north… and we’re seeing that that’s not the case,” DeFreitas adds.
While RBC Senior Economist Robert Hogue says there’s no question of the demand for rental housing in the city, that alone isn’t necessarily enough to spur the construction of more apartments, he suggests.
“It ties their hands,” says Hogue of the effect rent control has on the owners of rental properties. “Certainly some builders — shortly after the rent control announcement — have been on the public record stating they would not pursue purpose-built projects,” Hogue adds.
Prior to the expanded rent control, which is part of Ontario’s 16-point Fair Housing Plan announced in April, generally only units constructed before 1992 were subject to limits on annual rent increases. The measure now applies to virtually all units in Ontario, which limits how profitable undertaking such a project can be.
Meantime, Toronto’s condo market has shown strength, which makes building units for ownership more attractive to many developers, Ben Myers, senior VP of market research and analytics at Fortress Real Developments, a real estate development and finance company, says.
“Development companies that were on the fence about doing rental are still going to be on the fence about doing rental,” he tells BuzzBuzzNews. “Doing a condo development... in a strong market, it’s less risk than doing a rental. You have... revenue certainty, you have the sales in advance,” he adds.
Affordability issues and rent control will encourage more people to rent in the future, Myers suggests, but he adds “it’s hard to say” just how builders will respond in the coming years. And if there is a decline in interest in taking on purpose-built residential starts, it won’t likely show up immediately.
In some cases, builders are too far along in the development process to cancel rental projects right now.
“[Rental construction will] probably at least stay fairly consistent over 2017 and 2018 but then maybe after that it’ll change,” says Myers.