Renaissance in construction of rental units

A renaissance in rental construction is projected to add tens of thousands of new apartment units in the Montreal area during the next few years, and they’re not your typical cheap urban flats.

The new building trend is for higher-end — and in some cases, luxury — rentals, designed to appeal to up-and-coming young professionals and downsizing baby boomers. Many of these new projects also aren’t in the city, but in suburban areas like the South Shore.

Montreal is known across Canada for its comparatively low rents, in part because of a large supply of rental apartments and strict rent controls. Much of our rental stock, however, was built 50 years ago or more. These units may be cheap, and even charming, but they don’t have the lustre of an upscale, modern apartment.

According to the Canadian Mortgage and Housing Corporation, construction began on an average of 1,500 rental units per year between 2011 and 2014. Rental housing starts began to pick up in 2015 and 2016, more than doubling production to more than 4,000 units in each of those years.

In 2017, the number of new units under construction surged by more than 40 per cent to more than 7,500 units. The trend seems to have continued this year, with construction beginning on more than 3,500 rental units in the first five months of 2018 alone.

You might think this would lead to an oversupply of rental housing, but vacancy rates have dropped in the past year.

According to CMHC analyst Francis Cortellino, the vacancy rate for newer construction fell from a high of four per cent in 2015 and 2016 to less than three per cent last year.

Cortellino said a notable increase in net migration, both non-permanent residents and immigration, has helped fuel rental housing demand. There is also growing interest in the rental market from millennials and, to a much lesser extent, boomers.

After two decades of growth in the rate of home ownership among young adults, millennials are bucking the trend and renting longer.

“For the first time in 20 years in Montreal, the proportion of renters under the age of 34 has increased,” Cortellino said.

While some millennials may simply prefer to rent, Cortellino noted that rising house prices, increasing interest rates and tighter mortgage rules have increased the size of the down payments first-time buyers need to save, while also reducing the total amount they are allowed to borrow.

Despite the increase in supply, housing advocates say there remains a need for more investment in rental housing, particularly for low-income people and families.

Stéphan Corriveau, director general of the Réseau québécois des OSBL d’habitation, which advocates on behalf of Quebec’s non-profit housing organizations, said this surge in rental construction will do little to solve some of Montreal’s most pressing housing needs, including access to affordable housing.

“It’s not only a matter of gross supply. The market is more complicated than that,” Corriveau said. “The situation we’re facing now is that everything that’s added on the supply is dedicated to the upper market. We’re talking rents between $1,500 and $1,800 a month.”

Corriveau said there are about 400,000 households in the greater Montreal area living in an inadequate housing situation, whether because the landlord hasn’t kept up with building repairs, the rent is higher than they can really afford, or because they’re a large family crowding in a flat that is much too small. Forprofit rental housing won’t close the gap, he said.

“For these people, and we’re talking about a lot of people, this supply has a limited impact,” he said.