Greater incentive needed to spur construction
The Greater Toronto Area (GTA) is facing a dire need for more housing to rent and to own. Adding housing supply to address our rapidly growing population is neither quick nor easy, and each type of housing form has its unique challenges. For purpose-built rental (PBR) it is the economics of building and running a new rental building in a way that financially justifies the initial investment. This means PBR is highly sensitive to changes in the tax environment.
Purpose-built rental is a key segment of the GTA’S housing stock, with many advantages. They are designed for long-term accommodation, professionally managed and tend to offer units more suitable for accommodating families. Continued efforts by all levels of government is essential for the addition of the purpose-built rental developments required to meet the present and future needs of a growing population.
A study conducted by Urbanation and Finnegan Marshall for BILD and FRPO in 2023 projects that the number of renter households in the GTA will rise by 58 per cent over the next 10 years, meaning more than 300,000 rental homes will be needed in the next decade. This estimation, in conjunction with the City of Toronto’s own housing targets of building 285,000 new homes, does not align to the current reality facing the PBR development pipeline in Toronto and the GTA today.
Across the GTA, purpose-built rental units represent approximately a seventh of all the housing stock available (rental and owned), and less than half of total rental stock. Unfortunately, the vast majority of the region’s stock of purpose-built rental housing is aging, having been built almost half a century ago. Due to the economics of building and managing these types of buildings, new supply is coming to market at much lower levels than other forms of housing.
There has been progress in recent months that will help encourage the addition of more PBR. In September 2023, the provincial government matched the federal government’s commitment to exempt these projects from GST and HST, which is an important step to incent the building of new purpose-built rental developments.
Earlier this February, the discussions by Toronto city council surrounding the proposed property tax increases were another step along the journey, but more is needed to help incentivize the construction of new rental supply. PBR is still highly sensitive to any market instabilities or government taxes and levies that may arise.
The reality is that any tax increases, including treating PBR differently than homes that are owned from a property tax perspective, will have a cooling effect on new construction, which will further delay desperately needed supply.
The current state of the housing market in the GTA points to huge difficulties meeting the demand of the next decade. To help the renters of today and the creation of housing supply for tomorrow, all levels of government must align with tangible measures that support purpose-built rental developments.
Dave Wilkes is President and CEO of the Building Industry and Land Development Association (BILD), the voice of the home building, land development and professional renovation industry in the GTA. For the latest industry news and new home data, visit www.bildgta.ca.