Recent changes temporary – Governments need to make the tax and development climate better for rental investment
According to CMHC, the average rental vacancy rate in major centres across Canada increased from 2.0% in October 2019 to 3.2% in October 2020. According to CFAA’s members, vacancy rates generally increased in the city centres and university towns, while staying flat in suburbs and in smaller centres which do not serve universities or colleges.
CFAA President, John Dickie, says, “Despite the increase in vacancy rates due to COVID-19, there remains an underlying shortage of rental housing, especially in Greater Toronto and Greater Vancouver.”
Bob Dugan, Chief Economist, CMHC, says, “The vacancy rate for purpose-built rental apartments in Canada’s CMAs increased in 2020. The economic impact of the pandemic has significantly reduced rental demand. Lower international migration, fewer student renters and weaker employment conditions led to weaker inflows of new renters. While vacancy rates increased in many centres, we continue to see a need for more rental supply to ensure access to affordable housing.”
CMHC reports rental arrears of $150M for the 1,912,000 rental units in the purpose-built rental supply. Extrapolating that figure to the 4,100,000 rental units which make up the whole private rental market suggests total rent arrears of $320M. Investors who rent out just one or two condos or single-family homes are particularly hard hit, since they may be short half or all of their rent revenue, while their costs still have to be paid.
CFAA notes that in many centres, new purpose-built rental housing has come on stream in the last year or two. However, rental construction has not yet caught up to the growth in long-term rental demand from increased immigration and from young people staying longer in rental apartments (before buying houses or condos). Pressure on the rental market will increase when immigration and student life return to normal.
To address the long-term demand for more rental housing, the solution is for governments to make the tax environment better for rental operations and development, in order to enable the private sector to build more purpose-built rentals. Governments need to avoid increasing taxes on rental housing. Governments also need to make planning approvals less slow and less uncertain. Finally, making the regulatory environment less of a disincentive would be of great assistance in achieving more new rental supply. Loosening rent control would help, especially in BC and Quebec. Costs are running ahead of rent increases with no effective way for rental investors to recoup the increased costs. Making the Landlord and Tenant Board process more timely would be a major help in Ontario.