Canada’s rental market is quietly booming. As real estate prices rise sky-high, developers are realizing the growing need for high-quality rental alternatives. And it’s long overdue; it has been more than 40 years since any significant attention was paid towards rental housing construction, and many buildings are in desperate need of updates or repairs. Over the next decade developers are expected to pour billions of dollars into this neglected sector, giving Canadians who can’t afford to buy real estate more housing options.
The Outdated City
If you live in Toronto, you’re probably familiar with the many 30-story rental buildings that house thousands of people. Most of these were built in the 1960s and a great deal of them are in desperate need of repairs. Developers face the challenge of fixing up rundown properties as well as building new projects; in Toronto alone 21 new rental high-rises are slated to be built and that does not include the many projects listed as condos that may turn into rental buildings when completed.
Low Vacancy Rates Show Rental Need
In Vancouver, Canada’s most expensive city, vacancy rates are below 1 per cent. making the need for rental units even more pressing. Recently Colliers International, Canada’s largest commercial real estate services company, reported that the multi-family asset class (apartment buildings) remain the most stable and in-demand rental housing across Canada. The most valuable rental apartments are in Vancouver, where the price per door is currently $230,000. That’s what investors are paying on average for each unit in a rental complex. But with the positive forecast for rental properties, investors know that in the longer term the return will be good.
Who Is Renting?
Canadians from all ages groups and financial backgrounds are opting to rent – as home prices rise steadily, many first-time buyers are unable to afford a home within the city. Millennials specifically need flexibility; a home purchase ties them down to one location. Research shows millennials (those born in the 1980s and 1990s) are entering the workforce at a greater rate than any other age group. We know they don’t share the same “job for life” philosophy that their parents did. They want the ability to move on short notice and follow opportunities.
Baby boomers who are entering retirement and looking to downsize are also finding rentals to be a reliable option as even condos can have unpredictable expenses like maintenance and repair fees. Retirees looking for financial certainty may find renting to be a secure solution.
Where Are New Rentals Coming?
Most of the new rental construction is happening in Canada biggest cities, such as Vancouver and Toronto, where affordability is low and residency needs are high. But smaller centres are also experiencing a rental construction boom and can expect more buildings to be coming up over the next decade. Across Canada, for example, RioCan Real Estate Investment Trust recently announced plans to spend $6 billion to construct 19,000 units in several major Canadians cities. And if you believe, as most do, that financial markets are a leading indicator, apartment real estate investment trusts are the best performing REITs right now at the Toronto Stock Exchange. So we can expect more rental building projects to be announced in the near future.