Four measures that will create more rental units
The Toronto Region Board of Trade has plan it says will stimulate the construction of desperately needed rental stock in the GTA.
Toronto Star
By Jan de Silva
04 May 2017

Toronto needs more rental units now to support its competitive and growing workforce. Governments are offering incentives to get more rental homes built, but they must also remove barriers to private sector rental construction.

For example, MP Adam Vaughan announced a new four-year, $2.5-billion fund to offer low-cost loans for rental construction. Premier Wynne’s recently announced Ontario Fair Housing Plan makes property taxes more reasonable for rental units and offers subsidies for rental construction. The province also made provincial land available for development.

However, with the deck remaining stacked against rental housing in our tax system, existing barriers dilute the impact of these initiatives on rental development.

Rental builders pay the same land transfer, development charges and taxes that other developers do. But they also face a unique penalty: while a developer building, or operating, another type of property can fully recover their HST costs, a rental builder or rental property manager cannot. Eliminating this tax distortion for rental investors would reduce government revenues — but it would increase supply of rental units more quickly than subsidy programs.

Rent control, while popular in theory with current renters, is another critical barrier. Evidence from high growth cities such as New York, London and Toronto itself show that rent control curtails investment. Less investment means less supply, which in turn means fewer choices and less competition for renters, driving rents higher.

Currently, 80,000 people move into the city each year. To house them, we should have 30,000 homes a year coming on-stream, instead of the fewer than 2,000 built in a typical year.

Meanwhile, 20,000 new rental units are waiting for planning approval. However, the province’s plan to bring new units into the rent control regime means this surge of proposed new rental units is at risk. Many builders will compensate by launching their projects with much higher rents than planned. Others may build condos instead, or not build at all. The province should formally track the impact of this policy change on these proposed units. If the impact is fewer rental units, it must reconsider the policy.

Why condo rental units?
Condo rental capacity matters, too. Many Torontonians ask why so many condos are built relative to rental apartments. Different tax treatment is a factor, but the benefits and limits of condo legislation are also important. Condo builders can mobilize small investors to finance construction through deposits. While end-users help through pre-sales; rental investors can’t. Developers can earn a return on condo investment over a few years while rental investors must wait decades for rental payments to cover costs.

With condos now making-up roughly one-third of Toronto’s rental supply, it’s time to put condos and rentals on equal footing. To do so, the Board of Trade proposes four measures.
amend the Condominium Act so rental developers can use the same tools to their advantage.
allow condo towers to be developed explicitly and entirely as “rent-only condos,” packaged with slightly different rules, services and governance structures to attract rental-oriented investors. When units are sold in these towers, they’ll stay in the rental supply.
make these purpose-built rental condos eligible for the same government benefits as conventional rental towers.
with government making more land available for rental projects, officials should pre-zone and fast-track approvals of this land to reduce approval risk. Property tax assessment policies should not tax a builder who is assembling or holding land to build a new rental tower as if the tower has already been built.

If land prices are a barrier to using government land for affordable rentals, try the approach London is testing. Charge a reasonable fee to rent the land instead of forcing rental developers to finance the upfront purchase.

For most renters, finding an apartment depends on whether developers can build and offer units at a price that generates a return for investors. Given the long-term nature of purpose-built rental housing, rental investors tend to be long-term, stable investment organizations, such as pension funds, who need a reasonable return to finance our retirement incomes. We need rental development, finance and tax policies that reflect this business reality.

Our rental market is a mess because policy-makers forgot the business side of rental development over decades of policy changes. With all eyes on the need for rental growth — not to mention its impact on talent attraction and retention — let’s not miss a chance to correct that today.

Jan De Silva is president and CEO of the Toronto Region Board of Trade.

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