1,000 planned rental units convert to condos in wake of Ontario rent-control expansion
Globe and Mail
Jill Mahoney
26 September 2017
RioCan and
Allied Properties cite the Ontario government’s new rent controls as
the reason why the REITs converted 133 planned rental units to
condominiums at the Kingly development in Toronto.
More than 1,000 planned purpose-built rental units have instead been
converted to condominiums in the Greater Toronto Area since Premier
Kathleen Wynne's government expanded rent control in the spring,
according to a new report that warns the region's rental supply crisis
is poised to worsen.
The report, which is to be released on Monday and was obtained by The
Globe and Mail, says that already-low vacancy rates will plunge further
unless the government enacts policies that encourage developers to
build an average of at least 6,250 additional new apartment units a
year for the next decade in Ontario.
"We need more supply," said Jim Murphy, president of the Federation of
Rental-housing Providers of Ontario (FRPO), which commissioned the
study. "When the government brings in policies that sort of act as a
deterrent or, at best, just get people thinking about putting things on
hold pending the election, that's not good."
The report is the first to measure the impact of extending rent control
by tracking the conversion of planned apartment projects to condos. As
part of a wide-ranging package of housing policy changes announced in
April, Ms. Wynne, who is preparing to go to the polls next year,
announced that all rental units in the province would be subject to
rent control to improve affordability. Previously, the policy applied
only to buildings constructed before November, 1991.
While the measure was popular among renters, some of whom had received
huge monthly increases as Toronto's housing market got ever tighter,
many economists warned that expanding rent control would choke supply
by reducing incentives for developers to launch new apartment
buildings. Under the policy, rent hikes for all private apartments are
now capped at around inflation to a maximum of 2.5 per cent a year.
The government's policy change reduced "growth prospects for rental"
and contributed to a decision by RioCan Real Estate Investment Trust
and Allied Properties Real Estate Investment Trust to convert 133
planned rental units to condominiums at the Kingly development on King
Street West in Toronto, said Jonathan Gitlin, senior vice-president of
investments and residential at RioCan.
"The legislation caused us to review our rental projects across the
GTA," Mr. Gitlin said by e-mail. "The impact of the legislation will be
to mute growth through limiting rental growth and enhance risk that
will accompany inflation as a landlord will need to absorb increased
expenses."
The FRPO found in a survey of its members, who are mostly large
property owners and management companies, that about 20,000 of more
than 28,000 planned purpose-built rental units in the GTA were under
review as a result of the government's housing measures. The
organization is tracking unit conversions and cancellations and is also
launching a campaign on Monday to push the government to amend its
rent-control legislation.
After the government's announcement, the number of purpose-built rental
units proposed for the GTA continued to rise in the second quarter of
2017. However, the increase was at a much slower rate than in previous
periods – 1,719 units were added to the planned inventory from April to
June compared with 2,453 units in the first three months of this year
and 5,645 units in the second quarter of 2016, according to Urbanation,
a real estate consulting firm that prepared the report for the FRPO.
That figure doesn't include more than 1,000 planned apartments in four
projects that have already been converted to condos – an "early and
conservative" estimate that will likely soon double, according to Shaun
Hildebrand, senior vice-president at Urbanation.
Even with expected levels of new apartment starts, the report projects
that demand for rental units in the province will far outweigh supply.
It urges the construction of at least 62,500 additional new
purpose-built apartments over the next decade, or 6,250 a year on
average, which would raise the vacancy rate to between 2.5 per cent and
3 per cent in Ontario. The majority are needed in the GTA. The vacancy
rate was 2.1 per cent in the province as of last year and 1.3 per cent
in Toronto.
The report cites high real estate prices, tighter mortgage policies and
rising interest rates as contributing factors to surging interest in
rentals and notes strong demand from new immigrants, millennials and
baby boomers.
While most of the growth in the current rental supply comes from the
so-called secondary market of investors who rent out their condos, such
units are not as stable as purpose-built apartments, given they can be
sold at any time. In addition, the report says investors will likely
not hold onto their condos for as long because rent control will limit
their ability to cover increases in carrying costs.
The report also warns that 85 per cent of the province's existing stock
of purpose-built rental buildings are more than 35 years old and will
require higher levels of investment to maintain.
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