The Greater Toronto Area ("GTA") has an almost insatiable need for more rental housing despite a short-term uptick in vacancy rates resulting from the pandemic. So, the question is often asked: Why don't we see the start of many more new purpose-built rental projects? A recent CMHC-funded study done by Altus Group provides the answer: even with the low-interest rates in place in 2020, expected rents are inadequate to generate widespread interest in building new rental projects. This paper by Frank Clayton and Graeme Paton summarizes the Altus findings for the GTA.
New rental projects are typically not financially viable. However, there are exceptions (e.g., owners of existing rental buildings with surplus site area suitable for a new building or the redevelopment of underperforming shopping centres). The viability gap is the smallest for the low-rise apartment pro forma in the 905 regions.
The paper also presents the authors' policy options for significantly increasing the production of new rental housing including options to reduce the land cost component of building new projects.
