Supply constraints on new multi-unit residential developments

There is evidence that the development of new purpose-built rental housing has lost ground to condominium development in some Canadian markets since the 1980s.

This research aims to understand the perspectives of industry stakeholders and their perceived constraints to the development of more purpose-built rental projects. It can also contribute to increasing rental projects in Canada through the development of:

• tools
• programs
• measures

Key Highlights

Industry stakeholders highlight two main factors to explain the slow growth in purpose-built rental in Canada:

• Competition for limited land — condominium development has a higher return on investment. This allows condominium developers to outbid rental developers for limited land.
• Sensitivity to regulatory risk — Institutional investors are the main source of new investment in the rental sector. They are sensitive to the regulatory risk inherent in the approvals process for multi-unit projects.

Implications for municipalities and policy makers

Municipalities can reduce regulatory risk to encourage more purpose-built rental projects. Shorter approval times and less uncertainty about outcomes could result in more investor interest.

Finding sites for rental projects at prices that are consistent with expected rents remains challenging. This warrants additional research/policy on land availability and land use.

Investors believe that rental housing development responds to programs and incentives. Additional research could explore local drivers of change that influence developers’ appetite for purpose-built rental housing.

This report is part of the Research Insight series. Read the full report Constraints on the Supply of New Purpose-Built Rental Projects: Industry and Investor Perspectives (PDF) or download the insight.

Author:

CMHC

Document Type:

PDF

Date Published:

October 5, 2020