The biggest challenge to getting rental housing projects built today is the math. It simply doesn’t work.
That was the message from Corey Pacht of Fitzrovia during the Residential Construction Council of Ontario’s recent Housing Summit 4.0, Accelerating Change: Tackling the Housing Crisis.
Joining Pacht for the talk titled Rental Housing Market in Ontario – Challenges and Opportunities was Tony Irwin of the Federation of Rental Housing Providers of Ontario.
“More broadly in the market I would say it’s (the current climate) probably worse than maybe some of the stats are portraying from our perspective,” said Pacht. “I think everyone knows the condo market is effectively dead today.
“There’s no sales and the condo market needs 70-plus per cent presales to start construction…When that comes back, I don’t know. How it comes back, I’m not sure.”
In November 2023, the Ontario government removed the eight per cent provincial portion of the Harmonized Sales Tax (HST) on qualifying new purpose-built rental housing in an effort to get more rental homes built across the province.
“There have been a couple of groups, Fitzrovia included, that have managed to get some projects in the ground,” said Pacht. “For us those were projects that were approved basically shortly after the HST announcement. HST was a big driver of the math working a year ago for us. We got six towers, 2,000 units, in the ground because of it, which was great. But we have a lot more today that are ready to go. I know a lot of our competitors do as well and the math doesn’t work. Those projects are really on pause. I think you’re starting to see some of the numbers reflect that…From what we’re seeing, no one’s really going vertical.”
In the rental market, there are a lot of condos that have delivered in the last 12 months, he pointed out.
“These are projects that went into the ground three, four, five years ago and are delivering today,” Pacht explained. “We’ve actually seen a really large influx of supply…so rents have moderated. That’s a positive fact for renters in the market and there have been some options for people looking to rent. I think the problem is when you look at the next 24 months, there’s going to be nothing coming. Even if everything turns around today nothing is going to get built over the next couple of years. I think that’s a really scary thought.”
Government-related fees need to be addressed
Pacht said there are two options for making the math work: either revenue needs to increase, which means rents need to go up, which means it’s less affordable than today, or costs need to go down.
“There’s only two levers,” he explained. “The vast majority of your costs are land, your hard costs and your municipal costs and other government-related fees. Land has come down a little bit, that’s helpful. Hard costs have not. They continue to rise. They’re not rising at the same rapid pace as they have historically. Most hard costs are tied to unions and those labour rates, equipment pricing and supply pricing. They’re not going down.
“That really just leaves one place to focus on obviously and that’s the government-related fees.”
Property taxes and development charges need to be explored.
“They’re (development charges) very expensive and it’s a big needle mover,” Pacht said. “Municipalities need development charges to fund various growth elements and they need property taxes to cover the costs of running a city. So I think there is a practical reality that it’s going to require co-ordination across all three levels of government.”
Speeding up approvals is key
In additional to those financial incentives, one of the non-financial incentives includes speeding up the approvals process.
“The City of Toronto in particular, it has been faster, more efficient, more collaborative to get through the highrise rezoning. I think that was due to specific effort put into it on the city side,” he said.
Pacht spoke about specific rental projects in downtown Toronto that are not moving forward because of all the hurdles mentioned above.
“Between those three projects, five towers, it’s actually about 2,000 units that we would be ready to go shovels in the ground tomorrow if the math worked,” said Pacht. “Those financial incentives that I mentioned earlier, with those we would feel very confident in getting the approvals to start construction in Q1 of next year.”
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