New Rental Units Could Come to Mississauga Soon

 

Over the past few years, the housing market—and the extreme challenges it poses for first time homebuyers—has been making headlines.

Now, the difficult rental market is dominating discourse even more and for good reason—the last bastion of affordable housing is out of reach for those who cannot afford to purchase a home.

Fortunately for worried renters, a recent Urbanation report indicates that the rental market—rocked by low inventory and high prices—could see some positive change over the coming years (especially if Toronto trends spread to the GTA). 

"Urbanation [recently] came out with a new report that we thought was significant for a number of reasons. Important points are that vacancy rates are moving up in Toronto. It's not a province-wide report, but the number of applications for new construction has increased to 44,000 new units. That's 50 per cent higher than just two years ago," says Tony Irwin, president and CEO of the Federation of Rental Housing Providers of Ontario (FRPO), an organization that represents about 350,000 tenant households across Ontario.

Irwin says the report, which revealed that vacancy rates in Toronto edged up in the second quarter of 2019, paints a positive picture of the rental environment in a province that's seen very little purpose-built rental construction over the past 20 years or so. 

Urbanation's recent survey of new purpose-built rental apartments completed since 2005 across the GTA reported an average vacancy rate of 1.5 per cent, rising from a low 0.3 per cent in the second quarter of  2018.

In Mississauga, the latest data indicates the rental vacancy sits at 0.8 per cent.

"While remaining exceptionally low, vacancy rates reached their highest level since Urbanation's survey began in Q1-2015," the report reads. 

"The availability rate, which includes both vacant units and occupied units where the tenant has given notice to vacate, increased to 2.3 per cent from 1.4 per cent in Q2-2018. Vacancy and availability rate calculations exclude buildings that began occupying within the past 12 months." 

Urbanation says that growth in purpose-built rental buildings (meaning buildings built exclusively for tenants) remained strong in the second quarter at a year-over-year increase of 7.6 per cent for available units, although moderating from the 10.3 per cent annual rate of growth recorded a year ago in the second quarter of 2018. 

The report notes that prices are still high, as the average rent reached a record high of $2,475 based on an average unit size of 794 square feet, equal to $3.12 per square foot. 

Within the nine buildings (which boast 3,078 units) that welcomed tenants during the last 12 months—which represented a 25-year high for annual completions—55 per cent of units were leased as of the end of the second quarter of 2019, with available rents averaging $2,697 for an average unit size of 710 square feet (equal to $3.80 per square foot).

In Mississauga, prices aren't quite so high—but they're not low either. 

Data from the recently released August 2019 Rent Report, produced by Rentals.ca and Bullpen Research & Consulting says Mississauga continues to be expensive for renters as the city finished third of 37 cities listed for average rent for a one-bedroom at $1,933 and fourth for average monthly rent for a two-bedroom at $2,232. 

According to the report, prices for one-bedroom apartments are up 4.1 per cent month-over-month. Those seeking two-bedroom units are a little luckier, as unit prices dipped 1.2 per cent. 

Eight of the 11 most expensive cities for renters of a two-bedroom are in Ontario.

But while prices are high and inventory is low, Irwin says the Urbanation report is encouraging. 

"That tells us that there are some positive things happening in terms of getting new rental supply built. We are in a housing supply crisis, so it's great to see some encouraging numbers that speak to getting new supply built. People looking for somewhere to live will have more choice." 

As for whether or not residents will see an uptick in rental unit inventory in Mississauga, Irwin is confident that a mix of municipal (he cites Mississauga's recently announced Community Improvement Plan) and provincial initiatives will create more supply.

"Our assumption is that things will follow suit in the GTA. It speaks to the improved confidence we're hearing from our members. Our members feel like rental is something they can build again," he says, adding that FRPO also launched a survey in order to better understand if its members are looking to put purpose-built rental applications forward. 

Irwin credits the increase in purpose-built rental construction on the recently passed Bill 108, More Homes, More Choice act.

Bill 108, which was designed to incentivize the creation of more affordable and rental housing in Ontario, transforms Ontario's land-use planning system by essentially making it easier for developers to proceed with projects. While Mississauga has criticized the act for potentially increasing costs for consumers and depriving municipalities of much-needed revenue in the form of development charges (while not necessarily guaranteeing the creation of new housing), Irwin believes the act has spurred rental development. 

"These changes are still quite new and Bill 108 is very new. It's a different tone, and those focused on condos are now feeling that rental is something that's supported by the current environment. The economics didn't support rental before. The winds are changing." 

In the spring, Irwin told insauga.com that a number of factors prevented developers from investing in purpose-built rental for over two decades. One major factor? The amount of time it can take to have a development approved. 

Irwin also said that developers favoured condos—the housing type that has quickly become one of the most frequently built in the GTA—over rental buildings because they tend to generate money more quickly. 

But while various groups disagree on how, exactly, to approach the rental crisis, almost everyone agrees that it needs to be rectified. 

Irwin believes Bill 108 and the reversal of former premier Kathleen Wynne's proposal to implement rent control policies on buildings constructed after 1991 has been a positive step in encouraging developers to invest in rentals. 

"There's no doubt that rent control and change of policy direction from this government versus the last one changed things. Landlords have been speaking with the government and we put forward our ideas about what it needs to look at, such as the time it takes to get projects approved."

Irwin also said the FRPO hopes that policymakers can speed up the building process by identifying areas where it makes sense to build, such as near transit stations and on underutilized lands.

Irwin also says the FRPO has raised concerns regarding escalating costs.  

"Growth does pay for growth, but we've seen an escalation of other costs that have been levied by municipalities. There's still work to be done, but there was an acknowledgement that the government was listening to what we were saying," he says, saying that the FRPO was happy to see changes to the Local Planning Appeal Tribunal (LPAT) which will streamline the approval process to get projects approved more quickly. 

As for which costs were becoming more prohibitive, Irwin said that the province's Section 37—a section of Ontario's Planning Act which allows a municipality to ask for benefits to construct or improve facilities when a development requires a zoning bylaw amendment—has created more costs. 

"In exchange for greater density, fees were levied on developers. Not hard development charges, these were soft costs for community centres, pools, libraries, etc. Those things are important, but the question became 'how are those costs being paid' and when you provide those amenities," Irwin says.

"It's not just new people who will benefit from them, the people who already live there will benefit. Our view was that the costs that were being put on developers went up quite considerably over time. It had an impact on whether developments could be feasible. Construction costs have gone through the roof, and with these other costs, it made it such that building rental was virtually impossible," he says. 

"Builders looked at economics and said 'rental isn't feasible anymore.' Condos don't have the same costs because you can pre-sell units."

Irwin says Bill 108 makes it easier for developers to plan for the future. 

"Bill 108 provides more certainty regarding charges that will be set based on the value of the land. We know we have to pay a few fees, that's not in dispute. The challenge is having an understanding of what the charges are and when they're payable. There was uncertainty before. You need to be able to plan and know what your expenses will be. It's not about not paying our fair share, but we need an environment where it's more certain." 

While Irwin says the FRPO is pleased that more resources have been provided to the LPAT, he says the organization is waiting for more details on how the province will work to get more developments built in places that make sense, such as near transit corridors or existing developments. 

While municipalities—including Mississauga—have expressed apprehension with Bill 108, Irwin says that cities have been anxious to partner with builders to produce the much-needed rental stock. 

"I haven't heard of any conflict between cities and members. What I would say is that municipalities have contacted our members and said that they need supply and they want to know what to do to make it easier. So many cities view us as partners." 

Irwin says that all levels of government and builders understand that the new rental units need to come to the market—and soon. 

"Rental has become a very important part of the housing mix that's needed. There's ageing stock in a lot of communities and we need to keep it well-maintained. There's also a lack of new supply, and more people are looking to rent and they want to rent. The days of rentals being looked at as something to do before you buy has changed. Now we're seeing older people selling and wanting to take their equity instead of buying a condo. Some people want to give that money to their children so they can buy a house. Millennials and younger residents rent because it's what they want to do. Some people rent in the city and purchase recreational property elsewhere."  

Irwin says one of the keys to constructing more rental stock is finding land on which to construct it.

"The land is extremely hard to come by and it's extremely expensive. There are many sites—unicorn sites—where a tower or two is on them and has been since the 60s. There's land available on those sites and more towers can be built," he says.

"We've asked the province to expedite building on those sites. The supply gap is 7,000 to 10,000 a year over the next decade. Ontario has a lot of unicorn sites." 

While Irwin says the former provincial government's rent control policies scared developers away from purpose-built rental projects, he acknowledges that the preference for condos (which offers more money upfront) was a long-standing issue.

The push towards condo-building—driven almost entirely by concerns over access to quick capital—has left tenants reliant on private landlords rather than property management companies.

And the shortfall of purpose-built rental housing has left tenants in serious trouble--especially at a time when the average home price sits at $764,463, thereby ensuring huge swaths of current tenants won’t be able to make the shift from tenant to owner anytime soon. 

To achieve a healthy vacancy rate of 3 per cent, over 900 additional "vacant" units need to be available in Mississauga. 

In the past 30 years, only approximately 2,300 units have been added to the purpose-built rental inventory in the city, whereas approximately 118,500 units have been added to the ownership or secondary rental market. 

While there have been development applications for purpose-built rental buildings in recent years, rents are coming in above 1.5 times average market rent, which puts these units out of the affordability range for Mississauga's lower-income earners.

As for why developers are working to construct more rental buildings now, Irwin says developers know the demand is there. 

"We know the demand is great and maybe some builders have looked hard at that. The new Urbanation report shows the numbers increasing significantly for the first time, and members say the landscape and environment are changing and they're confident based on what we've seen from the current government," he says. 

"Ontario is becoming a good investment." 

But will the uptick in inventory lead to lower price points? Irwin says increasing demand should have a positive impact on tenants' wallets. 

"If you bring more supply on, that will positively impact rental. If there’s more choice, I would think it has to affect prices. As for when will we starting seeing change, it's hard to speculate on that. But as you get supply to a stable level, it has to positively impact rent."

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