Lowest level of construction activity since the second quarter of 2021
Published Oct 25, 2023 • 3 minute read
The sun sets behind construction cranes in Toronto. The number of purpose-built rental units under construction in the GTA dipped to 18,267 in the third quarter. Photo by Peter J. Thompson/Financial Post
Rental construction in the Greater Toronto Area hit its lowest level in nine quarters in the third quarter, just as the federal government announced legislation to scrap the GST on purpose-built rental projects to help spur growth.
The number of purpose-built rental units under construction in the GTA dipped to 18,267 in the third quarter, according to a report released Oct. 24 by real estate consulting firm Urbanation.
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That represents the lowest level of construction activity since the second quarter of 2021, and is off nine per cent from a peak of 19,994 units under construction in the first quarter of 2022.
“The recent GST announcement will provide a much-needed shot in the arm for new rental construction in the GTA, but it’s clear given recent trends that much more help is required to improve the economics of building rentals,” Shaun Hildebrand, president of Urbanation said in the report. “The construction of new purpose-built rentals should be a primary policy objective in the battle to improve housing affordability in Canada.”
The decline in rental construction has been particularly pronounced in the more affordable areas of the GTA, particularly in the 905 region. These regions have been hit hardest by increased costs, as rents have not been high enough to make new developments financially viable. In the third quarter of 2023, the number of rental units under construction in the 905 region dropped by 42 per cent from its recent peak in the first quarter of 2022, when 5,083 units were under development.
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Nonetheless, Urbanation remains cautiously optimistic about potential improvements in the rental market in the near term.
“The elimination of GST on new rental development is expected to improve construction activity moving forward. As of Q3-2023, there was a total of 41,034 approved purpose-built rental units in the pipeline in the GTA that had not yet started construction, including 10,113 units in the 905 region,” the report said.
Against the backdrop of declining construction activity, rental rates in the GTA continued to surge. Condominium leases in the third quarter of 2023 averaged $2,937, while purpose-built rental units completed since 2003 commanded even higher rents at $3,143. Both market segments witnessed a nine per cent annual increase in the third quarter. Although this rate was slightly slower than in recent quarters, it remained well above historic averages, leaving many residents facing affordability challenges.
Despite the rising rents, the vacancy rate in purpose-built rental buildings completed in the GTA since 2003 remained low at 1.8 per cent between July and September. This rate had only marginally edged down from 1.8 per cent between April and June and had stayed below two per cent for the seventh consecutive quarter.
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As the GTA grapples with soaring rental rates and a tight housing market, there is a glimmer of hope on the horizon.
“The market could see some short-term supply relief as 13 rental buildings totalling 2,639 units are scheduled to begin occupancy in Q4-2023, surpassing the 1,739 units completed in Q3-2023 and representing the highest quarterly total for new rental deliveries in 30 years,” the report said.
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