Rental Supply Crisis

Published on 2nd October 2019

When I was a teenager, my mom used to tell me lessons over and over again in the hopes that I would listen and learn. However, despite many times of telling me the same thing (for instance “stop staying up so late watching TV”), I wouldn’t listen. Even though she meant well, I was just drawn to watching TV late at night before I slept, as with most teenagers. I never really understood why she repeatedly nagged me about sleeping early until I was in my 20’s and realized that falling asleep at my desk was not something I should be doing. Well, lesson learned the hard way… nobody to blame but my stubborn teenage self! These days, I always try to sleep as early as possible to get enough rest. Oh, how the times have changed!

Broken Records Don’t Lie – My point here is that sometimes we don’t understand why someone sounds like a broken record until their message just hits us in the face, metaphorically speaking, at some point down the road. Every time I write about the lack of rental supply or something related to it, I find myself coming back to the same thing. We have a major supply issue no matter how you slice it and dice it. I’m writing about the rental crisis yet again (sorry to be “that naggy parent”!) because I do hope there will be an understanding that with this rental crisis comes an opportunity for real estate investors to profit. Hopefully you will make this realization sooner rather than later. Don’t be that person 10 years in the future telling your kids, “I had a chance to invest in the Toronto Condo Market 10 years ago, but darn I didn’t do it and missed my chance”. Should’ve, could’ve, would’ve – don’t be that person.

Doubling Down Supply – With that being said, another major report titled “Big City Rental Blues: A Look at Canada’s Rental Housing Deficit” by RBC Economics basically labelled Toronto’s rental supply as a crisis. The report explains that we need to double our pace of creating new rental housing in order to meet Toronto’s future demand, which is essentially what I have been saying for the past 2 years.

If you want to read the full report, you can download it by CLICKING HERE

One of the most staggering statistics in the report is that we have a demand of 53,500 rental units that needs to be filled in order to reach equilibrium in the Toronto rental market. 53,500 is a LOT of units. The chart below shows how large of a discrepancy we have right now if we were to try to fix our rental crisis over a 2-year period.

Immigration Influx – Currently, Toronto is at an all-time high for construction and even then, we’re only producing approximately 22,000 units per year – that’s assuming no delays, and if you’re already a pre-construction investor, you know the possibility of a delay is very likely. So then what? In order to fill the demand backlog, perhaps we need to stop immigration and build for more than 2 years just to be at equilibrium. Well, realistically, that isn’t much of a solution. Immigration isn’t coming to a halt anytime soon. Canada only planned for 250,000 immigrants last year but we ended up with 319,000 in 2018. In 2019, we’re on pace for even higher immigration numbers. Of those 319,000 immigrants last year, 47% of them came to Ontario. Effectively, that means we’re had more than 150,000 people immigrate to Ontario, yet we’ve only been building 22,000 homes per year. Is it pretty obvious why we have a supply issue now? Houston, we clearly have a housing crisis.

No Vacancy – Another good point from the report indicates that in order to reach a balanced rental market, we need to be around 3% vacancy rates. Toronto’s vacancy rate has not been above 2% in over 5 years. Have a look at the chart below for our current vacancy rates. It’s absurd when your highest vacancy rate is 1.1% in the Peel Region. Literally all signs point to a major rental crisis!

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