The replacement cost of multi-residential rental buildings is substantially higher than the value for which they can be purchased in the market. Rising land values, construction costs, rent control legislation and other market conditions have made it difficult for developers to justify new apartment builds as the returns on these investments are lower than purchasing existing product, resulting in the total rental stock increasing by only 394,532 suites since 1995 despite a 7.0 million increase in the population. There has been limited new purposebuilt rental supply in the country, with only an average of 17,933 suites started per year in all of Canada since 1995, or approximately 0.9% of the total supply started per year on average in Canada since 1995 (Source: CMHC). Significant barriers to entry protect incumbent owners from increased competition and continue to contribute to the favourable supply / demand fundamentals. For example, based on an estimate of replacement costs for the Initial Properties provided by the Appraiser, the estimated replacement costs of the Initial Properties is in excess of $130 million higher than their appraised value (excluding any portfolio premium). This, combined with high land prices, makes new developments increasingly harder to justify. In order to achieve the same economics, newly built suites would require significantly higher rents versus existing properties.

The recent increase in purpose-built rental construction starts combined with elevated levels of condominium development are expected to lead to above-average growth in rental supply inventory over the next few years. However, the adoption of the Ontario Fair Housing Plan in 2017 has extended rent control regulation to buildings built after 1991, which management believes will negatively impact future supply growth as fewer purpose-built rental projects ultimately decide to proceed as rental. The continued low rental vacancy in the face of the recent increase in rental supply indicates that rental housing supply is not near the levels needed to absorb the high demand and bring rental demand and supply into equilibrium.

Multi-Residential Rental Market Overview >>

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  Increasing Rental Demand >>
Overall demand for residential rental accommodation has historically been stable and is expected to increase in the future. Strong population growth... More >>

  Favourable Population Growth Outlook >>
According to Statistics Canada, the Canadian population is forecast to increase by 9% from 2016 to 2022, while Ottawa's population is forecast to grow by 7%... More >>

  Demographics and Propensity to Rent >>
Due to the importance of age on housing decisions, demographic shifts can have a profound impact on demand for different types of housing... More >>

  Home Ownership Rates and Declining Affordability >>
Diminishing house affordability across key markets is expected to limit the growth of home buying demand and lead to a greater share of renter households... More >>

  Limited Rental Supply Growth and Declining Vacancy >>
The replacement cost of multi-residential rental buildings is substantially higher than the value for which they can be purchased in the market... More >>

  Strong Average Rental Rate Growth >>
Rental affordability, measured as a percentage of personal income, in each of Toronto, Ottawa, Calgary and Edmonton has broadly remained in line... More >>

  Economic Data and Trends by Region >>
Canadian economic growth has been consistently strong over the past decade, with Canada leading all G7 nations in total GDP growth from 2007 - 2016... More >>

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