Canada’s purpose-built rental apartment industry is about to boom. New units are under construction across Canada, but these scratch the surface on the level of demand out there for apartments. A perfect storm of conditions has materialized that has tilted the balance in favour of rental apartments, and now is a perfect time to invest in the industry.
Below are four reasons why new apartment construction is booming, and will continue to boom:
1. Limited supply
During the last quarter of the 20th century, very few new apartments were built. Rent controls in Ontario and excessive regulations elsewhere scared off developers, moving them to the single-family housing industry.
Since 1995, these regulations have eased, and rents have bounced back to their market value, but Canada has a lot of catching up to do to make up for 25 years of lost construction. Most of the apartment stock is now more than 30 years old, meaning that new apartments are rare, and are immediately placed at the top of the market when they do appear.
2. Rising demand
Demand for apartments is at an all-time high, thanks to population growth and demographic changes. It used to be that apartment buildings played second fiddle to single-family homes in the suburbs, but no longer. The oldest baby boomers are now empty-nesters. Their houses are too large for them, and they are increasingly looking for smaller places that reduce their reliance on the automobile, and have fewer stairs.
At the same time, young urban professionals have fallen in love with downtown living, favouring the vibrant and easy-to-walk-through neighbourhoods over car-dependent suburbs. They are turning away from mortgage costs and condo fees that increase the price of ownership by as much as $200 per month over renting a comparable space.
In both cases, downtown rental apartments are increasingly serving the needs of both groups, especially those buildings that offer luxury amenities these affluent groups are willing to pay for.
3. Financing has never been easier
Canada’s low interest rates have significantly reduced the cost of financing your dreams. Low interest rates have also significantly reduced cap rates, as lowering vacancy rates and rising average rents improve the bottom line of apartments in general.
4. Apartments can provide shelter should the condominium market falter
Developers have been building condominiums in Canadian centres such as Vancouver and Toronto, raising concerns that they may be producing a bubble in the market. Developers worried about where their income will come should the market correct would do well to switch from building condominiums to building purpose-built rental apartments.
Everything developers currently do to build condominiums can be carried over to purpose-built rental apartment buildings. While condominium builders may not have experience in managing rental apartments, this can be learned, and management companies can also offer their expertise. Moreover, by holding onto their buildings and renting out their units, these buildings provide developers with a long-term income.
Learning to build new apartments
There has never been a better time to build new apartments in Canada. The demographic and economic changes that have tilted the balance away from single-family homes and to purpose-built rental apartments are well-established and growing. The only thing holding back new apartment construction is a lack of knowledge of existing opportunities.
Derek Lobo is the founder and CEO of SVN Rock Advisors Inc., a real estate brokerage with over 30 years of experience in helping investors make the most out of buying, selling, and renovating purpose-built apartment buildings. Learn more about SVN Rock Advisors Inc., Brokerage on their website at www.SVNRock.ca.