For decades, homeownership has been the dream of most Canadians. Both new and resale home and rental markets in Canada are undergoing changes.

Owning real estate has historically proven to be a lucrative financial investment, not to mention a lifestyle boost. Owning offers a sense of belonging, and over time, owners can build equity, whereas renting does not offer that opportunity.

There will always be leaders for affordability, and rightly so, but overall, this represents a small-yet-worthy portion of the market. Our pre-construction real estate market is coming back. We are starting to see a shift. 

Developers still want to build, but they have changed what they’re building.

Nowadays, more former new-construction condominium developers are embracing the idea of purpose-built rental accommodations. These developers realize they are entering into a long-term commitment, unlike selling condos and moving on.

The pivot to purpose-built rental

For many, this is a way for them to set up family and partner wealth for the future. Developers are also enjoying substantial incentives for qualifying purpose-built rentals, such as GST rebates and the provincial portion of the HST, as well as easier construction financing.

And certainly, we have needed more rental buildings for a long time.

According to Toronto.ca, during the 1960s, the city had built 128,169 rental apartments, compared to about 3,715 so far in the 2020s. In fact, the 20 years after the Second World War saw more rentals being built in Toronto than in the 50 years since!

Why? In the mid-1970s, Ontario introduced rent control, and the incentives that made new rental development attractive were done away with by the federal government. 

Later during the pre-construction condominium era, when sales of new condos rocketed, the lack of rental product led to many condo suites becoming the rental stock. However, because of numerous factors, such as the changing economic climate in Canada, by 2022, condominium sales suffered.

Rising prices and interest rates, tariffs on construction supplies and stricter immigration policies caused the condo market to lose momentum and left more people seeking rentals. 

The foreign buyer ban

Then there was the “Prohibition on the Purchase of Residential Property by Non-Canadians Act,” which has been in effect since January 1, 2023, and was extended to January 1, 2027. There is talk that after that deadline, the federal government might reopen the market to foreign investment in some circumstances, such as new construction.

This would be better news than extending the ban again, as most cosmopolitan cities are built on investor income. Our former investors did not stop investing in real estate. They just took their money and invested it in other countries. This step put us far behind in what should have been progress.

Interestingly, the rental market demographic has changed from what we saw decades ago. It used to be retired people sold their big homes and moved to rental buildings where investment income paid their rent.

Nowadays, some empty-nesters are holding on to their properties and waiting out the economic situation before making that move. Others who have decided to sell their large homes and rent are opting for existing luxury buildings that offer more square feet and are less expensive. 

Young people who are not ready to commit to buying are renting. Ironically, NOW is an ideal time for them to get into the ownership market, with prices dropping and supply dwindling. Savvy purchasers are jumping at this opportunity. 

Changing rental demographics

The rental demographic also includes professionals who work in the city but own country properties to escape to on weekends.

We are also seeing renters who enjoy the experience of living in new rental buildings that have outstanding amenities such as pools, media rooms, party rooms, etc. – common areas that mimic those in condominiums.

Many Millennials and Gen Z renters are far more interested in life experiences than owning. In addition, in a purpose-built rental building, property management takes on facilitating programs such as aquafit or yoga classes, which is attractive. In a typical market condominium, the board of directors rarely assumes this responsibility.

As for design, there are two types of purpose-built rental buildings. The first is the luxury residence where wealthy people make the decision to rent after selling their mansions. They want larger square footage, such as can be found at The James offered by Tricon on Price Street.

The second type is geared to renters who are not quite ready to buy. Floorplans in these are similar to condo towers, but with fewer studios.

Prime Minister Carney is planting the seeds for Canada around the world, which bodes well for the future. We need, however, more short-range fixes to get things moving again in our industry. I see clearer skies coming from mid-to-end 2027. In the meantime, we in the industry are doing the best we can, and we are riding out this challenging cycle.