2022 HOUSING STARTS
Overall, housing starts activity remained high in 2022 with December trending slightly lower than previous months. In Toronto, Montreal and Vancouver, multi-unit construction led the way, with rental apartments and condominiums accounting for the majority of housing projects.
CMHC describes housing starts as “an economic indicator” reflecting the number of residential housing projects that have been started over a specific length of time. For the month of December, total housing starts in both urban and rural areas declined five per cent to 248,625 units compared to November 2022. Specifically, multi-unit urban starts decreased four per cent to 182,850 units while single-detached urban starts fell 11 per cent to 44,858 units.
"Overall, housing starts activity remained high in 2022 with December trending slightly lower than previous months. In Toronto, Montreal and Vancouver, multi-unit construction led the way, with rental apartments and condominiums accounting for the majority of housing projects."
“The 2022 year ended with a slight decline for both the monthly SAAR of housing starts and the trend at the national level in December;” said Bob Dugan, CMHC’s Chief Economist. “However, Toronto, Montreal, and Vancouver all posted increases in total SAAR housing starts, with Toronto posting a significant increase of 72 per cent in December. The rate of new construction continued at an elevated pace in 2022 overall, ending the year with actual total urban starts at 240,590 units (-1%) in Canada, similar to levels observed in 2021 (244,141 units). While these additional units will provide much needed supply on the market, demand for housing in the country will continue to grow. We need to find innovative ways to deliver more housing supply and keep building at a higher pace in the coming years in order to improve affordability.”
Housing starts in the Toronto Census Metropolitan Area (CMA) reached 45,109 units, which is 7.6 per cent higher than the previous year. In fact, this marked the highest level since 2012 (48,105 units) and the fourth highest number on record. CMHC said the growth in Toronto’s housing starts was “entirely attributable to the multi-unit segment” comprised of semi-detached homes, row homes, and apartments. In all, there were 38,780 multi-unit starts in 2022—the largest number on record—with the majority being apartments and condominiums.
Meanwhile in Montreal, activity was in line with pre-pandemic levels with 24,000 overall housing starts, down 25 per cent from the record year experienced in 2021. This decrease was observed across all market types (homes, rentals and condos), with rental apartments continuing to drive housing starts in the area. In 2022, rental projects in Montreal represented 61 per cent of all housing starts.
Housing starts in the Vancouver CMA totaled 25,983 units in 2022, unchanged overall from 2021 (26,103 units). Builders in the region are continuing to operate near capacity and at an elevated pace, in keeping with the trends seen there over the past five years. As construction of rental apartments surged due to strong demand, condominium starts fell, indicating developers took a more cautious approach to the segment. With higher mortgage interest rates limiting the budgets of homebuyers, CMHC believes some of the demand from ownership in Vancouver has switched to rental.
RENTS BLOWING UP
The annual rate of rent growth in the GTA, as measured through condo lease transactions, averaged 16.9% during 2022, which followed a 0.5% decrease in 2021 and a 6.8% decline in 2020. On balance, rent inflation was below normal over the past three years at an average of 3.2%, compared to the latest 10-year average of 5.1%. For units transacting in Q4-2022, average rents decreased 1.6% quarter-over-quarter, back in line with typical seasonal trends. (Note that these growth rates are exclusive to units that turned over into the unregulated market. The vast majority of units do not turn over annually, are built before November 15, 2018, and are therefore subject to the provincial rent increase guideline, which was 1.2% in 2022).
Condominium lease transactions totaled 42,190 units in 2022, down 12% from the 2021 record high (48,256) but still well above historical averages. Lease volume decreased last year as the surge in tenant turnover caused by pandemic-related upheaval during 2021 subsided. At the same time, lease activity remained above normal due to an expansion in demand — primarily driven by a surge in immigration and foreign students, strong growth in employment, and a drop-off in first-time homebuying — as well as an increase in new supply as the condo stock increased by 19,340 units (compared to a 10-year average increase of 17,441 units) and investors opted to hold onto their units in the rental market.
As of Q4-2022, average transacted condominium rents reached $2,752 per month ($3.81 per square foot), $391 more than a year ago in Q4-2021 ($2,361) and $334 more than the pre-pandemic average in Q4-2019 ($2,418). Over the past three years, the number of units renting for under $2,000 per month dropped 87%, representing only 1.4% of leases in Q4-2022.
Purpose-built rental construction starts in the GTA fell 54% in 2022 to 3,442 units after reaching a multi-decade high of 7,557 starts in 2021, caused by the sharp increases in interest rates, construction costs and development charges. A total of 19,679 purpose-built rentals were under construction in the GTA at year-end, up slightly from a year earlier (18,955 units).
The vacancy rate in purpose-built rental projects completed in the GTA since 2005 averaged 1.5% in Q4-2022, declining from 2.4% in Q4-2021 and 5.7% in Q4-2020, effectively returning to pre-pandemic levels.
CFR TAKE - A - WAY
The "perfect storm" in apartment rental rates is about to hit the side of the ship. Vacancy has declined to pre pandemic levels and declining. New apartment starts are down 50% and will go lower. The amount of units for rent under $2,000 has evaporated. Increased demand from immigration and students will push rental prices high and higher and higher... and values higher and higher even if cap rates move up.
CMHC 2022 RENTAL REPORT
Globe and Mail
Renters in Canada are facing the toughest market in decades with low vacancies, higher prices and surging demand, according to the Canada Mortgage and Housing Corporation (CMHC). The housing agency released its annual rental market report Thursday, which showed that the national vacancy rate for purpose-built rental apartments declined to 1.9 per cent last year — the lowest level since 2001.
Meanwhile, the demand for rentals outstripped supply due to higher net migration, the return of students to on-campus learning and a rise in homeownership costs. “Higher mortgage rates, which drove up already-elevated costs of homeownership, made it harder and less attractive for renters to transition to homeownership,” CMHC said in a statement.
CMHC data also showed that the average rent for two-bedroom units that were occupied by a new tenant rose by 18.3 per cent — well above the average rent growth for units without turnover. This made it difficult for Canadians trying to enter the rental market or find new housing to rent, the agency said.
“Lower vacancy rates and rising rents were a common theme across Canada in 2022,” Bob Dugan, CMHC’s chief economist, said in a statement. “This caused affordability challenges for renters, especially those in the lower income ranges, with very few units in the market available in their price range.” The average rent for a two-bedroom rental condominium apartment saw a significant increase to $1,930 from $1,771, about nine per cent year over year, according to CMHC.
Canada is also facing a housing crunch with a shortage of both homes and construction workers to build new units.
Another CMHC report released last week found that the annual rate of new home building had slowed by five per cent in December 2022 compared with November. Last month, in a bid to help tackle skyrocketing rents across the country, the government of Canada opened applications for a one-time top-up as part of the Canada Housing Benefit (CHB) program — an initiative that would put $500 in the pockets of low-income renters.
RECENT APARTMENT SALES
53 DAWES ROAD - EAST YORK - $4,710,000 / $362,230 PER SUITE / 4.0% Cap Rate
This is a sale of a 2 storey detached rental apartment building containing a total of 13 suites. The 0.17 acre site is improved with a wood frame walk up building dating from the 1950's with surface parking, lockers, on site laundry and double windows. Mostly one and two bedrooms with all the suites beeing totally renovated and rented up in the last 24 months. Still some rental upside. Low rate financing in place. The asset was fully marketed by Commercial Focus Realty Apartment Group and was purchased by a private investor.
547-552 FRONTENAC STREET / 240 ADELAIDE STREET - KINGSTON – $9,800,000 / $204,165 PER SUITE / 4.3% Cap Rate
This sale is of a three buildings all being 3 storey walk up rental apartment buildings dating from the 1970's. All have brick exterior walls, double windows, some balconies and flat tar and gravel roofs. Each building had on site laundry and surface parking. Rents were low and they were all self managed by a private owner. The asset was fully marketed and was purchased by a private investor.
595 BROOKDALE AVENUE - NORTH YORK - $13,600,000 / $289,360 PER SUITE
This property comprises a well located concrete rental apartment building with a total of 47 suites. Dating from the 1960's this mid rise building has mostly one two bedroom suites with brick exterior, double windows and flat roof. The 0.7 acre site is located in a single family residential area and there are 46 parking spaces. The suites are modest in size and property has been owned by the same owner for over 3 decades. The property was fully exposed and sold to Hazelview Apartments. It was sold with another building located at 3171 Bathurst Street.
3171 BATHURST STREET - NORTH YORK - $13,600,000 / $289,360 PER SUITE
This property comprises a well located concrete rental apartment building with a total of 47 suites. Dating from the 1960's this mid rise building has mostly one two bedroom suites with brick exterior, double windows and flat roof. The 0.7 acre site is located in a single family residential area and there are 46 parking spaces. The suites are modest in size and property has been owned by the same owner for over 3 decades. The property was fully exposed and sold to Hazelview Apartments. It was sold with another building located at 595 Brookdale Avenue.
THE APARTMENT GROUP
Together the team has completed over 1,500 transactions and has sold over $7.0 billion in apartments and development land. Put us to work for you and see the results. NO ONE has sold more buildings than our group. Experience, knowledge and professionalism will insure you get the right deal or the highest price if you are selling.
The Apartment Group is a dedicated team of professionals specializing in the sale of multi-residential investment properties. With over 40 years of combined experience, the team brings together their strengths including strong negotiation and sales skills along with highly technical market analysis and appraisal methods.
We are a boutique Brokerage but have the capabilities of the larger houses without the overhead. We have: an internal database of over 10,500 active apartment and land Buyers; a list of all apartment building owners in the Greater Toronto Area; our web site gets over 50,000 hits a month; we highlight properties for sale through our newsletter which reaches 10,000 investors monthly.
President & Owner,
LORENZO DIGIANFELICE, AACI
Broker of Record, Owner