Toronto is a city of condominiums. In fact, the preponderance of condominium development is such that the term "condo" has infiltrated the common parlance as a de facto synonym for any—and all—of the glassy new point towers that increasingly define the city's architectural character. And if our recent residential towers have come to be practically synonymous with condominiums, it's because almost all of them are.
This wasn't always the case. Throughout the mid-20th century, the post-war decades saw hundreds of purpose-built rental towers spring up across Toronto. Defining Toronto's architectural landscape every bit as much as the ongoing glass and steel boom, these slab towers—many of which are in fact condominiums—have now come to form the other half of a perceived binary. If 21st century point towers signify condos, then 20th century slab towers mean rental.
Of course, an architectural typology doesn't inherently indicate the ownership structure of the units within. In Toronto, though, it can certainly seem that way. "For some people, there's still a certain stigma about renting and rental buildings in this city," says Todd Nishimura, Director of Leasing and Marketing at Vertica Resident Services, a subsidiary of developer GWL Realty Advisors. In an interview with UrbanToronto, Nishimura highlighted the company's growing portfolio of purpose-built rental projects, while arguing for the benefits that suites in these buildings have compared to units in the secondary rental market.
But why have there been so few new rental towers in the first place?
Beginning in the 1970s and 80s, the construction of rental buildings across Canada drastically slowed as the tax incentives that previously encouraged affordable rental developments were rolled back. Meanwhile, the introduction of rent control legislation by Provincial governments—with Ontario's own Rental Tenancies Act first enacted in 1979—protected the affordability of existing units but indirectly disincentivized new rental development by limiting future revenue growth.
At the same time, Canadian construction subsidies for owner-occupied units remain among the highest in the world, with 92.6% of total Federal housing subsidies geared towards homeowners (in 2008/09), and only 7.3% going towards private renters. As David Hulchanski put it in a 2007 report, "[m]ost of the history of the role of Canadian government housing policy and programs is... a history of efforts targeted at the ownership sector."
Meanwhile, the increasingly sprawling and car-centric geography of mid-to-late 20th century North America was reflected in a culture that idealized home ownership. And though dreams of houses and cars fresh-cut lawns faded as urban living came back into vogue, dreams of home ownership didn't.
For developers, the economics of condominiums also offer an easier return on investment. Whereas the construction of rental buildings requires large-scale speculative investment to carry the project through to completion, condominium towers are typically funded by pre-construction sales, allowing developers to secure significant revenue before construction begins. (Incidentally, a pre-construction sales market is arguably a contributing factor to Toronto's investor-driven glut of one-bedroom units, which tend to sell better in pre-construction than the larger units favoured by end user purchasers).
In recent years, however, Toronto's new-build rental market has shown signs of resurgence. In 2014, Morguard's two-tower Heathview community (above) was completed in Forest Hill, bringing purpose-built rental supply to Midtown. Now under construction, high-rise projects like The Selby, Montgomery Square, and King HighLine—previously an Urbancorp condo development—are also continuing to introduce new purpose-built rental supply to the city. At Bloor and Bathurst, Westbank's Mirvish Village development—one of Toronto's most well-publicized projects—will add some 1,000 rental units to the Annex (below), while a more recently proposed tower at 89 Church Street would bring another 468 purpose-built luxury rental homes to Downtown Toronto.
Like an increasing number of Toronto's developers, GWLRA—a Canadian real estate investment advisor providing comprehensive asset management, property management, development, portfolio management and specialized real estate advice and services to pension funds, and institutional clients—is staking a larger presence in the growing rental market.
With construction of GWLRA's 594-unit tower at 43 Gerrard Street West now reaching grade (below), the company is contributing a notable presence to the rental market. Designed by IBI Group Architects, the 43-storey tower will contribute a notable high-rise presence to the urban core, replacing a former parking lot at the corner of Gerrard and Bay Streets.
"Like a lot of new rental buildings, it's a relatively luxurious project," Nishimura explains, "and it has all the amenities and features expected in a quality condo." High-end finishes, comparatively generous ceiling heights, and a comprehensive amenity program offer the same type of lifestyle afforded in new-build condos. "In fact, we've had calls from people inquiring about buying the units. But when we tell them it's not a condo, we've gotten the response: 'what do you mean it's not a condo?'"
Evidencing somewhat distorted public perceptions, Nishimura's anecdote speaks to the culture of a city in which the development landscape remains almost entirely dominated by condominiums. "That's not the case everywhere though," he notes. "In markets like Seattle, New York, Chicago, and San Diego, it's very common to see purpose-built rental. In fact, development in Seattle is dominated by rental projects, which make up about 80% of high-rise construction."
"In particular, Seattle's fast-paced employment market—and a different public perception—means that most luxurious new buildings are rentals. Meanwhile, renting in Toronto is still sometimes considered unusual," Nishimura explains, "especially if you have the money to buy." However, while spending on rent can be perceived as a misuse of money, renting typically entails lower monthly expenses.
Last year, an editorial in the Financial Post analyzed the respective costs and benefits of renting vs. buying. While purchasing a property builds equity, the higher monthly carrying costs can entail a financial risk. By contrast, a combination of rent and investment—which can add up to the same net expense as a mortgage—can yield a better return on investment, while providing greater financial flexibility. "From a purely financial standpoint, renting really shouldn't be seen as a bad decision," Nishimura argues.
As publicized in the Toronto Star, a 2015 report by investment consultants Wealthsimple arrived at a similar conclusion. Besides the fact that stocks can outperform property as an investment (though this is not universally the case), basing personal wealth on home ownership comes with its own risks. "One mistake is to assume prices will continue to rise uninterrupted. Another is that interest rates will remain at historic lows and so will mortgage payments. A third is ignoring the risk of putting all their eggs in one asset basket," the article notes.
Meanwhile, despite a culture that favours home ownership, the demand for rental properties in Toronto remains high. In fact, over 37,000 condominium units entered the secondary rental market between 2009 and 2014, evidencing strong demand for rental property in a condominium-driven development landscape. However, Nishimura argues that "the secondary rental market comes with a lot less security, and a lot more risk, than renting from a certified management company."
In the secondary rental market, individual condo owners often live outside of the city and lack experience as landlords. By contrast, certified rental buildings are equipped to provide repairs and maintenance, while also securing a right to tenancy. "You can't be asked to leave because the unit is going to be sold, or because the landlord no longer wants to rent it," Nishimura explains. "In a rental building, that doesn't happen."
Further down the line, GWLRA's rental portfolio is set to expand further with the development of the two-tower Grenadier Square just north of High Park. Designed by Toronto's Zeidler Partnership Archiects, that project would add over 500 suites to the market.
"I think that striking a balance of new rental supply and condominiums is very important for a city of this size," Nishimura concludes. "While there's nothing wrong with renting in a condo, it's important to provide that choice for renters. But it's also important to a healthy market, I think, and ultimately, having that diversity is also important to healthy communities."
More information about the above-mentioned projects is available via our dataBase files, linked below. What do you think about Toronto's resurgent purpose-built rental construction and its impact on the city's real estate market? Leave a comment in the space below this page, or join in one of the ongoing conversations in our Forum.