This guest column is written by Sean Lawrence, Partner at Kohn Partnership Architects Inc.

Since establishing our practice in 2002, Kohn Partnership Architects has primarily focused on private-sector development in the GTA, which over the years has been a split between commercial and multi-unit residential development, from stacked townhouses to mid-rise and high-rise. However, the pressures of demand for housing in Toronto and the uncertainty surrounding brick-and-mortar retail has shifted our focus recently. Within the last five years, we’ve seen the majority of our projects– about 80 per cent– shift to residential and mixed-use development in all forms. 

Parliament & Co, designed by Kohn Partnership Architects for the Downing Street Group

This doesn’t come as a surprise. With over 100,000 new residents moving to the GTA every year and an average vacancy rate of 0.1%, the demand for rental units is rapidly increasing. Further, the desire for luxury has certainly played its role in keeping the condo market booming; the GTA’s aging population is seeing a surge of baby boomers seeking to downsize into more accessible and amenity-packed rental units. 

Developers are continuing to build condo units but the vacancy rate is only getting smaller. Is there another way to meet the city’s demand?  

We are currently in a rental market that revolves around condos, comprised of private landlords renting out individual units. Also, the perception of purpose-built rental apartment buildings in the city is that they are generally older buildings in lower socio-economic communities, with often fewer amenities and poor maintenance, this is rapidly changing.

Affordability and regulating the market

Since 1990, Ontario has seen 1,075,779 units built for homeownership and 410,562 condo units, yet only 143,091 purpose built rental units, meaning rentals have constituted less than 9 per cent of all new units built since 1990. 

As the GTA continues to see most of its rental units managed by private landlords, there is a collective feeling of inconsistency and lack of stability in the market. We have reached a truly critical moment in the city’s rental crisis: more families, students and single parents will face the fear of homelessness despite their efforts if action is not taken more quickly. The city is grappling to make the most of its resources—we are not alone in looking at sites that would have been considered undevelopable in the past—which has resulted in an increase of infill projects, urban sites, and development of more restricted areas.  

Bayview & Hillsdale, designed by Kohn Partnership Architects for The Brown Group of Companies

Some developers are already embracing this idea. One of our projects currently underway, a nine-storey residential building in the heart of Toronto’s Leaside neighbourhood, located at Bayview St. and Hillsdale Ave, was originally conceived as a condo building. The developers, The Brown Group of Companies, have experience in Toronto’s booming rental market and decided to convert the project to a purpose-built rental early on in the process. Other projects that we are working on have followed a similar path, such as a stacked townhouse project that was originally marketed as a condo building but has been converted to rental after the majority of prospective purchasers did not qualify under Ontario’s new mortgaging rules.

Why (Luxury) Purpose-Built Rentals Could be the Answer

After 20 years of working with developers to get condo buildings from development sites to livable units on the market, it is easy to see how purpose-built rentals could help alleviate the pressure on the available housing market.  

The answer lies with developers, who see the value in purpose-built rentals. For a developer with established resources, there are three main benefits to purpose-built rentals over condo units:

• Units to market quicker and more efficiently 

While the approval process takes approximately two years for both condo and rental buildings, by eliminating the sales process, purpose-built rental units can see tenants moving in one to two years sooner than condo buildings.

Further, developers are under pressure to sell units in order to meet financing thresholds, typically 80 per cent of units, but the sales process can take up to 12 months alone. Purpose-built rentals completely eliminate this process, and we are starting to see pre-rentals on the market, meaning that the building is fully occupied as soon as it is complete. 

• Reduction in overall project costs

The cost of a marketing team, sales office, showroom staging, sales collateral and much more significantly adds up. Making up a significant amount of the development cost, these expenses fall to the developer and are considered in the initial financing of the project. Eliminating the entire sales and marketing process not only gets the building onto market faster, but also leaves more money in the developer’s pockets.  

• Long-term return on investment 

While condo buildings have the initial gratification of seeing 80 per cent of sales cashed in, purpose-built rentals have a far greater long term ROI than condo sales. With the average monthly rental price of a two-bedroom unit in Toronto between $2,300 - $2,600 and no distant signs of the price dropping any time soon, there is more money to be made in the long-run with rentals.

After all, the extraordinary value and ROI is why condo owners are renting out their units as soon as they buy them!

Purpose-built rental buildings represent a long-term value investment for developers and investors, while providing an opportunity for more diverse and affordable housing in all areas of the city. A longer-term strategy that includes purpose-built rental also contributes to the economic, environmental and social vibrancy of the urban core by adding to the housing spectrum in a dense and environmentally sustainable way. We are hoping to see more developers taking a similar lead.