Metro Vancouver's Spate of Rental Apartment Construction Sign of Renewal: Report
That is the assessment of David and Mark Goodman’s mid-year report on the rental housing market, which notes that the economics of building purpose-built rental apartments are again becoming more attractive for developers.
The Aquilini Group’s application last year to build a 641-unit apartment building adjacent to Rogers Arena was perhaps the largest new project to be put in the pipeline, but Goodman noted that a recent accumulation of other applications in Vancouver alone have added up to over 1,000 units.
His estimate is that the Metro Vancouver region could see developers start work on 5,000 new rental units over the next four or five years.
That is a substantial change from the last five years, when builders started work on an average of 407 units per year of purpose-built rental housing, according to data from Canada Mortgage and Housing Corp.
However, even that stepped-up construction will fall short of potential demand of up to 6,500 new units to accommodate regional growth, according to work done by the Rental Housing Supply Coalition.
“This is basically renewal,” said David Goodman, a partner in HQ Real Estate Services. “I don’t think we’ll be adding a lot of new stock; what we’ll see is the rollover of some buildings.”
Goodman, whose firm specializes in selling apartment properties, said some older and hard-to-maintain buildings will likely be torn down as new stock is built. However, he believes renters will get a bit more choice out of the activity.
And the region has a considerable amount of catching up to do.
Goodman said Metro Vancouver has roughly 105,000 units of purpose-built rental housing, with another 45,000 strata-owned condominiums on the rental market for a total of about 150,000 units.
But CMHC research shows the supply of rental housing compared with population has shrunk consistently over the last decade. In 2012 there were just over 50 rental units per 1,000 residents compared with just over 60 per 1,000 in 2002.
The key reason for increased rental housing activity is support from municipalities, which are under pressure due to sky-high real estate prices, one developer says.
“What is making apartment construction so feasible today is that municipalities are onside to support it and encourage it,” said Hanni Lammam, vice-president of development and acquisitions for the Cressey Development Group.
Lammam added that the City of Vancouver has been at the forefront of the effort — offering inducements such as increased density, relaxed parking requirements and reduced development cost charges — and Cressey has “taken full advantage of it.”
Other municipalities, including Burnaby and Coquitlam, also offer incentives such as increased density on sites where developers are prepared to build rentals.
Lammam said Cressey typically builds at least one rental project per year but, thanks to the incentives, is building more.
Goodman said the rise in apartment construction marks a departure from the past decade, when it was more attractive for developers to build condos.
The slower pace of condo construction is pushing more developers to re-envision properties as purpose-built rental buildings now that they know municipalities are willing to work with them on requirements, he said.
However, the view that developers are choosing apartment construction over condos isn’t one shared by sources in the development community.
“Our condo sites get built as condos,” Lammam said. “The sites we’ve acquired for rental are being built rental.
“We acknowledge that the financing environment for condos is more challenging than it was five years ago, but condo projects are still feasible. We’re doing lots of them.”
Adrien Byrne, manager of communications for the Urban Development Institute, said it is less a matter of choosing one over the other as of seeing an opportunity in rental projects.
“Because the (condominium) market is not increasing at the pace as it has been in previous years in terms of the value of individual market condos, developers are seeing an opportunity for purpose-built rentals as more of a cash-flow opportunity.”