Vancouver, a city known for its high-rise condos, is now seeing a decline in its vibrant condo market. A similar trend is being feared for the purpose-built rental apartments as well. Factors such as reduced immigration and job insecurity, along with the high construction costs, are being attributed to this slowdown. As a result, developers are expressing their concerns and are seeking government support to continue building rental housing.
Increasing Calls for Government Support
According to Mark Goodman, principal broker at Goodman Commercial and publisher of The Goodman Report, most calls received from property owners in the last six months have been from developers facing financial difficulties, uncertain if they should switch from condos to rentals or vice versa. Many are considering renegotiating with the city for higher density or inclusionary housing to navigate through this difficult situation.
Rental Demand Expected to Soften
A report from Desjardins Economics predicts that rental demand in British Columbia will soften more than in other provinces due to a decrease in non-permanent residents and an increase in supply. This, combined with the high cost of construction and increased competition from developers switching to rental construction, makes it difficult for rental sites to be financially viable.
Developers Rejig for a Downturn
Jordan MacDonald, CEO of Fabric Living, noted that despite a large supply being delivered at the moment, the federal government’s cutbacks on immigration targets and temporary foreign resident numbers have led to a decrease in demand. As a result, rents are dropping, and it is taking longer to find tenants, even with incentives.
Controversies over Government Funding
A recent deal between a developer and BC Housing sparked a debate among Vancouver city councillors. The developer agreed to sell an almost completed apartment building to BC Housing for $50.6-million, contingent on the city providing a grant of $1.4-million to cover fees already paid to the city. However, the request for a grant was not well-received by the councillors due to the lack of transparency surrounding the deal.
Struggles of Developers
According to MacDonald, despite the large number of rental housing units expected to come online in the next few years, many will likely sit “on the sidelines” until the market improves, making it financially viable for developers to proceed. He predicts that construction starts for new rental units will decline in the next 24 months, creating a supply issue by 2028.
Government Support Key for Developers
MacDonald, along with other Canadian rental developers, relied on a financing program from the Canada Mortgage and Housing Corp. that offered low-interest rates and longer amortization to build the project. Developers argue that such government support is the only way to make these projects viable. They are calling for financial help and the removal of bureaucratic hurdles to ease the process.
Healthy Rental Environment Despite Challenges
Despite the challenges, Barrett Sprowson, senior vice-president of residential at Peterson Group, believes that the rental environment is healthy. His company has successfully rented out about 80% of units in a new apartment building, despite competitive conditions that offer tenants more choices. However, older properties in his portfolio have seen a rent drop of around 5 to 10%.
Future Prospects
While the current situation might be challenging, developers remain hopeful for the future. Greg Appelt, founder of Appelt Properties, recently began a 463-unit project in Metro Vancouver, confident that the long-term rent situation will improve. Like his peers, he also depends on CMHC financing for his projects.
