This blog explores the program’s flaws, its impact on Toronto’s housing market, and the steps needed to ensure its success.
What Is the Purpose-Built Rental Incentive Stream?
The Purpose-Built Rental Housing Incentives stream is a municipal initiative by the City of Toronto, complemented by federal measures such as the GST rebate on new rental construction. The goal is to encourage the development of rental housing by reducing costs for developers and ensuring affordability for renters.
Key elements of the program include:
- Funding Support: Low-interest loans or grants to offset development costs.
- Tax Incentives: Waivers or reductions, including the GST rebate, to improve project profitability.
- Affordability Requirements: A mandate to keep a portion of units below market rents for specific periods.
Despite its ambitious goals, the program’s implementation has faced significant challenges.
Delays and Bureaucracy: Purpose-Built Rental Challenges in Implementation
While the program holds promise, bureaucratic inefficiencies have undermined its effectiveness:
Lengthy Approval Processes: Developers report that obtaining approvals for purpose-built rental projects can take years. The complex and opaque application process, compounded by inconsistent communication between government levels, creates significant delays that deter investment.
Regulatory Overlap: Federal, provincial, and municipal regulations often conflict, leading to redundancies and inefficiencies. Developers must navigate these layers while fulfilling stringent requirements, such as affordability metrics and environmental standards, which lack clear guidelines.
Limited Impact of Recent Approvals: The City of Toronto recently approved 17 applications for purpose-built rental housing across 12 wards. These projects are expected to create 7,156 new rental units, including 1,047 affordable units. While this progress is notable, it is far below the city’s goal of unlocking 20,000 rental homes.
Developer Frustration: Developers frequently abandon purpose-built rental projects in favour of condos due to the shorter timelines and fewer bureaucratic hurdles. Condos often provide quicker returns on investment, making rentals a less attractive option under current policies.
Impact on Toronto’s Housing Market
Toronto’s housing market remains under pressure due to insufficient rental supply and bureaucratic delays in purpose-built rental development.
Low Vacancy Rates: Toronto’s rental vacancy rate, at 2.3% in 2024, remains below the 3% threshold for a balanced market. This persistent shortage means demand for rental units outpaces supply, keeping rental options limited for tenants.
Rising Rents Despite Decreases in Costs: Although some data points to slight declines in rents – such as the Q3 2024 drop in one-bedroom condo rents to $2,499 – affordability remains a significant concern. Rental prices in Toronto are still unaffordable for many, especially when coupled with a lack of available units.
Delays Impacting New Units: The approval delays mean fewer new units are entering the market each year. Developers’ frustrations with the timeline – often measured in years – highlight a key bottleneck in increasing supply. Even with programs in place, the pace of development is insufficient to meet the city’s needs.
Strengthening the Case: Developer Insights
Developers consistently voice concerns over the timelines required for approvals. Many highlight that the process can take 18-24 months, significantly delaying construction. In contrast, condo projects often proceed faster due to less red tape. The bureaucracy surrounding purpose-built rentals discourages participation, exacerbating the housing shortage.
While the City of Toronto has introduced incentives like the deferral of development charges, these measures are not enough to counteract the lengthy and convoluted approval processes. Developers are clear: without streamlined systems, rental housing will continue to lag behind demand.
Addressing Purpose-Built Rental Challenges
To resolve the issues with purpose-built rental development, the following steps must be prioritized:
- Streamlining Approval Processes: Governments must reduce redundancies and establish clear, predictable timelines for approvals. This would provide developers with the certainty needed to move projects forward efficiently.
- Increasing Financial Incentives: Adjusting grants, tax breaks, and subsidies to reflect the rising costs of construction and land acquisition can make purpose-built rentals more attractive to developers.
- Enhancing Intergovernmental Coordination: Federal, provincial, and municipal governments must align their policies to ensure consistent messaging and eliminate conflicting requirements.
- Improving Communication with Developers: Creating a centralized system for tracking applications and providing regular updates can reduce confusion and frustration for developers navigating the process.
Conclusion
The Purpose-Built Rental Housing Incentives stream was designed to tackle Toronto’s rental housing crisis, but its success has been stymied by bureaucratic inefficiencies and delays. With vacancy rates remaining critically low and developers increasingly reluctant to pursue rental projects, the city faces mounting challenges in addressing its housing needs.
Streamlining approval processes, enhancing incentives, and fostering better collaboration between governments are essential steps to unlock the potential of purpose-built rentals. Without these changes, Toronto risks falling further behind in providing affordable and accessible housing for its residents.
