As we head into Q2-2024, a significant shift in Ontario’s real estate landscape has occurred, putting the rental market front and centre amid declining home sales. For those in the rental housing sector, this represents good news—especially given that the heightened demand is expected to persist for the long term, leading to more opportunities on the horizon.

The decrease in new single-family home starts reflects a mix of challenges for both builders and buyers alike. For builders, elevated construction costs and labour shortages are directly impacting the viability of new projects. Rising prices for materials results in the potential of thinner margins or overall losses for builders. Additionally, a shortage of construction labour is slowing down the overall completion of new projects.

For buyers, surging interest rates and persistent inflation over the past two years are barriers to getting approved for a mortgage or wading into the housing market in general. Just a couple of years ago, buying a home was a more attainable dream for many Canadians. However, the increased cost of living means that what a potential buyer could qualify for then is vastly different from what they can afford today.

This has resulted in an alarming trend: buyers are becoming unable to close on their initial commitments and are having to walk away from their deposits. Not only is this harmful for the buyers, but it causes a ripple effect throughout the industry. Builders are more reluctant to initiate new projects and take on the risk if no one can afford them.

For the rental market, supply is in high demand given renting is the only viable option for many. New purpose-built rental apartments should be crafted taking millennial and Gen Z preferences into consideration. The demand for high-quality and elevated rentals is greater than ever, and emphasis should be placed on establishing sustainable, secure, and community-focused living environments. Units should reflect amenities and living experiences that resonate with young adults’ tastes.

Another contributing factor to the rise in demand for rentals is Canada’s immigration policy, which allows for a substantial number of newcomers every year. Based on new immigration targets, Canada is expected to continue to welcome 500,000 new immigrants annually, with Ontario being the most popular province for newcomers. Many turn to the rental market when arriving, as they settle into their new lives.

For builders, recent announcements from the federal government for new tax incentives for developers will help offset some of the costs that have been plaguing the industry. Since the rental market continues to be undersupplied, the growing demand will continue to increase.  Purpose-built developments are not only necessary to meet immediate housing needs but also present a prudent long-term investment.

To conclude, it is clear the real estate market in Ontario is at a crossroads. The traditional pathway to homeownership is becoming increasingly unattainable for a large segment of the population. The market must pivot toward developing rental properties that cater to the needs of younger generations and new Canadians. This is not just a reactive shift to current market conditions, but a forward-looking strategy that recognizes the long-term value and stability of the rental market. As we navigate through these changing times, the focus on building quality affordable rental housing will be crucial in shaping the future of Ontario’s housing landscape.

Billy Triantafilos is the Principal & Co-Founder of TCU Development Corporation.