In Canada there are around four million rental housing units which is made up of around 85% being owned by the private sector. As stocks grew from the 1960’s to the 1990’s a decline in units built for for rent by owner occurred. In the recent years investments made in new private rental housing has been low. Only about 6,000 new units per year have been developed in Canada’s major areas since the year 1992. In the year 1995 alone, landlords spent almost four billion dollars in renovating and repairing private rental housing. This averages to about $1,200 per unit.
Due to rental vacancy rates increasing dramatically throughout the years it has resulted in possibilities to come back being unlikely. These results can be attributed to by many different things including the weak economic conditions in the early 1990’s, less favorable demographics, high levels of construction of assisted housing units in the early 1990’s, increased housing affordability and overbuilding of private rental units in the Montreal and Winnipeg areas in the late 1980’s.
There have also been changes related to private rental housing in Canada associated with financing. Since the early 1980’s financing with private rentals have appeared less eye-catching. The losses that have occurred have caused a reduction in maximum loans for insured mortgages from 90% to 85%, an increase in mortgage insurance premiums, stricter underwriting criteria and unwillingness of lenders to lend when dealing with negative cash flows.
In Canada today, the majority of private rentals and their stocks are owned by small investors. Some do this simply because of the increasing interest of developing new rental housing. The economy of new for rent by owner developments has caused fewer capital appreciations into accounts for these investors but has allowed for cap rates for major markets, especially in Toronto and Montreal to increase.
The outlook for investors in regards to private rentals in Canada is expected to look up. The demand for housing by the year 2020 is expected to grow to 50,000 units annually. Toronto and Calgary areas are expected to lead to new rental unit constructions as well as renovations which can lead to higher profitable rent for investors. The Ontario region is expected to renew interest in new construction as a result to its recent exemption of new units. This will allow for a reduction in rental property taxes, which is also a plus for everyone investing.
