The Unyielding Squeeze: Solving Canada’s Rental Market Predicament

Canada’s vital primary rental market is currently grappling with profound challenges, as an overwhelming demand consistently eclipses the available housing supply. This imbalance has led to a significant erosion of affordability and propelled rental vacancy rates to historic lows across the nation, a stark reality underscored by the Canada Mortgage and Housing Corporation (CMHC)’s latest Rental Market Report (RMR). The report paints a clear picture of a market under severe strain, impacting individuals and families striving to secure stable and affordable housing.

Addressing Canada’s Acute Rental Crisis: A Multifaceted Approach to Stabilize the Market

The CMHC’s Rental Market Report serves as a critical barometer, highlighting the intensifying pressures within Canada’s rental sector. With vacancy rates reaching unprecedented lows, the report confirms what many Canadians are experiencing firsthand: a fiercely competitive market characterized by escalating rents and limited options. This crisis is not merely a statistical anomaly but a profound socio-economic issue with far-reaching consequences for communities and the national economy.

The Struggle for Space: Young Families Hit Hardest

Dean Artenosi, a distinguished realtor, author, and co-owner of Coldwell Banker The Real Estate Centre Brokerage in Newmarket, Ontario, offers his expert perspective on the CMHC’s findings. A particularly striking observation for Artenosi is the substantial surge in rental rates for two-bedroom units upon turnover. “This is telling us that young families are especially struggling to find housing and are prepared to pay for larger rent increases, as high as 40 per cent in cities like Toronto. Young families are struggling to find places to live not just for ownership but also to rent. Smaller units are being developed in new sites is the norm,” Artenosi explains, articulating the immense pressure faced by this demographic.

The trend towards developing smaller units, often as compact as 365 square feet, further complicates the situation for families requiring more space. While these micro-units might offer a more attractive price point, Artenosi points out the paradoxical reality that “it costs more to build smaller units, more kitchens, bathrooms, etc.” This highlights a fundamental disconnect between developer incentives and the actual housing needs of a significant portion of the rental population.

Strategic Interventions: What Government Can Do to Alleviate the Crisis

To navigate and mitigate the current rental affordability crisis, strategic and proactive governmental intervention is paramount. Artenosi advocates for a comprehensive approach that targets both the supply side and the efficiency of the development process.

Incentivizing Larger Unit Construction

A core suggestion from Artenosi is for governments to actively find ways to incentivize developers to construct larger, family-friendly units. This could manifest in several forms: “Perhaps it means lowering development charges to assist in bringing the price points down. Perhaps there are other tax incentives for two-bedroom units, like larger HST rebates.” Reducing development charges directly lowers the cost burden on developers, which can then be passed on to consumers in the form of more affordable rental rates. Similarly, enhanced tax incentives, such as increased HST rebates for specific unit types, could make building larger units more financially viable and attractive for developers, thereby aligning construction priorities with community needs.

Streamlining the Development Approval Process

Beyond financial incentives, Artenosi emphasizes the critical need to accelerate the development approval process. He observes that zoning submissions frequently involve multiple municipal departments—including engineering, traffic, and environmental—each providing comments on new development proposals. While these reviews are necessary, he notes that these departments often “get tunnel vision on their part in the commentary process, often delaying approvals from going forward efficiently.” These bureaucratic bottlenecks not only prolong timelines but also significantly increase project costs, which are ultimately borne by renters and homeowners. A more streamlined, collaborative, and timely approval system is essential to bring much-needed housing supply to market faster.

Cultivating a Collaborative Mindset: The “Big Picture” Approach to Urban Planning

Artenosi firmly believes that these disparate departments must adopt a more holistic perspective and work in concert towards the overarching goal of providing more housing. “Traffic, engineering and landscape will always have challenges that can always be addressed with compromise,” he asserts. This implies a shift from isolated departmental objectives to a unified vision where departments collaborate, identify common ground, and find pragmatic solutions to accelerate development.

Enforcing Timeframes for Efficiency

To inject urgency into the approval process, Artenosi suggests enforcing strict timeframes for each department to provide their comments. This would compel departments to prioritize reviews and ensure that proposals move forward without unnecessary delays. Such a system would foster a sense of accountability and help prevent projects from getting stalled indefinitely in bureaucratic limbo.

Empowering City Planners: A Mindset of “Making Things Happen”

The role of city planners is pivotal in transforming the development landscape. Artenosi highlights that some municipalities have successfully implemented a central submission process, typically managed by the city planner assigned to the file, to receive and address comments from various departments.

Direct Communication and Proactive Solutions

Artenosi proposes further empowering this central role: “Allow departments and developers to communicate directly, address comments immediately and obtain sign-off directly with the department so that matters can get addressed quickly instead of waiting for circulation through a central point of contact.” This direct line of communication would significantly reduce processing times and foster a more dynamic problem-solving environment. He envisions the city planner for new redevelopment projects acting as a “general manager,” proactively bringing departments and developers together, mediating discussions, and assisting both parties in finding solutions. “They need to act as general managers and oversee an efficient approval process. It’s a mindset of making things happen,” Artenosi emphasizes, underscoring the shift from administrative gatekeeping to proactive facilitation.

Realtors as Catalysts: Expanding Their Role in Solving the Affordability Crisis

Artenosi is a staunch advocate for realtors playing a more expansive and vital role in combating the affordability crisis. Reflecting on his early career, he specialized in assisting renters to transition into homeownership, often devising innovative strategies to ensure families could not only acquire homes but also sustain them.

Leveraging Secondary Unit Opportunities: Bill 23

He recalls a time in 1996 when existing apartments in homes could be retrofitted and legalized with fire codes, creating “legal non-conforming use” units. “I took advantage of this opportunity for young families and not only sold homes with basement apartments in existence prior to the date, but I oversaw the legalization for these secondary units,” he recounts, detailing his involvement in coordinating with the fire marshal, managing inspections, supervising renovations, and securing tenants for homeowners.

Today, Bill 23 presents a similar opportunity by allowing for three auxiliary units in detached homes, subject to municipal permits and criteria. Artenosi strongly believes that realtors should seize this opportunity. “Realtors should not just sell the idea but rather go one step further and assist clients in this process even after the sale.” This expanded role would involve guiding clients through the permit application, understanding municipal requirements, and potentially overseeing aspects of the legalization process, thereby creating more rental supply and enhancing affordability for both owners and tenants.

Collective Responsibility: How Other Parties Can Contribute

The responsibility for addressing the housing crisis extends beyond governments and realtors to include other key stakeholders within the financial ecosystem. Artenosi points to the critical roles of the CMHC, banks, and appraisers in facilitating innovative solutions.

Rethinking Mortgage Qualification for Auxiliary Units

A significant hurdle for many potential homebuyers is the current mortgage qualification process, which often undervalues or outright disregards the potential rental income from auxiliary units. Artenosi argues that the CMHC, banks, and appraisers should allow the projected revenue from these units to be fully counted in the approval process for new buyers. “This will allow new potential purchasers to count forecasted (auxiliary unit) revenue towards their total debt servicing ratios and gross debt servicing ratios.”

Currently, such income is often deemed illegal or, even if legal, only 50 percent of the income is permitted to be counted. Artenosi challenges this restriction: “If the potential income from a basement dwelling or auxiliary unit covers 50 per cent of the mortgage payment, then why not allow 100 per cent of the forecasted income to count towards the qualification policies to obtain the mortgage?” Fully recognizing this income would substantially increase the purchasing power of young families and other buyers, making homeownership with an income-generating unit a more viable pathway, simultaneously increasing rental supply.

Enhancing the Purchase Plus Improvements Program for Greater Impact

Artenosi also highlights the CMHC’s existing “Purchase Plus Improvements” program, a tool he frequently utilized in his early career to help renters become homeowners. This program allows the cost of renovations to be added to the purchase price, financing both together under a single mortgage.

Expanding Scope to Include Secondary Unit Creation

Currently, the program does not typically permit the creation of secondary apartments. Artenosi proposes two critical enhancements: first, expanding the program’s scope to explicitly include the creation of additional auxiliary units in homes; and second, allowing the forecasted rental revenue from these newly created units to count towards young families’ mortgage qualification criteria. “It can be a condition of the program that the holdback for renovation monies will only be released if the municipality approves of the unit or an occupancy permit is provided for the additional unit,” he suggests, ensuring accountability and compliance.

This modification would align the program with the spirit of Bill 23, providing a powerful financial mechanism for homeowners to increase housing density and affordability. Artenosi criticizes any municipal processes that make this difficult: “Municipalities should not make the registrations or approval process cumbersome, lengthy or costly to allow new families to utilize what Bill 23 is intended to do — provide more housing for Ontarians and Canadians. CHMC’s mandate is to house Canadians.” By streamlining these processes and integrating financial support, CMHC can fulfill its mandate more effectively and make a tangible difference in the lives of Canadians struggling to find affordable housing.

A Call for Collaborative Solutions

The challenges facing Canada’s rental market are complex and deeply entrenched, requiring a concerted effort from all stakeholders. From government policy adjustments and streamlined development processes to proactive city planning, engaged realtors, and supportive financial institutions, every entity has a crucial role to play. By adopting a “making things happen” mindset and embracing innovative solutions like fully counting auxiliary unit income and enhancing existing programs, Canada can move closer to resolving its housing affordability crisis and ensuring that all Canadians have access to safe, stable, and affordable homes.