New Study on Profitability of Rental Housing

iStock_000018119629LargeAccording to a recent study, purpose-built rental apartments often bring low returns, but these projects continue to be in demand.

The Canada Mortgage and Housing Corporation (CMHC) researched the economics of developing purpose-built rental apartment buildings in six of Canada’s major markets, including Vancouver. The purpose was to better understand the factors that influence investors’ and developers’ decisions to fund this housing type.

The project assessed the financial performance of these apartment buildings using metrics such as development costs, annual revenues and annual operating expenses.

Generally, this analysis indicates there are often low, if any, financial returns from purpose-built rental projects. However, this doesn’t mean that no rental unit development will occur. Purpose-built rental development has been increasing in recent years, and many markets across the country are seeking more rental housing.  

CMHC notes that individual developers may find rental investment attractive under the following conditions:

  • They already have land, or can intensify an existing site.
  • They’re willing to build very small projects and value them below market value.
  • They opt for a higher initial equity investment than the 15 per cent used in the model in this particular analysis.
  • Their criteria for measuring investment performance are different than used in this particular analysis.

Read the full report from CMHC here.

BCREA continues to advocate for increased supply along the housing spectrum, including rental housing. Governments can take many actions to incentivize and encourage greater supply. Read more about our recommendations here.

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