THE MULTI-RESIDENTIAL MARKET PT 1
Multi-residential housing technically refers to any residential structure that has more than one dwelling unit. However, the focus for this discussion centres on larger rental properties (i.e., more than four units) including marketing, zoning and construction matters, but does not include smaller rental properties (e.g., duplexes, triplexes, and fourplexes).
The multi-residential market in Ontario, as with other sectors of the commercial marketplace, is driven by supply and demand factors, but is also strongly influenced by regulatory provisions contained in the Residential Tenancies Act.
Demand for multi-residential housing is a complex interplay of economics, demographics and target market preferences. First, multi-residential projects must carefully assess overall economic trends. From a regional or local perspective, expanding employment opportunities normally translate into increased housing demand, as individuals looking for work opportunities search out housing within particular locales. Similarly, rising income levels typically dictate potential price points for various types of multi-residential accommodation (i.e., studio, one, two and three-bedroom apartments).
Demographics also plays a key role. In-migration and out-migration, overall population shifts from one area to another and population growth (increased birth rates) provide useful indicator for the multi-residential market. Investors also analyze changes in the formation rate and size of households, as this helps determine the mix of unit sizes within a particular development. But closer analysis is often required, as demographic changes can be further broken down into sub-categories. For example, on region may be experiencing a large influx of aging citizens seeking retirement accommodations, while another is attracting young families given high tech office growth in a suburban area.
Differing age groups and types of households within an area also translate into distinct preferences regarding residential locations, proximity to schools, access to transportation and nearby retail services, as well as amenities provided in the building. Market research is typically needed to determine just what type of property is needed, where is should be located and what features it should contain. The scope of research depends on the project. While the large multi-residential venture may require area-wide market research, smaller projects may confine their investigations to a small area, perhaps even a single neighbourhood or a target market in a densely populated area consisting of a few blocks in either direction.
The most productive approach to estimate supply involves analyzing the existing competition, as well as new multi-residential buildings either currently approved or under construction. All buildings should be inventoried, including details such as numbers of units, types of suites( i.e., studio, one, two and three bedroom), rent levels, condition of property, basic features (e.g., above or underground parking, balconies, park areas and access control systems), elevator or walk-up, additional amenities and locational features.
Based on this information and demand-related data, the individual contemplating a new multi-residential building can then formulate a strategy for a new structure that will address the greatest demand within the general market or a specific submarket, provide the best feature/amenity mix to attract that audience and establish competitive price points for various units.
RESIDENTIAL TENANCIES ACT
Registrants venturing into the multi-residential market should clearing understand the focal role of residential rent legislation. Statutory controls affecting residential tenancies were first put in place with the passage of the Premises Rent Review Act in 1975. From that date until 1998, additional statutes and amendments came into existence. Unfortunately, these only served to complicate the regulatory framework resulting in a largely unworkable, cumbersome set of rules.
After extensive consultation, the Tenant Protection Act came into force in June 1998. This overriding legislation governed all aspects of residential tenancies and greatly simplified procedures while retaining fundamental rent control provisions dating back over two decades. Critics argued that the legislation was biased towards landlords and generally unpopular with tenant groups. In response, the government passed the Residential Tenancies Act, which came into force on January 31, 2007. This legislation carried forward most provisions of its predecessor, while more adequately addressing key tenant concerns.
The impact of residential tenancy legislation cannot be underemphasized from an owner’s perspective. Successive governments in Ontario have steadfastly maintained such provisions and associated rent controls/regulations not typically found in most provinces, guided by the premise that such tenancies should be afforded added protection. This fact is emphasized neither as an endorsement or critique of the current system, but rather as a statement of economic and political reality.
Any decision to acquire an existing residential rental property or develop a new project must take into consideration legislated measures including annual guidelines increases in rent based on the Consumer Price Index, vacancy de-control provisions, procedures for recouping capital expenditures, rights of entry by landlord, termination existing structures and ongoing investments/management decision-making. The Act also addresses selected rental submarkets including care homes, student housing and mobile home/land lease communities. All matters concerning the Residential Tenancies Act should be directed to the Landlord and Tenant Board.