Thank you, Mr. Chair.
My name is Michael Brooks and I'm the chief executive of REALPAC. I'm a career lawyer, having spent 30-plus years doing real estate transactions with a private firm and 26 years running REALPAC.
REALPAC is a 53-year-old national trade association, representing institutional and public real estate companies from coast to coast in all asset classes and vehicle types, including pension funds, public and private corporations, trusts, commercial real estate funds and REITs. I’m with you today, obviously, to talk about purpose-built rentals and financialization for housing.
The economics of our sector continue to change every day. Nearly a third of households in Canada live in purpose-built rental accommodation. Higher housing prices alongside a growing young demographic and increased immigration—it was apparently 1.1 million people in 2022 and 2.7% of our population, the highest since 1957—have led to strong demand for rental accommodation in recent years, after a low in August 2020. In August 2020, the students were not here and our members were giving rent subsidies to fill their buildings up.
With rising costs to build and rapidly rising interest rates that are nearly doubling—or even tripling—the financing costs of new projects, the new purpose-built supply is rapidly diminishing and will likely continue to do so. In places like Toronto, the cost to build apartments is approaching $800 a square foot and, to build condos, north of $1,200 a square foot. In both of those cases, given higher interest rates, most new developments don’t pencil out.
Up to 30% of the cost of a new unit is from government fees, charges and taxes, including federal GST on the value of the building as soon as construction is completed. Meanwhile, higher operating costs, including much higher interest rates; spikes in construction costs and natural gas prices; increased taxes, fees and charges; and increased wages are putting pressure on owner operating costs. This puts upward pressure on rents, even before one talks about repairing, maintaining and upgrading old buildings to meet modern standards, fire codes and building codes, including, potentially, air-conditioning and decarbonization requirements.
We know Canada needs 3.5 million additional housing units by 2030 to restore affordability, according to CMHC. However, it sometimes takes up to five years to get housing approved in many cities in Canada. As many new projects are potentially shelved, this will be a challenging target.
Our sector requires capital to build and repair housing. These funds require a return on investment. Whether it's new capital for renovation or to build another building, a return on investment is required. Heavily taxing those dollars is counterproductive.
The purpose-built rental market is indeed a capital-intensive business, and continuing to attract private sector capital will be critical. REALPAC supports the right to adequate housing and is prepared to have conversations with everyone, of every political stripe—including our not-for-profit colleagues—about how to move this ball forward and maintain a state of good repair. We believe good repair and professional management are the ways forward.
We have proposed four ideas in our submission.
Rental support programs are absolutely necessary at all three levels of government. We support those continuing and, indeed, being enhanced. It's better to upgrade an older building and support the tenants left behind than to not repair it at all.
We need to secure new construction through a sustainable and competitive funding model, like the U.S. low-income housing tax credit program. Canadianize it and bring it to Canada.
We are thinking internally about an industry code of conduct. How does REALPAC set a high bar for everyone in our industry? That's something we could work on together.
Finally, we think we need to establish an industry advisory council to work more collaboratively with everyone in the federal government about real solutions that are practical and will work.
With that, I would say the private sector has the speed, scale and scope to solve these supply problems. We're 96% of the market. We need to be at the table with you all.
Thank you.