Q&A with Aled Ab Iorwerth, CMHC’s Deputy Chief Economist
RHB: What are the biggest bottlenecks to accelerating purpose-built rental supply in Canada?
Aled Ab Iorwerth: It depends on location with it generally being more difficult to build purposebuilt rental (PBR) in Toronto relative to say Edmonton. Regulation is easier in Edmonton and land costs are lower. With limited growth in rent, and some downward pressure because of macroeconomic uncertainty, ensuring construction costs are low is critical. This is difficult in areas with significant land costs and additional fees, such as development fees.
RHB: With respect to providing incentives for developers and tenant protections, how do you balance boosting supply quickly while ensuring tenant rights aren’t undermined?
Aled Ab Iorwerth: I don’t think there are major challenges in protecting tenants in new buildings. Boosting supply is the priority. I suspect that ensuring tenant rights is more important in older buildings where there are maintenance issues or need of renovation. In general, I think there should be more information to tenants on their rights, and more training for building mangers to identify and address problems.
RHB: How is CMHC’s modeling or forecasting evolving to capture new policy levers?
Aled Ab Iorwerth: This is a difficult task. Some areas, such as tax, can be relatively easily incorporated because there is transparency over numbers. It is more difficult with other parts that are less transparent, such as length of time for approvals. To this end, CMHC is examining redoing its survey of municipal regulations that was done in 2023.
RHB: Which jurisdictions having success in ramping up rental development that we should learn from?
Aled Ab Iorwerth: It seems clear that there is a lot of rental affordability and no rent control in Edmonton. I think we should take a closer look there.
RHB: What trade-offs or risks should policymakers watch out for when pushing aggressive supply strategies?
Aled Ab Iorwerth: There are several risks. The capacity of the residential construction industry to respond to large-scale increase in required supply is limited and would risk leading to cost increases. For example, the prices of cranes or trades would go up. The ultimate owners would likely need a long-term perspective to be able to withstand short-term overhangs of supply. It is possible that vacancy rates could spike temporarily as the market adjusts. Some effort should also be made to ensure that there is a more constant pattern of demand for new supply rather than the volatility that we’re seeing.
RHB: How do you see interest rates, construction costs, and land costs interacting with policy interventions to influence feasibility of rental projects?
Aled Ab Iorwerth: All these obviously interact and increases in them will lower feasibility. Interest rates are not set to address project feasibility, and construction costs and land costs are outside an individual builder’s control. Policy interventions could also contribute to lowering costs through lower development fees or other taxes. Over the long term, it is also possible policies could be introduced to improve productivity in the construction industry.
RHB: How can CMHC support municipalities and provinces to de-risk or catalyze more rental housing?
Aled Ab Iorwerth: A critical CMHC policy is the Housing Accelerator. The intent of this program is to provide federal resources to encourage streamlining of policies by municipal governments. For the rental construction industry, there are other CMHC programs to provide insurance, such as MLI Select, or provide funding, such as the Apartment Construction Loan Program.