In Scenario 2, a Cap rate increase of 0.25% would
require an additional 1.0 Floor Space Ratio (FSR) to
make the same project viable at a rental rate of $3.75
per square foot. In this scenario, the additional density
is sufficient to accommodate the increased risk, and
rent/per square foot (SF) remains the same. Lower
density projects similar to the examples in Scenario 2
would most effectively be able to incorporate additional
density to offset higher Cap rates. Alternatively, if the
additional density is not permitted, a rent increase of
6.7% would maintain the same viability in this scenario.
In Scenario 1, due to the scale, the impact of
additional density does not materially improve the
feasibility of the project. Scenario 1 is highly sensitive
to Cap rate changes because it is already a high-density
development, and there is a limit to the amount of
density that can be added. Additional FSR is typically
accommodated by increasing the allowable height of
a building, but the scale of the increases required to
offset the Cap rate changes would quickly become
unrealistic to build in this scenario.
Other
Challenges
The risks associated with building rental housing
extend beyond taxes, fees and cost increases, as
municipal approvals also play a significant role in
determining the trajectory and viability of the project.
Recently, builders have seen the unpredictable
outcomes of proposed policies intended to promote
the development of rental housing. In some cases,
limited zoning to deliver housing in transit-oriented
In some cases, limited
zoning to deliver housing
in transit-oriented areas
and the often-protracted
process between
development proposals
and city approvals also
make it more difficult
to build rental homes.
No Vacancy
Other Challenges | 9
areas and the often-protracted process between
development proposals and city approvals also make
it more difficult to build rental homes. On top of this,
builders cannot always count on government funding
or subsidies to assist with creating affordable rental
when it is required by the municipality.
The uncertainty around approval timelines, senior
government funding programs, and rising costs
creates a risky environment for builders to invest
in new rental housing. Incorporating growth targets
into existing municipal policies would help mitigate
this risk by incentivizing local governments to approve
new rental housing when it is proposed, and work
with builders towards the housing delivery goals
through enabling policy that works.