The president of Dream Unlimited, one of Canada's largest real estate companies, said part of the solution to Canada's housing shortage could involve replacing some office buildings with residential property.
Michael Cooper told CoStar News the new federal rules lowering the taxation on constructed apartment buildings could be a "game changer" for the industry. His company overseeing $24 billion in assets under management is pushing ahead with 5,000 more purpose-built rental apartment units in Ottawa, Saskatoon, Calgary and Toronto.
"If you have a small office building on a big piece of land, you can replace the small office and put up an apartment," said Cooper.
The longtime real estate executive, whose Dream Unlimited controls a publicly traded office real estate investment trust with substantial holdings in downtown Toronto, cited a 60,000-square-foot office building zoned to allow 500,000 square feet of apartments as an example of something that would entice him to build.
"But you cannot take a 100,000-square-foot office and build a 100,000-square-foot residential building and make it work," Cooper said.
In September, the federal government removed its portion of the harmonized sales tax, eliminating the 5% federal tax on rental home construction across the country in a move that went into effect that month. Some provinces like Ontario, which charges 8% of rental unit costs, also agreed to remove their share of the sales tax on rental units until the end of 2030.
Spurring Construction
The changes immediately kick-started a major project for Dream in Ottawa's downtown west end.
"We had a project, the LeBreton Flats library parcel development. We had hoped to start this past spring but because of construction costs increasing and interest rates, we have been trying to make it work. With the [harmonized sales tax] waived, that makes it work," said Cooper.
Cooper said developers that build condominiums could switch to apartment buildings.
"A lot of people build condos because in three to four years, you get your money back, and you get the profit, and the profit is generally higher than what you get from building an apartment," said Cooper. "We have been building apartments because the profits are equal with the condo but only after four to five years."
The break in taxes means different things in different parts of the country. He said that in Saskatchewan and Alberta, Dream is building rental properties in the suburbs "that pencil out" better than in the downtown cores of Toronto and Ottawa.
Even in the most expensive parts of the country, Cooper said the tax break could spell a difference in what gets built and what his company will build. "I think it's needed more in the more expensive parts of the country," he said.
The national vacancy rate is below 2%, according to the Canada Mortgage and Housing Corp.'s latest annual stats, which came out almost a year ago, but Cooper still cannot see the vacancy rate increasing much.
"We will not be able to catch up based on the number of people coming to Canada and the need. Even if we get several new apartments, there still will be demand for them," said Cooper.
Now, in Saskatoon, Saskatchewan's largest city with its metropolitan population of over 250,000 and climbing, Dream is building what is unthinkable in Toronto — single-family rental homes that are usually too expensive to justify in most parts of Canada.
"We are finishing our very first 21 single-family rentals" and the company is approved to build another 42 single-family rentals, said Cooper. "We are not talking about hundreds, but we can make them work there. The cost of land and construction costs are cheaper."
However, the math for building single-family rentals in Toronto probably doesn't add up for a developer.
"I don't think [it can be built] in Toronto," Cooper said.