Rental Supply Density in Southern Ontario

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Rental supply density is a calculation that compares a city or town’s total population to its total amount of rentals and is expressed as the ratio of total rental units for every 1,000 people. Basically, the higher the rental supply density number, the greater the number of rentals versus the city’s population. The number of rentals used in the calculation can be either total rented dwellings or purpose-built rentals only: my preference is to use purpose-built rentals, since it can be used to generate a discussion of supply and demand and estimate how many purpose-built rentals need to be built, but using total rented dwellings can provide a ‘global’ number for the overall rental housing supply. Note that this calculation could also be expressed on a per capita basis—either number of rentals per one person, or number of persons per one rental—but I prefer to express it per 1,000 people.

How is rental supply density useful? Knowing a city’s rental supply density allows comparisons to be made with other cities and assessments to be made of whether a particular city is over-supplied or under-supplied with rentals. For example, assume that City A has a rental supply density of 10.00 rentals per 1,000 people, while City B has a rental supply density of 5.00. The difference in rental supply density means City A has been able to absorb more rentals on a per capita basis—twice as many, in fact—than City B. If both cities are similar in size, population, incomes, or location, then is it reasonable to propose that City B could absorb enough new rentals to reach the same rental supply density as City A? If the answer is yes, then how many new rentals would need to be constructed in City B?

Let’s take a look at some numbers for Ontario’s ten largest cities and see what we can learn. The chart below shows rental supply density using total renter occupied dwellings. Note that total renter occupied dwellings combines both purpose-built rentals and non-purpose-built rentals—the latter are ownership dwellings being rented to renters by their owners.

The chart above shows that rental supply density for all renter occupied dwellings varies by a large amount from the lowest, which is 31.89 rentals per 1,000 people in Vaughan, to the highest, which is 192.5 in Toronto. Remember that this chart uses total renter occupied dwellings, so in other words it measures the entire rental supply, even if some of these rentals are purpose-built and others are non-purpose-built. What’s interesting here is that rental supply density doesn’t track total population: Kitchener and Windsor are both less than half the population of Brampton and Mississauga, but have much higher rental supply density numbers, which means they have far more rentals versus population.

The chart below shows rental supply density using total purpose-built rentals.

The chart above shows that when it comes to purpose-built rentals, London has a much higher ratio of purpose-built rentals versus population than Toronto (or any other city in Ontario, for that matter). Vaughan, which has a significant number of rented dwellings, has virtually no purpose-built rentals, so its rental supply density is close to zero. Kitchener has a rental supply density very close to Toronto’s. Why? Large amounts of new purpose-built rentals have been constructed in Kitchener since 2000, so its total supply of purpose-built rentals is very strong relative to its population. London’s high rental supply density also reflects the construction of large amounts of new rentals in that city.

What is the ideal rental supply density? This is a hard number to determine, since London shows just how high the ratio of purpose-built rentals versus population can rise, and with new rental housing development still occurring in London, with apparent success, nobody knows how high the ratio could climb. This is an important discussion to have because rental supply density can be used to calculate the number of new rentals that would be required to reach a particular target density. With this in mind, the chart below shows the estimated number of new purpose-built rentals which would need to be constructed to reach a rental supply density target of 100.00 purpose-built rentals per 1,000 people. I’ve chosen that number as a target since London has already exceeded it, proving that it’s an achievable target.

What’s clear from the numbers in the chart is that among Ontario’s ten largest cities thousands of new purpose-built rentals are needed to reach a rental supply density of 100.00, which London has already exceeded by a significant margin. Brampton, for example, approximately 48,000 new purpose-built rentals, while Mississauga needs approximately 43,000. Markham and Vaughan, which both have large populations but very low amounts of purpose-built rentals, need roughly thirty thousand new rentals each. Toronto, the largest city in Ontario and the city with the largest total amount of purpose-built rentals, needs over eight thousand new purpose-built rentals.

How realistic are these numbers? I think cities like London and Kitchener demonstrate that Ontario’s largest cities can theoretically absorb large quantities of new purpose-built rental housing, even if they don’t reach the same rental supply density as London or Kitchener. This would mean constructing several new rental buildings in every major city. At this point readers are thinking to themselves, “But nobody’s going to build 30,000+ new rentals in Vaughan!” That’s true, of course, but even Markham has a higher ratio of purpose-built rentals versus population, and the two cities are not that different demographically or geographically, so Vaughan should in theory be able to successfully absorb several hundred new purpose-built rentals if they were constructed.

Overall, based on the analysis in this post, I think it’s reasonable to state that nine of Ontario’s ten largest cities are under-supplied with purpose-built rentals and most could absorb significant amounts of new rentals, probably on the order of thousands. Developers should look at the most under-supplied cities as the rental development opportunities of the future.