Purpose-Built Rental: The Apartment Building Is Back, and This Time It's by Design
Toronto built more rental apartments in the two decades after the Second World War than it has in the fifty years since. The post-war boom produced hundreds of thousands of purpose-built rental units across the city, driven by population growth, available land, and a tax environment that made rental construction a rational use of private capital. That era ended in the mid-1970s when Ontario introduced rent control, and the federal government began unwinding the tax incentives that had made the asset class attractive to developers. By the mid-1980s, annual purpose-built rental starts in Ontario had fallen from over 27,000 to under 5,000. The introduction of GST in 1991 added another structural cost that further eroded project economics. Private capital largely left the sector and did not come back.
Into that vacuum came the pre-construction condominium. The model worked because of how it solved the financing problem. Purpose-built rental development required a developer to bring roughly 25% equity upfront, with no revenue until the building stabilized two or three years after completion. The math rarely worked. Pre-selling condo units before construction allowed developers to collect insured deposits and use them in the capital stack, reducing the equity requirement to as little as 10%. Developers were rational. They built what the financing rewarded. And individual investors who purchased those units and rented them out became, in aggregate, Toronto’s de facto rental housing supply for a generation. It was not a plan. It was rational economics filling a gap that policy had created.
For years it worked well enough. Vacancy sat below 2%, rents climbed steadily as demand consistently outpaced supply, and condo investors got both appreciation and cash flow. But condo investor demand shaped what got built, and what investors wanted to buy was small. The result was a generation of sub-600 square foot units designed for investors, not tenants. And the model carried a structural vulnerability that the market eventually exposed.
According to Urbanation, not a single new condo project launched in the Greater Toronto Hamilton Area in Q1 2026, the first time in at least 30 years. Just 246 units sold, 94% below the 10-year average. That collapse is not just a real estate story. It is a housing supply story. And understanding what comes next matters for anyone with a serious interest in where Canadian real estate is heading.
Why the Music Stopped
The condo investor's price is locked in at the moment of purchase, not at the market conditions when the building finishes. Investors who entered pre-construction contracts in 2021 and 2022 did so at prices that reflected that era's cost environment. What they received upon occupancy was a unit worth materially less in the resale market, in a rental environment where rents could not cover the carrying costs. According to Urbanation's Q4 2025 data, for condo units completing in 2025, ownership costs exceeded realized rents by over $1,300 per month on average. Resale prices in comparable buildings have dropped roughly 25% from their 2022 peak. Many of these investors are now selling at a loss, holding at negative cash flow, or walking away.
The pre-construction machine has seized. With investors no longer buying, developers are no longer launching. Since high-rise construction takes three to four years from start to completion, the rental supply pipeline is not just slowing. Urbanation projects that new condo completions will decline sharply through the 2028 to 2030 period, driven directly by what is, and is not, currently under construction. In Toronto specifically, CMHC data shows housing starts are tracking toward their lowest level in 30 years, and projected purpose-built rental completions in 2029 are estimated at roughly 6,600 units, approximately 65% below 2025 delivery levels. The Parliamentary Budget Officer, using the federal government’s own revised immigration assumptions, estimates Canada is heading toward a cumulative housing shortfall of approximately 3.2 million homes by 2035. CMHC’s own analysis puts the required build rate higher still, concluding that Canada would need to roughly double its annual construction output for a decade to restore 2019 affordability levels. These are not projections built on peak pandemic immigration. They reflect the structural gap that exists even under normalized population growth.
The Real Way to Build Rental Housing
Purpose-built rental is not a new concept. It is the apartment building, the same asset class that built lasting wealth for Toronto families who invested in the 1970s and 1980s. Those buildings, now 40 to 50 years old, are among the most valuable real estate in the country. Their owners built on purpose, held for the long term, and let rent growth, population expansion, and asset appreciation compound over decades. The model always worked. What made it stop was the financing.
That has now changed. CMHC's MLI Select program provides purpose-built rental construction financing of up to 95% loan-to-cost for qualifying projects, with amortizations of up to 50 years for projects earning the highest point scores across affordability, energy efficiency, and accessibility commitments. The longer amortization is not about extending investor debt. It is about lowering the minimum rent required to service the construction loan, which is what makes projects viable that previously were not. Combined with the HST exemption on new purpose-built rental construction and meaningful reductions in development charges, the structural financing disadvantage that drove developers toward condominiums for 25 years has been substantially closed.
You Are Not Investing in Today's Rental Market
This is the most important thing to understand about the current opportunity. An investor in purpose-built rental development in 2026 is not taking a position on near-term rental conditions. The market today is digesting a record wave of completions, and rents have softened modestly. That is a normal part of the cycle in a city with a chronic long-term supply deficit. The narrative that rising vacancy signals structural oversupply does not hold up against the data. Toronto’s purpose-built rental vacancy rate moved to approximately 3.0% in 2025, up from near-zero levels in prior years. That is normalization from an extreme, not evidence of a balanced market. By international standards, and relative to the city’s own historical range, it remains low.
What matters is the forward environment at delivery. Projects commencing construction today are expected to complete between 2028 and 2030, a period where new supply will be at its most constrained. The buildings starting construction now are the ones that will be opening their doors into that shortage.
The window is also constructive on cost. Construction pricing has moderated from its 2022 to 2024 peak as condo starts have collapsed and labour demand has softened. According to analysis by Fitzrovia Real Estate, one of Canada’s largest purpose-built rental developers, all-in development costs in Toronto are approximately 34% lower today compared to 2022 peak levels, reflecting repriced land, lower hard costs, and reduced municipal charges. The combination of lower build costs, improved financing programs, and a development landscape with materially fewer active participants is not a permanent condition. It reflects a specific moment in the cycle, and that moment has a finite shelf life.
Why New Development, Not Legacy Stock
When you acquire a stabilized rental asset today, you are paying a price that reflects its current income, its location, and institutional appetite for the asset class, which remains strong. You are buying a known quantity at a market-clearing price. The return is primarily income and gradual appreciation. That is a legitimate strategy, but it is a different one.
Investing in the development of new purpose-built rental means participating in the value creation process itself. The gap between what it costs to build a well-located rental building today and what that building will be worth as a stabilized income-producing asset at delivery is where the equity return is generated. It depends on underwriting discipline, execution, and market conditions at stabilization, but it is the mechanism through which development investing has historically produced returns that stabilized acquisitions cannot replicate.
There is also a tax dimension specific to new construction that is one of the more compelling structural advantages of this entry point. A new rental building is a depreciable asset. Under Canadian tax rules, investors can claim capital cost allowance against the building's value, sheltering a meaningful portion of rental income from immediate taxation during the holding period. An investor entering at the development stage establishes their cost base at today's build cost, which determines the capital cost allowance available over the life of the investment.
When the asset is eventually sold, the gain is subject to capital gains treatment, and any recapture of depreciation previously claimed is typically a component of the overall return profile rather than a liability that undermines it. The structure rewards patience and long-term conviction, which is precisely what this asset class has historically required and rewarded.
The Cycle Has Turned
The families in Toronto who built lasting wealth through real estate did not do it by owning individual condo units. They built apartment buildings, held them through cycles, and let the city grow around them. The condo era produced a generation of small-scale landlords managing individual units, each making independent decisions about pricing, maintenance, and tenure rather than operating with the long-term discipline of a purpose-built rental portfolio. It filled a gap created by broken financing conditions. Those conditions have now been addressed.
The apartment building is back. The policy framework to build it is in place. The supply gap that justifies building it is increasingly visible in the pipeline data. The cost environment is more favourable than it has been in several years. And the tax structure for investors who participate in building it from the ground up is one of the most efficient in the Canadian real estate market.
That combination does not come together often. When it does, the window tends to be shorter than it looks.
Devon Cranson is Founder, President and CEO of Cranson Capital Securities Inc., a registered Exempt Market Dealer. This article represents the author's views on market conditions and does not constitute an offer to sell or solicitation to buy any security. Forward-looking statements reflect current expectations and are subject to risks and uncertainties. Past performance is not indicative of future results.