Housing prices and rents are going up in T.O.

In my consulting practice, I’m looking at both macro and micro level housing data every day, and I continue to be amazed at how quickly prices and rents are appreciating. Based on the figures I’m looking at, don’t expect that to change any time soon.

The rising level of prices and rents have everything to do with high demand, and insufficient supply. I know it sounds crazy; how could the Toronto area be under-building? Look at the number of cranes in the sky. Here’s the counter: There were actually more new homes built in 2002 than in 2018, and the industry delivered significantly more square footage — facts that are too often overlooked. It’s not just how many units you build, it’s how many people they can accommodate. You probably weren’t driving off the main roads in Milton, Brampton, Aurora, Richmond Hill and Markham and many other suburban municipalities in the early 2000s, but single-family homes were popping up like weeds. That’s not the case anymore.

One of the reasons I think house prices will continue to increase has to do with the rising population. According to Statistics Canada, annual population growth has reached 530,000, the highest level ever recorded! In Ontario, the population grew by 250,000, 66 per cent higher than the 10-year average of 150,000.

Despite all those new towers you see, all that new supply is getting eaten up quickly due to this rapid population growth. In fact, RBC Economics recently reported that to reach a healthy level of vacancy in the Toronto CMA area rental market, there would need to be over 9,000 more vacant units. To put that into perspective, that’s 18 buildings with 500 units in each.

The economists at RBC calculated that the Toronto Metro Area needs 22,000 new units of rental supply annually to satisfy demand from 2019 to 2023. That certainly isn’t going to happen in my opinion. Even if 70 per cent of all new condos completed each year are leased out by investors, and the industry delivers 4,000 new purpose-built rental apartments annually, that figure would still fall short of the 22,000 needed rental units over the next two years, and forget about eating into the 9,000-unit existing shortfall.

The latest September data from Rentals.ca shows that the average vacant rental apartment unit in the Toronto CMA has seen rents increase by about 15 per cent annually. No wonder the last survey data from Informa and Avison Young shows that the average tenant in Toronto is spending 42 per cent of their income on rent.

There is some good news if you’re a future buyer or tenant – there is supply coming. There are a record number of apartments under construction, a near-record for units with condo tenure, and a 30-year high in rental apartments. We might even reach a point where supply actually matches demand in 2021, but only for rented apartments - we haven’t even discussed the demand for ownership apartments.

All that said, I wouldn’t postpone your move just yet. When 30,000 new condos completed in 2015 and unsold inventory shot up, prices and rents were flat, but they never declined. I wouldn’t put a lot of money on a big drop in values. Even if there was a big drop, all your friends would be telling you not to buy. It’s hard to time the market.

In conclusion, my professional opinion would be to expect house prices and rents to increase through the rest of 2019 and in 2020 as well.

If you’re in the market for a new home, or are considering purchasing an investment suite, do your homework, buy what you can afford, and surrounding yourself with a qualified and experienced team to walk you through the process. Good luck.

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