In early December of last year, MCAP Construction Finance hosted their economic breakfast seminar with Urbanation’s Shaun Hildebrand as the keynote speaker. Hildebrand noted that rental demand in the Greater Toronto Area (GTA) is at the highest level in 30 years, but the percentage of the condominiums rented out by private landlords declined in 2018 according to data from CMHC. Condo investors that rent out their suites have been the primary source of new rental supply in the GTA over the past two decades, but it hasn’t been enough to satisfy the seemingly insatiable demand.
That demand is coming from substantial population growth. In Hildebrand’s presentation, he notes that there were 122,000 more people living in the GTA in 2017 in comparison to 2016, and GTA-area builders are under-supplying the market by 10,000 units per year. He went on to mention that carrying costs for condos suggest rents will continue to increase as the affordability of condos gets worse.
The findings and conclusions in the November National Rent Report by Rentals.ca, co-authored by Bullpen Research & Consulting align with Hildebrand’s assessment. In its latest report, Rentals.ca has forecast rental growth of 11 per cent in Toronto in 2019.
Matt Danison, the CEO of Rentals.ca, points to several factors behind the forecast. “The new mortgage stress test, higher interest rates, and higher home prices have dramatically increased the number of people looking for rental accommodation this year,” he says. “Many young couples and families have decided to postpone purchasing a home, which has driven two-bedroom rental rates to nearly $2,600 a month in Toronto. Rents in downtown Toronto have been pulled up by recently completed high-design condo apartments for lease, which can go for significantly more than the older stock of rental apartments.”
Expanded rent control in April 2017 is partially responsible for the low rental turnover rate in the Toronto area (which Hildebrand estimated is the lowest in North America), which has in turn lowered rental supply and pushed rents up 10 per cent to 15 per cent annually in several pockets of Toronto in 2018.
Several GTA municipalities are among the most expensive rental markets in Canada, with Oakville and Vaughan the highest among the suburban markets, and the former municipalities of Etobicoke, North York and East York tops among the “416” area cities (with rental rates rivalling Vancouver).
With trepidation among potential resale homebuyers following the bubble-like conditions in the GTA housing market last year and the subsequent price correction in late 2017, many residents are choosing to lease instead of buy. Almost 90 per cent of existing GTA tenants chose not to move in 2018, as they want to avoid paying the higher market rate for an available unit, which has further reduced rental listings in this high-demand environment.
“Current and future credit tightening has deterred many would be first-time buyers from entering the ownership market,” according to Danison. “That demand overflow is being felt in the rental market, where very few Canadian markets are adding offsetting new rental supply. That imbalance is a major factor in our 2018 rental growth forecasts,” he says.
If you’re looking to rent a home or find a tenant in 2019, you might find the rental rate to be a lot higher than you planned for.