What's driving Toronto’s condo rental market?

In you haven’t noticed, there are a lot of condominiums being built in the Greater Toronto Area (GTA). According to market research firm Urbanation, there were 17,553 new condo apartment units registered in the GTA last year. Overall, there are now over 310,000 condo units in the GTA, of which approximately 26,000 were rented out in 2016. Based on the growth in the average condo rental rate of 11.7 per cent annually, there clearly wasn’t enough supply available for prospective renters. The average condo rental in the GTA was being leased for just shy of $2,000 per month in the fourth quarter, and it took landlords just 13 days on average to find a tenant.

It’s not just a “downtown Toronto thing” either. Demand for high-quality rental product is very strong in the suburbs as well, with condo units lasting just 12 days on the market in Vaughan and Richmond Hill, and 11 days in Mississauga in Q4-2016.

If you’re considering becoming a private landlord yourself, or thinking of purchasing your first condo, you’re probably asking, what is driving the market? The metro area added approximately 90,000 people and 39,000 jobs in 2016 – these are two of the key market fundamentals to watch. In addition to the condo apartments listed above, about 15,000 single-detached, semi-detached and townhouses, and 2,300 rental apartments were built last year, so about 35,000 new units in total. With 90,000 new people, 39,000 new jobs, but just 35,000 new units, there’s a lot of competition for so few units.
If several people are all vying for the same properties, they’ll bid up the price or the rental rate. With huge competition for units and low interest rates, plus the anecdotal evidence of more foreign dollars in 2016, both prices and rents shot up.

Debate rages on about people taking on too much debt, if interest rates will rise, or if foreign buyers will pull out of the market, yet none of these factors disrupted the condo sector last year. There are claims that a “fear of missing out” or “self-reinforcing price expectations” are fueling condo price growth, but they don’t fully explain the major increase in rental rates.

The new mortgage insurance rules are expected to take some steam out of the Toronto market, but they may also make it more difficult for first-time buyers to qualify for a mortgage (and drive up rents). My expectation is that rents won’t appreciate in the double-digit range in 2017, as a higher level of new supply hits the market, and the government’s intervention cools demand from today’s lofty levels.

Despite my forecast, the Toronto condo rental market is the hottest that it has ever been, and there are plenty of reasons to believe it will stay that way this year. If you are looking for a unit to rent or purchase for yourself, or to buy as an investment, do your research, get advice from a realtor, and good luck!


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