The truth about Toronto’s rental market
Describing the process of finding a Toronto rental property over the past year as ‘challenging’ would be an understatement. Vacancy rates in Toronto have been hovering the range of 1-1.5% for a number of years but with the ‘correction’ (the quotations were used purposefully and we’ll dive into more detail on why they were used a little later) in the market that has occurred over the past 12 months, many Buyers opted to rent instead of choosing to buy. This effectively injected more renters into an already hot rental market, further depleting the already low inventory levels. This limited supply of rental homes has resulted in significant price jumps in rental prices over the past year and made the prospect of finding a ‘reasonably priced’ rental home almost impossible.
Before we move on, allow me to paint a picture for you. In late 2016 and early 2017, inventory levels for sale properties dipped to extremely low levels, driving the value of houses and condos to levels that most realtors and analysts didn’t anticipate. I recall the bidding wars of early 2017 as astounding, as many of the buyers with whom I was working were unsuccessful in their attempts to buy as I would often tell them to ‘walk away’ and not spend any more money. Sale prices were seemingly getting out of control.
In April of 2017, the Government of Canada decided to intervene and cool the market. They imposed a foreign buyer tax, a mortgage stress test for buyers, and rent control measures (there were a few other moves, but these are the highlights). During the following 12 months (May 2017 – May 2018), the media highlighted 8-12% declines in GTA home prices (leading me to my ‘correction’ comment above. These price reductions in home values were focused primarily on the suburbs. I am painting with broad strokes but home prices in the ‘burbs in late 2016 and early 2017 were soaring. In April 2017, the market inventory jumped as many Sellers were attempting to capitalize on sale prices reported in the first few months of 2017. By the time the masses caught on and listed for sale, they hit the market at the same time the Government intervened with measures to cool the market. Coupling these factors with a wait and see attitude from many Buyers who were frustrated with skyrocketing home prices, prices ‘corrected’ in the burbs.
In stark contrast to what was happening in the suburbs, inventory levels for condos and houses in the downtown core during those same 12 months (May 2017 – May 2018) remained low (extremely low). Buyers reading the media headlines about price corrections and impending doom and gloom adopted the same wait and see attitude and decided to rent. This surge in the rental market meant more competition and higher prices for rental properties.
So, where do we stand at this moment? Rental prices that have jumped into the range of $3.75-$4.50 per square foot (and higher). These are general figures but new(er) condos are seeing rental rates in these ranges. Different neighbourhoods will see fluctuating values but these general rates can be used as benchmarks if you’re venturing into the rental market in Toronto.
Where are we headed? With developers beginning to see value in the rental market and adding to the rental stock in Toronto, we anticipate more options in the future, but not in the short term. Projects that have just begun construction can take 30-48 months to complete. Condominium buildings with investors who purchased with the express intent of adding their properties to the rental market won’t be complete in large quantities for the next 12-24 months. Some neighbourhoods will experience completion and some satiation of pent-up demand but large scale completion will not be finalized for another few years. Rental rates will continue to increase without more supply. To those who are vehemently opposed to development but supportive of more affordable housing options, without more supply, we will not have affordable housing options in Toronto in the near future.