Canada's Condominium Magazine

Condo rents rising fast in undersupplied Toronto market

Toronto can’t build enough condominiums to satisfy the demand from both owners and renters. For the first time since 2011, the number of condos leased through the MLS system in 2016 declined by 2 per cent, says condo research firm Urbanation. The decline was the result of delays in condo completions, caused by labour disruptions last year, and an increase in resale activity. One sign of hope for renters is the rising number of applications by developers to build more purpose-built rental units.

Even with a “surge” of newly completed condos in the final months of 2016, Urbanation reports, total rental listings were down by 8 per cent. In part this is a result of the success of the condo market. Condo resale prices rose 15 per cent in the same period, and this proved too tempting for many owners, who chose to sell rather than hold their units for rental purposes. Meanwhile, some of those renters lucky enough to have a place to call home have become reluctant to move, given the high cost of renting. Urbanation says that the share of total condo units leased last year declined from 9.3 per cent to 8.5 per cent. Resales increased from 7.1 per cent to 8.1 per cent.

How expensive is it to rent? The average condo rent rose 11.7 per cent in the final quarter of 2016, compared to the previous year. This was the highest level of growth ever recorded, said Urbanation. One year ago, rent growth came in at 4.2 per cent, year over year. The average GTA rental reached $2.77 per square foot for an average unit of 719 square feet, for a monthly rent of $1,990. In the City of Toronto, the average rent was $2,134 ($3.13 psf). Toronto also saw the greatest increase in rents: 12 per cent. The average number of days for a rental condo to find a tenant was just under two weeks.

The undersupply of rentals in the GTA continued to worsen throughout the year, causing rents to surge alongside home prices and further deteriorating housing affordability across the region. While less pressure on rent growth may arrive in 2017 due to a temporary rise in new apartment completions, it’s become clear that more attention needs to be paid to building rentals over the longer-term.

As in the housing market, so in the rental market: the problem is undersupply, and it has worsened, said Sean Hildebrand of Urbanation. “It’s become clear that more attention needs to be paid to building rentals over the longer term.” The vacancy rate in purpose-built apartments built since 2005 was just 0.6 per cent. The number of buildings under construction as of the fourth quarter of 2016 was down slightly compared to a year ago, though the total inventory of proposed rental units was about three times higher than one year ago (27,812 units compared to 10,513).

Urbanation has forecast that the new condo market will continue to see price growth this year, led by stronger growth in the resale market. As for a glut of condos in Toronto, it isn’t in the cards, according to analyst Pauline Lierman, with employment growth and rising demand.

Canada Mortgage and Housing Corporation also sees conditions remaining tight in Toronto’s condo market, with an increase in new permanent residents moving into the region. The number of international students living in Toronto has doubled in the past six years, said CMHC, adding still more pressure.

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