GTA Rents up 5%
Rising costs of homeownership encouraged individuals to seek or remain in rental accommodation in 2018. As a result, the average vacancy rate for private purpose built rental apartments in the GTA remained near the lowest level observed in the previous 16 years. While house prices have moderated following unprecedented levels back in 2017, they still remain high relative to previous years. Average carrying costs have outpaced rent growth quite significantly in recent years.
"Almost 19,500 condominium starts, majority of which were apartments."
Additionally, prices of multiple-family dwellings (such as condominium apartments and townhouses), which are typically more popular among first-time homebuyers, showed stronger price growth than other housing types. Tight rental market conditions allowed landlords to charge new tenants significantly higher rents and in turn, the average rent growth exceeded the provincial guideline of 1.8% for 2018.
An even a fewer number of units were added to the rental pool, thus limiting the increase in the condominium rental stock to just 3% in 2018 compared to 5% in 2017.
The matched sample GTA average condominium apartment rent increase was 5.4% in 2018 – roughly on par with the rate of increase recorded for private purpose-built rental apartments. Lack of supply and strong demand for rental accommodation have meant that landlords are able to charge higher rents from tenants.
Strong rent increases have also encouraged existing renters to stay put (the average rents charged by vacant units are about 18% higher compared to that of occupied units in the Toronto CMA), which has the turnover rate decreasing substantially to 11.2% in 2018 from 14.5% in 2017. The number of renovations and newly completed purpose-built rental units have been increasing in recent years, which can also put upward pressure on average rents.
Rising rent growth and strong vacancy rates in recent years have encouraged more developers to build more rental units, however, their numbers still lag that of condominium starts. Almost 3,000 rental units were started in the first 9 months of 2018 – the highest level in 24 years.
In contrast, there were almost 19,500 condominium starts, majority of which were apartments. Lack of purpose-built rental supply helps to keep vacancy rates low.
The pace of rental unit completions has started to increase in recent years (there were nearly 2,464 rental unit completions over the 12-month period ending June 30, 2018 which is the cut-off point for the survey) but it represents only about a third of the number of rental units currently under construction. As a result of higher rental completions, the total purpose built rental universe in the GTA increased by 1% in 2018. The highest increase in the rental universe (by 5%) was in Durham Region, where 740 units were added. Lower rents and strong transportation networks continue to attract renters to this region.
The share of rented condominium apartments (a good proxy for investor demand) as a portion of the total condominium apartment stock is slightly lower in 2018 compared to the previous year. About 17,000 condominium apartment units reached completion in the 12-month period ending May 2018 (the cut off point for the condominium survey), which was lower compared to the previous year which saw nearly 19,000 units reaching completion.
Rents To Go Up
Average rents across Canada will increase 6% in 2019 and by as much as 11% in Toronto, 9% in Ottawa and 7% in Vancouver, according to the National Rent Report, released by Rentals.ca. The National Rent Report charts and analyzes national, provincial and municipal monthly rental market trends.
Industry analyst Ben Myers, president of Bullpen Research & Consulting Inc. said the average Canadian rental property on Rentals.ca was listed at $1,754 per month in November 2018, a decrease of 4.4% month-over-month. "The dip is not uncommon because fewer people move during the winter months," he said.
"Toronto rents have been pulled up by recently completed high-design condo apartments for lease," said Matt Danison, CEO of Rentals.ca. "Landlords can rent their inventory for significantly more than older rental apartments."
"A surge in demand has also added to increasing rents," Myers said.
"The new mortgage stress test, higher interest rates and home prices have dramatically increased the number of people looking for rental accommodation this year," Danison added. "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 and over $2,000 a month in Ottawa."
Danison said, "With near record-high immigration in Canada and record-low unemployment, demand for housing is high, but flat or declining resale house prices due to current and expected future credit tightening has deterred many would-be first-time buyers from entering the ownership market. That demand overflow is being felt in the rental market, where very few Canadian markets are offsetting demand with new rental supply."
"There is trepidation among potential homebuyers following the bubble-like conditions and the subsequent price correction in the GTA housing market last year" Myers added. "Many Torontonians are choosing to lease instead of buy, with existing tenants staying put to avoid paying the higher market-rate for an available unit. This phenomenon has reduced rental listings in this high-demand environment."
Several Greater Toronto Area (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 with rental rates rivalling Vancouver.
BANK OF CANADA
The Bank of Canada today maintained its target for the overnight rate at 1 ¾ per cent. The Bank Rate is correspondingly 2 per cent and the deposit rate is 1 ½ per cent. The global economic expansion is moderating largely as expected, but signs are emerging that trade conflicts are weighing more heavily on global demand. Recent encouraging developments at the G20 meetings are a reminder that there are upside as well as downside risks around trade policy. Growth in major advanced economies has slowed, although activity in the United States remains above potential.
The Canadian economy as a whole grew in line with the Bank’s projection in the third quarter, although data suggest less momentum going into the fourth quarter. Business investment fell in the third quarter, in large part due to heightened trade uncertainty during the summer. Business investment outside the energy sector is expected to strengthen with the signing of the USMCA, new federal government tax measures, and ongoing capacity constraints. Along with strong foreign demand, this increase in productive capacity should support continued growth in exports.
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