It’s a landlord’s market in Toronto once again. Condo rents hit a record high in the second quarter of this year, as soaring borrowing costs pushed residents into the rental market and more people flocked back to the city.
Across the Toronto region, the average monthly rent rose 17 per cent to $2,533 over the past four quarters, according to industry research firm Urbanation Inc., with rent for a typical studio condo climbing 25 per cent over that period.
Rental rates have been increasing rapidly since the Bank of Canada started raising interest rates to get inflation under control. The benchmark interest rate is up 2.25 percentage points over five months, making it harder for prospective homebuyers to qualify for a mortgage, cooling the real estate market and raising the spectre of an economic slowdown.
According to Urbanation calculations, condo owners shouldered an average monthly cost of $3,125 during the second quarter, when mortgages had an interest rate of about 3 per cent. The average rent for a similar condo unit was $2,533. That means the average monthly rent was nearly $600 less than the average monthly ownership cost. And that was before last week’s massive one-percentage-point interest rate increase.
Now, with mortgage rates near 5 per cent, Urbanation said condo owners are likely paying an average of $1,100 more a month than renters. “This will provide further fuel for the rental market as more first-time buyers become shut out of the ownership market,” the report said.
This relatively new group of renters is upping demand for rentals in a city that was already dealing with a shortage of affordable housing units.
“It’s an extreme challenge to secure even a semi-affordable property,” said Reuben Labovitz, a sales representative with real estate brokerage Fox Marin, who has brokered nearly 100 rental leases in the city so far this year. Mr. Labovitz said rental properties are fetching multiple offers and describes the situation as 100 per cent a landlord’s market.
In addition to buyers turned renters, postsecondary students are returning to in-person classes and employers are pushing their staff to return to the office.
Mr. Labovitz said a segment of his clients are people who fled to the suburbs when the city shut down during strict COVID-19 lockdowns in 2020. He said some of those workers are being told to come back to the office by the fall.
Condos owned by individual investors make up one part of the rental market. Apartment units, or housing that is purposely built for the rental market, make up the rest.
The vacancy rate for purpose-built apartment units fell to 1.4 per cent in the second quarter from 5.1 per cent a year ago. Urbanation said the new supply of apartments and condo units is set to decline because of rising construction costs and regulatory delays.
It has been predicted that the building of thousands of condo units could be cancelled because of rising construction and borrowing costs. According to Urbanation, about 5,000 preconstruction condo units were sold last year for less than $1,000 per square foot, which would make them economically unfeasible to build under current financial conditions.
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