Rents for condominium apartments in the Toronto region jumped by almost 11 per cent in the first quarter this year as completions of new rental units slowed and more renters stayed put because they could not qualify to buy homes under Canada’s new mortgage stress-test rules.
Urbanation Inc., which tracks data in the condo market, said average monthly rents for condominium apartments in the Greater Toronto Area climbed by 10.7 per cent in the first quarter this year compared with the same period last year, reaching an average of $2,206 for a typical 740-square-foot unit.
Within the City of Toronto, condo rents climbed by 10.7 per cent to an average of $2,432, based on an average unit size of 711 square feet.
Urbanation senior vice-president Shaun Hildebrand said growing immigration and a strong job market are increasing demand for rental accommodation, while new supply is growing more slowly.
Final closings of newly constructed condo projects totalled 1,945 units in the first quarter, the lowest level of completions for any quarter in more than eight years. A recent study showed 48 per cent of new GTA condos are bought by investors who rent the units, making new condos the city’s largest source of new apartment rental stock.
Mr. Hildebrand said the low level of completions stems from lower preconstruction sales five years ago when the market was weaker, and from shortages in labour and supplies in the Toronto market, which is slowing construction.
“There is a record level of units under construction right now, so the supply situation should begin to improve by the second half of the year,” he said. “I think it will help to calm rent growth down.”
Mr. Hildebrand said tougher new mortgage qualification rules introduced Jan. 1 by Canada’s banking regulator also kept many current renters from buying new homes, which also reduced renter turnover and contributed to the tight supply.
“They’re staying in rental and they’re not buying as much as they have been,” he said.
Urbanation calculated that the annual income required to buy an average resale condo in the GTA climbed to $100,000 from $77,000 a year ago, based on an average resale price of $558,000 in the first quarter this year.
There is a record level of units under construction right now, so the supply situation should begin to improve by the second half of the year. I think it will help to calm rent growth down.— Shaun Hildebrand, senior vice-president of Urbanation Inc.
Without the new stress-test rule, the income needed to qualify for the same mortgage this year would have been $86,000. The new rule requires buyers to prove they could still afford their mortgage if interest rates were significantly higher.
Urbanation said the number of new rental transactions in the GTA fell 12 per cent in the first quarter, the largest single-quarter decline since it started tracking the rental market in 2010.
Urbanation said 5,302 condo apartments were leased in the first quarter, based on rentals completed through the MLS system. The number of active rental listings available at the end of the quarter was down 14 per cent to 1,424 units from 1,649 a year earlier.
Rent for purpose-built GTA apartments also rose in the first quarter, climbing 16 per cent as landlords moved to close the widening rent gap with the condo rental market, Mr. Hildebrand said.
For apartments in buildings constructed since 2005, rent levels reached $3 a square foot in the quarter, for an average total rent of $2,313 in a typical 771-square-foot apartment leased during the quarter.
“I think rental operators are realizing that relative to condo rents, their rentals were probably under-priced. … Now they’re pretty much equivalent with the average rent per square foot almost the same for the two markets at around $3 per square foot,” Mr. Hildebrand said.