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You had your best-laid plans and then COVID-19 came along and hammered the entire economy. But you’ve got this – if you have the right information. Join Rob Carrick and Roma Luciw on Stress Test, a podcast guiding you through one of the biggest challenges your finances will ever face.

ROB: The latest census tells us that homeownership rates have dropped for people under 40. What are your choices if you can’t buy a home? Living with family or friends or renting.

ROMA: But the rental market has exploded and prices are soaring across the country, especially in the big cities. People are bidding to secure a place, they’re jumping between short term leases, or commuting hours a day.

ROB: Welcome to season six of Stress Test, a personal finance podcast for millennials and Gen Zed. I’m Rob Carrick, personal finance columnist at the Globe and Mail.

ROMA: And I’m Roma Luciw, your personal finance editor at the Globe. In the last six months, the Bank of Canada has been hiking interest rates, and they’ve gone up a lot. We all know that the housing market has been hit hard, but so have renters. And since so many young adults rent, we decided to dig into what exactly young renters are up against. And what we found was shocking. Rob, why don’t we start by looking back specifically at the situation for young adults who make up a good chunk of Canada’s renters. Many young Canadians started as renters. I know I did. Rentals didn’t, you know, fall in my lap, but it certainly wasn’t difficult to find an affordable decent rental. What has changed?

ROB: What’s happened is that rents have skyrocketed the we all know how the relationship between house prices and incomes has come on down, incomes haven’t risen nearly as much as house prices are growing. Now the same thing is happening with rents. And we’re now moving to a world where it could cost 40, 50 or even 60% of your income to cover your rent. It used to be 30% was the old rule, that rule is out the window in the big cities.

ROMA: That’s a huge jump. And when you stop and really think about that, what it means that half of your income is basically being consumed by your housing, you begin to understand what young renters are up against and why they’re struggling so much combined, that soaring housing cost with high inflation, high prices for most other things, groceries gas, and it’s no wonder that young adults are struggling to meet the milestones that their parents did, why they’re so frustrated and upset.

ROB: People used to say if you don’t own a house, you’re missing out on home equity. And I would say back to them that renters can save the difference between their costs and what it costs to own a house and invest that over the years and they would have comparable wealth to the homeowner that is out the window.

ROMA: All of the reporting we’ve done at the glow points to renters struggling with all this intense competition, some of the things you’ve outlined, I’m really interested in hearing these stories. So let’s dive in.

ROB: After the break, we hear from three renters on what it’s like trying to find a place to live right now.

ROMA: First, we speak with a 25 year old who needed to find a place to live in Ottawa after getting a job. Let’s call her Maya.

MAYA:I had a lot of trouble finding simply a place to live. I had about a month to relocate after I received my job offer, which didn’t give me a lot of time to plan out everything. My starting budget was anywhere from 1000 to let’s say 1700, I was looking for either a bachelor or one bedroom. I was quite flexible with my budget. And while I was looking, I realized how bad the housing market or the rental market is at the moment. Everywhere I was looking, there would be a post and I would contact them. And I think the next day they’d say, Oh, sorry, this place has already been taken. And it was so bad to the point when the one day I decided to make the five hour drive to Ottawa I had booked I think five or six showings for the day. And that afternoon, as I you know, reached Ottawa, I called to confirm, you know, the next places that I was going to and every single listing told me that they canceled my showing for the day, because it was taken already. So that’s how great the demand was. And of course, it didn’t really help that I was moving in September. And that’s when all the students were coming back too. I was so angry because I had confirmed with each of them the day before. I was so disappointed. I was so angry. I was so tired because keep in mind this was an entire month where literally every day I was checking postings on on every single platform, right so on Facebook groups, on Kijiji, on Zumper, PadMapper. All of those places you could potentially, you know, look for rental units. I was on every single day, sending I don’t know like hundreds of emails and I had specific requirements. Of course, I needed the location to be, you know, quite close to where I was going to be working because I was returning to the office. You know, I know it’s simply because of the current markets, that things are like this. And it’s not like I was looking for places that were, you know, very cheap or I have a relatively good budget to spend on housing. So even that didn’t help me at all. So that’s why I was kind of left, I guess, shocked. I’ve never had this issue before.

ROMA: Maya wound up renting a basement room from a friend of a friend. It’s only $800 a month, her commute to work takes an hour by bus, and it’s a short term rental. She’ll be looking again in six months. Who knows how competitive the market will be then. Next, meet Shane, a 31 year old who lives in Scarborough, Ontario. He had a great deal that he found in the pandemic for a shared apartment in downtown Toronto. But he recently moved to be closer to work. That said, finding a place in the suburbs was more expensive and more stressful than he expected.

SHAYNE: It seems like your dollar doesn’t go as far as it should. So you know, when you’re looking for a one bedroom place, what used to be like $1,600, is now sitting at $2,100. So your dollar doesn’t go as far anymore when you’re really trying to find a place to live. I’m paying about $2,000 a month for a one bedroom apartment, I do not have the concierge, I do not have a gym membership. I pay for my own hydro now. So there’s a lot of added expenses that have kind of come on to moving with this, I don’t have air conditioning either, which is something else that I kind of sacrificed. I don’t have laundry in the unit as well. So I’m typically using the laundromat again. I mean, it’s pretty much about 50 to 60% of my income is spent on rent. So I mean, although I understand like maybe that could be like the threshold of rent to like living expenses, it really shouldn’t be that way, like you shouldn’t be working 50% of your life just to afford a roof over your head. There were situations where through a real estate agent, we would go and check out a place. And I would find out later on that people were actually over bidding on rent now. So we’ve created a rental market, that’s almost like buying a house where you’re bidding on paying for extra rent just to secure that place. Which is really just kind of crazy to hear, like when I’m going in and renting a place and kind of set on a certain budget. And it doesn’t really allow me to flex too much. You know, if I’m saying that I can only spend $2,000 a month, that doesn’t mean that I can spend $2,400 a month. So it really created a difficult market to find a place. And so yeah, when it came to like bidding for rental units, to me, like I just couldn’t afford it. Like if I’m going in and I’m seeing this unit and it’s advertised as 1950, I don’t understand why I need to sit here and try to bid more to catch a landlord’s attention.

ROMA: Now we hear from Luanna, a 32 year old who works in the film industry, and is trying to find a place in Vancouver, BC. She told us about a time she agreed to meet a building manager for a 2pm showing.

LUANNA: And I got up to the apartment and looked around a little bit and said that I wanted to fill out an application. So he handed me an application. And I saw he had a stack of about 10 or 15 applications already, which made me think that the girl that he had just been seeing wasn’t the first person to show up there at two, she was actually the last person to show up at one. So I felt that my application, I was up there for probably 10, 15 minutes. And by the time we got back downstairs, there was six or seven other people outside of the girl that I had spoken to waiting all the way down the stairs in the rain to go up and see the place. And by the time I got home, I had a message from him saying that he had already chosen somebody to move in. And it had been two hours. It has been a nightmare. The competition is really, really fierce in Vancouver. It’s essentially down to who makes the most money in the best impression. Yeah, so my top budget is $1,200 which previous to this seemed astronomical to me. I’m trying to find a bachelor, a one bedroom would be great, but a bachelor with a real kitchen. Which doesn’t seem like something you should have to ask for. But it absolutely is. A real kitchen, some form of storage space, a closet, and then a private bathroom. Because a lot of places are, you know, you get your little space with a tiny little kitchen area and then you share a bathroom with eight other people in the suite or in the house. Laundry would be great. But once again, if I’ve got to pay for it, it is what it is. My own bathroom is one thing that I’m really trying to not compromise on. Well, unfortunately I just cannot. I can’t pay more. It’s just not possible. I wouldn’t be able to live otherwise. Roommates is a thing that is becoming, it’s very probable. The, you know, hot plate mini fridge microwave situation is also becoming a very, very, very probable as well as these micro units where to go and share a bathroom with multiple other people. And none of them are ideal, but it’s pretty much whoever will accept me right now. Not good enough I guess? I never had issues, I’ve never ever had issues getting places in my life. This is the first time in 15 years that I’ve been living on my own, that I’ve had any sort of a problem getting a place so it’s, it’s very discouraging.

ROMA: Maya, Shayne and Luanna aren’t alone in their rental woes. After the break, we’ll talk to a real estate expert about why things are so tough.

ROB: Rents are up all across Canada, but prices are particularly high in the Greater Toronto Area and BC is lower mainland. Joining us now is Shaun Hildebrand president of Urbanation, which researches condo rental and development markets in the GTA. Shaun says Toronto’s market is now supercharged after an abnormal dip. Urbanation’s latest research found the rental market has since roared back.

SHAUN: So I would say in May of this year, April, May of this year, rents have really fully recovered to their pre-pandemic high. And actually, as of a few months ago, we were right back to where we started. Now, more recently, since then, the market has become supercharged. In the May to August period, the average condo rent in the GTA has shot up by nearly $300 a month. That’s over 11% growth just in a three month period. And now the average rent is just over $2,800 a month. And mind you the average condo rental isn’t large, the average size is about 700 square feet. So when you compare rents now to where they were a year ago, they’re up about 19%. When you compare them to the lows in early 2021, rents are up 40%. And when you compare us to where we were pre pandemic at the peak, we’re up about 10%.

ROB: Okay, these numbers are frankly shocking. What is driving rents higher?

SHAUN: Certainly you have population growth that’s really accelerating a very, very strong job market. Students that are coming back into the city for sure. And I think on top of all of this homeownership affordability conditions that are at generational lows, and this is forcing some would be first time buyers that otherwise would have been, you know, purchasing homes to either stay in the rental properties longer or choose to move within the rental market at a higher income level. So you have you have more demand, basically chasing more or less the same number of units. And that’s pushing up rents quite quickly.

ROB: A striking figure from the report is at 41% of people agreed to pay more than the asking price in August and we’re hearing a lot of stories about bidding wars. What is going on?

SHAUN: Yeah, in a normal market, renters pay the asking rent, you don’t see a lot of overbidding aside from, you know, seasonal peaks and some periods where the market is overheated, but more or less, you know, transacted rents coming in at around asking price. So having more than 40% of units going for over asking rent tells you there’s a severe supply shortage in the market right now. So when we looked at the leases that went in multiple offers during August transactive, rents exceeded asking rents by an average of $132 per month. So not only are they going over asking rent, but they’re going far above asking rent. So showing you how much competition there is in the marketplace right now.

ROB: This really reminds me of the housing market in 2021, early 2022, when you bid for a house, you didn’t just go in and a couple of bucks over the last price, you went in hard and had to bid way over and the same things playing out in renting. Now I’m wondering if people can’t afford a house, they’re going to be renting longer, and they’re going to be paying ever increasing amounts of rent. What does this mean to the housing market?

SHAUN: Well, I think it’s more demand chasing housing, like as you say, you know, if people aren’t aren’t purchasing homes, they’re renting in greater quantities. You know, if the population continues to grow, you have more demand for housing. And as the homeownership market becomes increasingly more unaffordable, it just puts more and more pressure on the rental market. And as we experienced during the pandemic homeownership affordability eroded considerably. So, you know, you have the combined effect of rising interest rates over the last number of months which is made you know, homeownership of affordability the worst on record when you combine it with where current prices are and you know, if you look at the percentage of household income required to Service mortgage debt, the average price home, it’s higher today than what it was in the early 1990s or the early 1980s. When interest rates were in the double digits, the current average resale price in the GTA, it’s about 1.1 million, that would have an average mortgage cost of about 4350 a month, with a 20% downpayment. 25 year aim and about a four and a half percent mortgage rate. That’s about 10%. Higher than the market peak in February when average prices were about 1.3 million rates were about 2%. And that level is 60% higher than the average mortgage payment associated with buying the average priced home three years ago. So when you look at how expensive and unaffordable homeownership has become because it begins to paint a clearer picture about what’s happening in the rental market right now. So this really sideline because a lot of would be buyers, who, you know, they want to make a move, but are priced out of homeownership either causing them to again stay in the rental unit longer, which reduces supply turnover. Or it adds more demand for rentals amongst higher income earners, right at an average rent of $2,800 a month. Sounds high. But for a typical person who’s looking to buy a home that’s very affordable. You know, many, many renters today are earning incomes over $100,000. That, in fact, if you break down renter household growth by income segment, those that are earning over 80,000, a year, over 100,000 a year are the fastest growing segment of the population. But they aren’t earning enough to afford really even a condo at today’s prices and interest rates.

ROB: The strong job market’s really been a support to renting and you’ve mentioned that yourself in your comments earlier. But there’s talk about a recession coming and I wonder what that’s going to do to wage increases and to promotions and to the ability of people to afford these ever increasing rents.

SHAUN: Yeah, historically, there’s been a very strong positive correlation between the unemployment rate and rental vacancy rates, meaning you know, as the job market strengthens, more of the population is employed, incomes rise, rental demand rises, and it puts downward pressure on the availability of rental units. Toronto has seen a boom in employment with higher income earning sectors such as health care, technology and finance really leading the way. Now, if we enter into a recession in 2023, into 2024, perhaps, yeah, I mean, you would expect naturally to see the unemployment rate rise and that could reduce some of the tension in the rental market. But you know, rental vacancy rates right now are at about one and a half percent. A neutral rate for the GTA is about 3%. We’ve been averaging less than 2% for most of the past decade. So I you know, there’s so much pent up demand for rental and so much under housing for rental that I think a, you know, a modest recession isn’t going to do a whole lot to alleviate pressures in the rental market unfortunately.

ROB: When I see new rental buildings going up talking about high rise, apartment types, type rentals, often they’re luxury rentals. And I’ve actually looked into a few of them, rent $3,000 a month, they look sort of like a very condo, which they’ve got really upscale appointments and stainless steel appliances and that sort of thing. But I’m thinking that’s not exactly suitable for young adults trying to get a start in their careers and in their lives. Who’s building rentals for them?

SHAUN: Yeah, the average rent on a newly completed purpose built rental is very close to the average condo rental, it’s about $2,800 a month. And a lot of those units, as you say, are renting for over $3,000 a month. And these are high quality rentals, you know, buildings with very strong amenities, good sweet finishes. They’re above the quality, certainly of most of the condo rentals that you see in the marketplace. And they do command a premium, right there’s a premium there for the quality of the product being delivered, but also, you know, having that professional management aspect that’s missing for condominium rentals. And I think what the industry has learned is that there’s a lot of demand for this. So even though we’re building rentals at a relatively high rent, there’s a sufficient amount of demand for those units. And as I talked about earlier, most of the net new rental demand that’s being created in the GTA right now is amongst income earners above $80,000 A year above $100,000 a year. So for them, these rents are, you know, 30% of their household income, they are by definition actually affordable. But you’re right, there isn’t a lot of renter rental being built that can accommodate a renter, sort of average income level, which is around $60,000 A year 50 to $60,000 a year. But one thing that does happen, I will say that, you know we do see is when a new rental building comes to completion. It does tend to attract move up renters so individuals that were renting a less expensive rental property that are moving into a higher quality rental. So as that happens, it does open up some supply at the lower end. So even though we’re not necessarily building specifically rental that’s geared towards lower income earners, that movement up within the market does free up some supply to a degree. And you know, there’s some policies that are being enacted by the city in terms of inclusionary zoning. So mandating a certain percentage, I just think they’re they’re, you know, it’s a good idea, mandating a certain percentage of a building to be affordable. But it needs to make the numbers work for developers, they need to have some sort of an offset to account for that higher cost, right? already. It’s difficult for these projects to make the math work if you look at where construction costs are today versus where they were pre pandemic threw up by 35%. Now, if you compare rents today to where they were pre pandemic that are up by 10%. Then on top of that you have higher development charges, and other costs related to inclusionary zoning, the rents are simply aren’t high enough to make the economics work to build.

ROB: We know a lot of investors are buying condos to rent them out. But with interest rates and prices as high as they are, it’s not even worth it right now.

SHAUN: Yeah, condo condos represent about 25% of all rentals in Toronto, there are a significant portion and they represent the majority of new rental supply that’s been added over the last decade. On average, about 40% of condos, condos themselves are used as rentals. And it’s even higher and newly completed buildings. About 50% or so on average, are used as rentals. So, condo investors can really be credited with supply and most new rentals in Toronto. And you know, this has happened as purpose built rental supplies remained pretty stagnant. Whereas, you know, as we’ve seen from the census, most households being formed are renters. If you look at the purpose built rental stock right now, 90% of it is more than four years old. So this has created a massive void that condo investors have been filling, but only to a limited degree, obviously, given the current state of the market. But to your question I, you know, I’m skeptical that condo investors will be as large of a presence in the rental market going forward, meaning we need more purpose built rental to pick up that slack. However, you know, following a large increase in new condo prices in recent years, which are called new condo prices are up about 65% In the past five years. And you combine that with higher interest rates, there’s going to be almost no chance for the vast majority of new condos that are currently in development to generate high enough rents to offset their ownership carrying costs. And the situation looks worse than each passing year.

ROB: How responsible do you think financially desperate condo landlords are for rising rents? And I asked that question in the context of mortgage rates going up quite a bit this year.

SHAUN: Yeah, I think there’s going to be some shock to a lot of renters who secured their unit, obviously in in buildings that were built after November 2018, that are rent controlled at really low rents that are going to be shocked to see what you know, some of these increase in rents are from from landlords that are looking to bring their their their their units to market rent and recoup some of the costs that they’re experiencing in terms of interest rate increases and condo fees, utility increases as well, these these have all been up quite a bit. So I think you’re going to hear more and more stories, unfortunately, of huge rent increases being passed off to tenants that are in buildings that aren’t rent controlled, because for what I mean, they secured their lease at a very low point in the market. And just given how high you know, holding costs have gone for those that are landlords in today’s marketplace.

ROB: Shaun, how high can rents go in Toronto?

SHAUN: As you know, so long as incomes rise, rents will rise as well. So you know, a lot of that does depend on the economy. But naturally, rents can reach a point where they hit some resistance levels, because, you know, they’ve really, they’ve risen much faster than incomes. You know, this is kind of what we experienced over the last little while and we started to see this resistance begin to happen in 2019, prior to the pandemic after a very strong run up for rents in 2016 2018. What that rent number is that begins to push back demand, it’s difficult to pin down particularly now with you know, a lot of first time buyers with higher income getting shut out of the ownership market. One metric I like to look at is the comparative cost of renting and owning the same size condo unit. And what that shows is that the cost gap for owning has risen to a record high of $750 a month meaning it’s $750 more to own than to rent the same unit. And that gap is about three times higher than the pre pandemic level. So you know, this tells you I think that there’s some more room for rents to write and given the current market environment.

ROB: Last question for you, Sean, could you please give us some advice for renters something to help them navigate the market to pay frankly as little as little as possible.

SHAUN: Yeah, I sympathize. It’s an extremely difficult situation out there for renters and it shouldn’t be you shouldn’t have to face this much difficulty in finding a place to live. It’s an unfortunate reality and you know, creative solutions are needed until we can get supply to the level where it needs to be. I think there has been some innovative co living models sprouting up that help renters secure affordable high quality rentals that are worth looking at. Also, you know, a lot of the older stock of rentals in the city are being renovated. So those should be looked at as well. If you can afford it, we’re seeing more brand new purpose built rentals being delivered really impressive projects with amazing amenities high quality features, they typically begin pre leasing a few months out from occupancy which is where you’ll find the most selection also within these buildings you’ll find more two bedroom and three bedroom units than you would normally see within the condo market which are you know, more conducive to roommate situations. A couple’s families where you know, you can have dual income earners that can share the costs.

Also, if you can wait until the winter, wait till the winter when the market usually comes down a bit. There’s no there’s a there’s a perfect storm of activity right now with you know, all these different demand factors that we talked about the low supply but also, you know, a seasonal peak for for activity as a lot of people you know, tend to move in terms of rental in the summer, so if you can wait a little while longer, you’ll probably see the market come down.

ROB: Alright, Shaun, thanks very much for the insight.

SHAUN: Thanks for having me.

ROMA: The stats from Shaun along with the stories from our renters are concerning and upsetting, and they should be for all Canadians, and it looks like things could get worse before they get better. But as financial journalists, we want to leave our listeners with some practical advice on how to make the best decisions for the situation we’re in. Rob, what are your takeaways?

ROB: One, dare I suggest finding a roommate. Big rents divided between two or three people become much more affordable to ask for a raise at work or look for a better paying job. We live in a time where workers have an unusual amount of leverage for getting more pay. Three, impress your prospective landlord. Act like it’s a job interview, have your references ready, dress for success and know in advance what your credit score says about you.

ROMA: Thank you for listening to Stress Test. This show was produced by Kyle Fulton, Emily Jackson and Zahra Khozema. Our executive producer is Karen Rana. Thank you to Maya, Shayne and Luanna, for sharing their stories. And thanks to Shaun Hildebrand for joining us.

ROB: You can find Stress Test wherever you listen to podcasts. If you liked this episode, please give us a five-star rating and share it with your friends.

ROMA: On the next episode of Stress Test. We talk about money shaming, the feeling of being bad with money whether you’re overspending, undercharging or avoiding your finances altogether. We tackle that problem and discuss how you can change your relationship with money.

ROB: Until then, find us at Thanks for listening.

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