Sky-high rents aren’t just hard on renters. They’re a drag on Canada’s economy

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Julia Belittchenko and her partner have hunted for a home to rent in Toronto since June. In a recent story in this paper, she described how high prices and intense competition have led them to contact more than 200 places. The continuing search is a full-time job. “I am constantly on every single site looking,” said Ms. Belittchenko.

Welcome to The Hunger Games: Canadian Renter Edition – where the odds are never in your favour.

In Canada’s obsession over overpriced real estate, talk tends to focus on the high price of buying a home. The rental market gets less attention – even though one-third of Canadian households rent, including nearly half in Toronto, and more than half in the City of Vancouver.

Right now, the rental market is badly strained. The high cost of buying a home appears to be relegating more people to renting, with the added demand exacerbating the existing shortage of rentals. Further pumping up rental demand are what are otherwise good news stories: low unemployment and strong population growth.

It adds up to surging rental prices. In July, the national average rental rate was $1,934 a month, up 10.4 per cent from a year ago, according to Rentals.ca. A two-bedroom in Victoria jumped 35 per cent to $2,836. A one-bedroom in Calgary shot up 27 per cent to $1,583. In the Greater Toronto Area, rents have hit new highs as the vacancy rate has fallen to just 1.4 per cent. Rent inflation nationwide is at nearly 5 per cent, the highest in more than three decades.

For renters, especially the young, monthly costs are eating into more and more of their incomes. A long-standing rule of personal finance is to put no more than 30 per cent of gross pay into rent. But average rents in Vancouver and Toronto are now around 50 per cent of average income.

This is bad news for individuals. It’s also bad for Canada. Our big cities are dynamic economic zones; people want to live there because it’s where the jobs and the wealth are, and the more people who move there to pursue jobs and wealth, the more a city’s economy becomes a virtuous cycle of wealth creation. But all that gets short-circuited when people who could fill in-demand jobs can’t afford to live there.

It’s why the Toronto Region Board of Trade last December called on Queen’s Park to reform zoning provincewide, to boost supply and lower prices. “Our competitiveness in attracting talent [and] driving innovation,” the board said, “depends on solving the housing shortfall.”

The key is density. Rental buildings are often restricted to busy arterial streets and much of the rest of the city is reserved for detached homes. In the City of Vancouver, 65 per cent of households live on 19 per cent of the residential land.

After Toronto’s board of trade called for widespread new density, a report commissioned by the Ontario government did so as well, but the province has largely ignored its findings. Canada Mortgage and Housing Corp. in June said millions of new homes are needed this decade, and argued “the housing supply system is broken.”

Within that overall need for new housing, rentals deserve particular attention. In the 1960s and 1970s, a growing Canada got lots of rentals built, often backed by the financial heft of governments. That vanished by the 1990s, and condos have mostly filled the rental gap – inherently precarious housing because units can be sold, and renters evicted, at any time.

Rental construction has risen in recent years but there’s a massive catch-up needed after decades of underbuilding. And even as overall housing construction, including rentals, has climbed, the per-capita level of building is still much lower than in the 1970s.

The federal Liberals have tried to boost rentals through construction financing, but their goals are more modest than Canada’s achievements of the 1960s and 1970s. In British Columbia, the leading candidate to become the next premier has proposed to build “housing for the middle class on public land, using public resources.”

The biggest underlying issue, however, is zoning. To house all the people who want to live in cities – people who make cities and their economies thrive – zoning has to be loosened to get more housing to be built, and in particular denser housing in established neighbourhoods. The future starts there.

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