The market for condominium apartments is the most blazing hot segment of Toronto's ever-more-expensive rental market and real estate agents say that extra financial inducements for landlords are increasingly becoming a necessary part of closing deals on the most in-demand properties.
The concept of "holding offers" has long been a feature of bidding wars in Toronto's resale real estate market, and more than ever apartments are being rented through the realtor-managed MLS system. According to Urbanation Inc., a record 27,200 condo apartments were leased through MLS in the Greater Toronto Area in 2017, up 1 per cent from 2016. Agents on the front lines say the multiple-bid, blind auction has become one of the features of the tightening market over the past two years.
"The rental market has gone so out of control, the first year I started, you could get a one-bedroom for $1,600-$1,700," Dena Shiff, an agent with Sage Real Estate, says. "Now, one-bedrooms can be $2,050-$2,100; It's crazy."
Ms. Shiff now closes about 200 apartment lease deals a year. "If I see a unit – a one-bed in a great building on King West – let's say it's listed at $1,800, I would know they are listed low and they are going to get multiples. A lot of these places go for way over asking. I've been in situations where I've had a client put an offer that was $250 over."
Urbanation Inc. says that in the fourth quarter of 2017, at least 17 per cent of rental listings ended up going for more than the posted price. That suggests somewhere in the range of 5,000 multiple bids situations a year for condo units, one-fifth of the total transactions for renters. Two years ago, only about 7 per cent of MLS-posted transactions featured rents over asking.
According to Urbanation the average premium is $85 extra per month (or 4 per cent of an average $2,000 rent) and the units most likely to be bid on were for the most affordable units: studio and one-bedroom apartments (about 20 per cent each of the share of rents paid above asking).
"I think agents and sales people they are pretty adaptive, they've accepted the reality," says Albert Nam, an agent with Royal LePage Signature who frequently works as a listing agent for condo apartment owners. He recalls that when he was helping lease a block of 40 units from the Carnaby Row project on Gladstone Avenue in 2016, hot competition quickly turned into a bidding war: "It was a very popular building, I feel like over half was multiple bids."
Housing experts agree that the root the city's highest rent increases in 16 years is the market's lack of inventory.
"Rent growth trends are highly correlated with prices, with a lag. So, as prices for condos accelerated quickly in 2016 and early 2017, it had the effect of pushing some would-be buyers out of the ownership market and into the rental market. It also caused more renters to stay put, reducing available rental supply and adding further upward pressure on rents," Urbanation's Shaun Hildebrand says.
"I think on the rental side it's a very messy business, I feel for people moving into rental," says James McKellar, a professor at York University's Schulich School of Business and director of Brookfield Centre for Real Estate and Infrastructure. "There's an old joke in the real estate market, if you wanted the two dollar space, they showed you the $5 space and worked down."
Mr. McKellar used a Toronto agent when he recently moved from the Boston area, a region with strong rent controls and a lot of student-based turnover, but which also a reputation for off-the-book payments like so-called "key money" to close rent agreements.
"I didn't know what rental rates were [in Toronto], I was really at the whim and fancy of the broker," he says.
"Fortunately I found a very good broker."
Industry insiders agree that the aggressive pricing and bidding tactics are a symptom of an unhealthy rental market, but many suggest that solutions such as new rules or new enforcement wouldn't be enough to slow down the rapid rise in rents.
"It all comes back to lack of [rental] supply. There's no silver bullet, it took us 30 years to create this problem, it will take 15 years to solve it," says Derek Lobo, CEO of SVN Canada Inc., a commercial real estate advisory firm and proponent of building new rental buildings in Toronto. "As a Canadian, as a Torontonion, I am not proud of what goes on in the condo rental market. A shortage of supply creates in essence a black market … it's like scalping tickets for a concert.
"In a world class city like Toronto, high prices are a reality, nobody wants to hear that," says Mr. Lobo, who adds that compared to some booming international centres Toronto may still be underpriced. "You can't live in New York City and not pay high rent."