Toronto's sizzling housing market is spilling over into the region's rental market, pushing up rents to new records as tenants fought over a shortage of rental listings.
Average rents for condos rose 11.7 per cent in the fourth quarter of 2016, compared to the same period a year earlier, hitting nearly $1,990 a month for a typical 719-square-foot condo, according to new data from Urbanation Inc., a consulting and market research firm that focuses on the Greater Toronto Area's condo market.
Rents rose the most in the Toronto city core, where condos rented for an average of $2,134 a month in the last three months of 2016, up 12 per cent from a year earlier. Average condo rents rose 7 per cent to $1,857 in the inner suburbs of Etobicoke, North York and Scarborough. They rose 6 per cent to $1,739 in the 905 region around the city.
Average rents have grown at their fastest rate since Urbanation started tracking the condo-rental market in 2011. Last year represented a "dramatic acceleration" from the 4.2-per-cent rent-price growth recorded during the same period in 2015, the market research firm said.
Renters have started to feel the effects of Toronto's extremely hot housing market. Average resale home prices jumped 17.3 per cent in the GTA in 2016, while condo prices surged 15 per cent.
A widening gap between the price of single-family homes and condos has pushed many first-time buyers into the less-expensive condominium market, while the disparity between the cost of owning and renting has discouraged some tenants from becoming homeowners, Canada Mortgage and Housing Corp. said in a recent Toronto market analysis.
"For the first time in many years, the market was tighter for condominium apartment than for single-detached homes," the Crown corporation wrote.
The strong growth in condo prices has also encouraged many owners to sell their units rather than rent them, and convinced many tenants to stay put, Urbanation said, pushing the number of rental condos listed on the Multiple Listings Service down an annualized 8 per cent in the final quarter of last year.
The typical condo spent just 13 days listed on the rental market in the fourth quarter of 2016 before finding a tenant, down a full week from the last three months of 2015.
"The undersupply of rentals in the GTA continued to worsen throughout the year, causing rents to surge alongside home prices and further deteriorating housing affordability across the region" wrote Shaun Hildebrand, Urbanation's senior vice-president.
Other factors have also lit a fire under the GTA rental market, including a rising number of unemployed Albertans moving to Ontario for work in 2016.
The Toronto region also saw an increase in new permanent residents moving into the region in the first half of 2016 after reaching record lows in the prior year, CMHC said. The federal housing agency found that the international-student population has also doubled in the past six years.
Meanwhile, a widespread construction-trades strike across Ontario, in the spring of 2016, caused work on many housing projects to grind to a halt and aggravated a shortage of newly built rental condos and apartments coming onto the market.
In an open letter to home buyers published on its website, Tarion Warranty Corp., which administers Ontario's new home warranty, called the delays caused by the strike "an unparalleled situation" that has reverberated across the housing market and dramatically delayed completion timelines for many projects.
"The sheer scope of the industry-wide strikes and their continuing impact on the delivery of finished new homes and condominiums is extraordinary," the agency wrote.
Some analysts expect many of the conditions that fuelled the GTA's hot housing market last year to subside in 2017, putting less pressure on rentals.
Encouraged by the strong growth in rents, more developers are opting to build rentals rather than condos. The number of applications filed by developers for rental apartments had more than tripled by the fourth quarter of 2016 from a year earlier, to 27,812, Urbanation said.
A surge in new homes under construction in 2016 – the majority of them condos – will also help ease tight market conditions this year, CMHC said.
"The high number of condominium apartment units under construction points to higher completions over the next couple of years, which will add to supply (in terms of both new listings and unsold units) in the future," the agency wrote.
What's more, stricter new federal rules for insured mortgages introduced last year are expected to curb home-price growth in the GTA, helping to slow the overall housing market next year, wrote Bank of Montreal senior economist Sal Guatieri. "We expect Toronto home sales will come off their highs this year, while price growth will simmer down to the mid-single digit range."