In April, average asking rents for all residential property types in Canada remained near record highs, reaching $2,188 per month, marking a 9.3% increase compared to the previous year. However, there were indications of easing in certain markets within the Greater Toronto and Hamilton Area (GTHA) and surrounding areas, particularly in 1-bedroom and, in some cases, 2-bedroom units on a month-over-month basis. Conversely, in the Vancouver market, there were some monthly increases but declines on an annual basis.
According to Urbanation, rents in the GTHA fell by 7.4% from the third quarter of 2023 to the first quarter of 2024 – the largest decline in 15 years. It attributes part of this softening to the newly completed supply entering the market. Over the last four quarters, more than 23,000 new condo units were registered, but this relief is not expected to be ongoing.
CMHC’s annual rental market survey indicates there was an increase in rent growth in most markets, which is consistent with a decrease in vacancy rates. CMHC examines both turnover and renewal rental rates. It notes that rent pressure in the turnover market is affected by market demand. Markets with low vacancy rates and turnover resulting from renovations and repairs can see pressure on rental rates.
CMHC attributes the strong rental demand to several factors:
- Increased immigration
- Employment growth in the 15- to 24-year-old age group
- Low affordability and a higher tendency to rent
While the federal government has taken steps to slow immigration, the time needed to add new housing stock means tight rental availability will persist for some time. Even if rental rates do come down, housing affordability will remain challenging for first-time buyers, so transitioning renters to homebuyers will provide only modest relief. Additionally, the rapid growth in international students has further accelerated demand for housing, leading to rent increases.
The CMHC report notes arrears rates for rentals averaging around 7.8%. In Toronto, the arrears rate was notably higher at 19.6% compared to Vancouver’s 4.1%. Although not discussed in the report, the backlog at the Ontario Landlord and Tenant Board is a significant factor contributing to this arrears rate. The Tribunals Ontario Annual Report from March 2023 revealed a backlog of 53,000 case files as of that time. This backlog is likely one of the factors motivating large landlords to sell some of their affordable housing units to social housing groups. While rents may not increase rapidly in these buildings, effectively managing this housing stock without government assistance will be challenging.
After the federal and provincial governments announced the removal of HST from new rental housing construction, purpose-built rental construction starts rose to a 10-quarter high of 2,147 units in Q4-2023. This brought total GTA rental construction starts to 5,085 units in 2023. Nationally, purpose-built and condo starts saw a 7.3% increase in 2023. However, despite the federal programs, it is doubtful that the current momentum will be sustained.
The sale of new condo units in the Greater Toronto market has dropped to a 15-year low. While some developers are deferring complexes that were already in progress, there has also been an increase in projects going into receivership. Many condo projects have been shelved due to challenges in reaching the pre-construction sales levels necessary to secure bank funding. Although this won’t impact supply in the near term, the Greater Toronto and Hamilton Area (GTHA) could potentially face a supply gap five years from now.
Nationally, the rental market is facing low vacancy rates, and there’s no quick solution to increase the rental stock. Transitioning from renter to homeowner is challenging due to affordability issues in the housing market, and efforts to bolster the rental stock won’t produce significant results for years. While changes to immigration might ease pressure on the rental market, rents are expected to remain high for some time. Communities with large international college student populations, like Brampton, might experience a decrease in demand as colleges reduce student intake. However, measuring this impact will be difficult as it’s likely to affect the secondary suite market, where there’s little to no available data.
Independent Opinion
The views and opinions expressed in this publication are solely and independently those of the author and do not necessarily reflect the views and opinions of any person or organization in any way affiliated with the author including, without limitation, any current or past employers of the author. While reasonable effort was taken to ensure the information and analysis in this publication is accurate, it has been prepared solely for general informational purposes. Any opinions, projections, or forward-looking statements expressed herein are solely those of the author. There are no warranties or representations being provided with respect to the accuracy and completeness of the content in this publication. Nothing in this publication should be construed as providing professional advice including investment advice on the matters discussed. The author does not assume any liability arising from any form of reliance on this publication. Readers are cautioned to always seek independent professional advice from a qualified professional before making any investment decisions.
