Toronto real estate rentals are soaring, but that may not be the end of the story. Numbers from the Toronto Real Estate Board (TREB) show the average lease rates took a small downtick in the latest quarter. This minor decline was dwarfed by the huge annual increases in rent over the past year. The fact that there was a decline however, means rents may still be trying to figure out where they should be.
About The Rental Data
Rental data from TREB are listings available on the MLS, and do not include purpose built rentals. The first part is important, because it means these are typically agent listed rentals. The second part is of note, because purpose built rentals are often cheaper. It’s best not to view TREB’s rental data as a comprehensive look at the rental market. This information is best used by condo investors, looking to get an idea of what kind of rental yields they can get.
Average One Bedroom Now $1,970
The average lease rate of a rental had a very slight downtick from the previous quarter. The average lease rate across TREB reached $1,970, a 0.3% decline from the third quarter of 2017. The downtick isn’t all that big of deal, considering the 10.9% increase compared to last year. In the City of Toronto, the average lease rate was $2,036 in the fourth quarter. That’s a 0.19% decline from the previous quarter, but still up 11.92% from the previous year. The drop from the previous quarter seems minor, but it’s about five times as large as the decline last year.
Rental Supply Is Scarce, But It Might Be Coming
Any way you cut it, rental prices made a huge jump from last year. Jason Mercer, TREB’s director of market analysis, said “rental supply has not kept up with the increase in demand in recent years.” He added “the result has been low vacancy rates and intense competition between renters for available units.” Basically, people are bidding up prices against each other.
New rental supply may be coming however, due to the number of building completions and new AirBnB regulations. Greater Toronto is expected to see 57,000 new homes completed in 2018, a number that far exceeds the rate of household formation. Many of these units may have been bought for potential rental yield. If so, this would add a lot of units to the mix.
AirBnB’s new regulations in the City of Toronto, mean that many full-time properties would no longer be able to operate. This means they may become landlords to long-term tenants, or put their units up for sale. At the end of 2016, there were 4,817 AirBnB’s in just MLS C01, a.k.a. downtown Toronto. The large number of units, mean that there’s a good chance many of these may become rental units.
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These rents will come tumbling down once condo prices do as well. The city needs to start taxing secondary residences.
Good for condo owners, getting delivery of their units this year. They were smart enough to buy three years ago. As condo prices rise, and immigration keeps pushing more people into the city, people will only be able to rent. Once that happens, they can charge whatever they want.
Ha ha ha. Ha ha. Ha. Ha ha ha ha ha! I love your vision of hundreds of thousands of immigrants crammed into one bedroom condos, and paying thousands of dollars for it. What do you think people immigrate to Canada to live like rats. And you passing this off as reality. No immigrant is going to save you from your bad decisions. Their going to buy your four bedroom three level home at a bargain when you declare bankruptcy. But thanks for the giggles troll!!!!
Unbelievable that I’m paying $800/month for a place I got in 2015, but the average one bedroom in my neighborhood is now close to $2000. How does anyone think this is normal?
because everyone is still doing it
One wonders if rents will decline when condo prices come back to reality, or if rental yields will improve. Many people are doing negative carry on their rental properties, assuming prices will outpace their personal rent subsidy.
I think we need to get all the dumb/late money out and see what happens. Based on the debt load accumulated over the last 12-24 months, I don’t see how rents can come down without a rash of bankruptcies to ‘reset’ all the over leveraged debt. I suspect most if not all of the units coming online in the next 2 years were bought based on over inflated values. Even if prices come down, it will take half a decade for anything to ripple into the rental market and ultimately, I think rents stay high while the underlying asset drops. The future seems to be a populous that can’t save for a down payment and if we sucked a bunch of money forward to pay for the current bubble, housing prices drop, people with means buy them and keep rents high to ensure strong positive cashflow in perpetuity.. Look at new york…there are families that have owned properties since the 50s, pick more of them up during down cycles and then pay off with the cash flow.
One would think that changes in local incomes, particularly among the renter class of people, is what is the determining factor of rents, over the long term. Landlords can’t simply charge what they want. If they try, they won’t rent out their unit. I hope supply is not being artificially reduced by empty units. The new AirBNB rules may help free up some supply for long-term renters.
Or, there is a good chance all of those AirBnB will hit the resale market as their income potential drops.
There is a growing Millennial workforce that are looking to move out and live downtown where their counterparts are moving to. The shift in culture away from car ownership and commuting to living downtown is what creates the room to afford the higher rents. In many cases, 2 to 3 roommates get together and rent until their incomes grow to live on their own or they can save up to make a downpayment. It was exactly what I did in the early 2000s, only that the rent and income have scaled up since then.
Should condo prices come down, rents will follow as there will be those waiting for a correction to get onto the property ladder instead of renting. The exodus of premium tenants will drive down the upper end of the mainstream rental market and will cause a cascade effect. This is what happened in the early 2000s when I was a tenant during those times. We were able to renegotiate a $300 reduction for a 3 bedroom duplex because market rents declined as tenants moved into ownership. I followed suit a few years later thanks to the ability to save for a 10% downpayment.
I recall articles calling for a crash and shouting “bubble, bubble” and here we are 15 years later. I’m sure the run is coming to a softer landing than many of you expect (or hope). When it will happen? I don’t think it’s in the cards for 2018 based on what I’ve been seeing. Multiple offers still abound at the entry level. Even a $1.95MM Summerhill townhome sold for $2.275MM on Monday. There were 5 offers on it. Doesn’t sound like a dead market to me.