A woman walks past apartment buildings in Toronto’s Liberty Village neighborhood on July 13. CARLOS OSORIO/Reuters
It’s a landlord’s market again in Toronto. Apartment rents hit a record high in the second quarter of this year as rising borrowing costs pushed residents into the rental market and more people flocked back to the city.
Across the Toronto region, the average monthly rent has risen 17 per cent to $2,533 over the past four quarters, according to industry research firm Urbanation Inc., with rent for a typical studio apartment rising 25 per cent over that period.
Rents have been rising rapidly since the Bank of Canada began raising interest rates to tame inflation. The benchmark interest rate rose 2.25 percentage points in five months, making it harder for would-be homebuyers to qualify for a mortgage, cooling the housing market and raising the specter of an economic slowdown.
According to Urbanation’s calculations, apartment owners shouldered an average monthly cost of $3,125 in the second quarter, when mortgages had interest rates of about 3 percent. The average rent for a similar apartment is $2,533. That means the average monthly rent was nearly $600 less than the average monthly cost of ownership. And that was before last week’s massive one percentage point interest rate hike.
Now that mortgage rates are near 5 percent, Urbanation said condo owners are likely paying an average of $1,100 more per month than renters. “This will provide further fuel to the rental market as more first-time buyers are locked out of the home ownership market,” the report said.
The report shows a sharp jump in rents in Toronto, echoing findings for other major cities
This relatively new group of renters is boosting demand for rental housing in a city that was already dealing with a shortage of affordable housing.
“It’s extremely challenging to secure even a semi-affordable property,” said Ruben Labowitz, a sales representative at real estate brokerage Fox Marin, who has brokered nearly 100 leases in the city so far this year. Mr. Labovitz said rental properties were attracting multiple offers and described the situation as a 100 percent landlord’s market.
In addition to buyers-turned-renters, post-secondary students are returning to in-person classes and employers are urging their employees to return to the office.
Mr. Labowitz said some of his customers were people who fled to the suburbs when the city shut down during the strict COVID-19 lockdowns of 2020. He said some of those workers were told to returned to office by fall.
Apartments owned by individual investors make up part of the rental market. Apartments, or homes that are purpose-built for the rental market, make up the rest.
The vacancy rate for purpose-built residential units fell to 1.4% in the second quarter from 5.1% a year ago. Urbanation said new supply of apartments and condos will decline due to rising construction costs and regulatory delays.
It is predicted that construction on thousands of apartments could be canceled due to rising construction and borrowing costs. According to Urbanation, about 5,000 pre-construction apartment units sold last year for less than $1,000 per square foot, which would make them economically unfeasible to build in the current financial climate.
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