It’s been a year of record highs and lows in Greater Toronto, Hamilton and Niagara. While vacancy rates are at an all-time-low, the average cost of rent is rising. And while rent increases are being recorded in major cities across Canada, the hikes are the steepest in the GTHA and Niagara.
According to a new report on rental market predictions, prepared by Rentals.ca, annual rental rates are expected to rise by 6.8 percent in the GTA. That’s compared to a five percent increase in Montreal, four percent in Ottawa, and three percent in Vancouver.
There are a number of factors at play here. Below, we break down the reasons why rent is climbing in the GTA, GTHA and Niagara submarkets and how the undersupplied rental market stands to be remedied.
The demand for rental units outweighs available supply
According to the aforementioned report, roughly one-third of GTA condominium apartments are rented out. That number jumps to 50 percent for new condominiums. The demand for these kinds of units is evident by a record-low vacancy rate of 0.8 percent.
Within the GTHA and Niagara submarkets, vacancy rates are also low. According to information via the Canada Mortgage and Housing Corporation, Niagara and Kitchener’s rates sat at 2.1 percent in 2019, while Hamilton’s was 3.9 percent. While Hamilton’s rate is a less worrisome than that of the GTHA’s, information released by the Social Planning and Research Council of Hamilton indicated that 45 percent of the city’s renters are living in unaffordable housing and using a disproportionate amount of their income just for shelter.
Low vacancy and high demand makes sense. Newcomers are flocking to the GTHA and surrounding areas in record numbers, thanks to factors such as immigration, job creation, and attractive opportunities for academia, drawing in a large number of international students. Moreover, the GTHA has seen steady growth in key rental demographics, which expands to include individuals aged 25-44, as well as immigrants and non-permanent residents.
The upshot here is that efforts are being made to meet demand, with eight buildings (2,458 units) under construction and 37 (9,207 units) proposed for construction, according to a new report via Urbanation. These numbers don’t include pre-construction condo projects that might convert into rentals. Despite rising supply of purpose-built rental units, demand is rising at a rate that supply won’t realistically meet. According to a report by RBC, Toronto will have to build an average of 26,800 units a year to bring vacancy rates up to a healthy percentage of three percent.
More families are turning to rentals rather than home ownership
Thanks to strong fundamentals, such as immigration and steady job creation, the population of the Toronto area is forecasted to hit eight million within the next ten years. The GTA alone welcomes more than 100,000 immigrants a year in need of housing. According to a survey commissioned by Royal LePage, newcomers to Ontario tend to wait three years on average prior to purchasing a home, leaving many of them to seek rental properties in the multifamily segment.
While newcomers play a significant role in driving up demand within the rental market, families across the board are turning to renting rather than home ownership. In part, this is due to general lack of affordability. And new mortgage rules haven’t helped any. As of 2018, the mortgage stress test was introduced, requiring all Canadian homebuyers to prove their incomes and debts—even if they’re willing to make a down payment of 20 percent or more. In many cases, stricter mortgage rules ensue higher interest rates, rendering the home ownership an unrealistic prospect. For many families, the rental market is simply the most affordable option.
Newer purpose-built rentals aren’t necessarily affordable
While the construction of purpose-built supply is underway, newly completed rentals aren’t necessarily the solution to the undersupplied rental market. Unlike traditional apartment buildings, new-build rentals boast luxury-style amenities, such as gym facilities, party rooms, dog parks, concierge desks, and rooftop patios. Unsurprisingly, renting these types of properties tends to come at a higher cost, contributing to the growth of average rents for the market. While luxury purpose-built rental projects are attractive to baby boomers and young professionals, what the region desperately needs is affordable rental units that can accommodate families.
When it comes to rent increases, where is the onus?
While there’s little dispute that rising rents pose a problem for a growing number of people in the GTHA and surrounding areas, it’s important to note that landlords play a small part in the big picture. Though the tightened market has led landlords to raise their rents, their logic for doing so is grounded in fluctuations of supply, demand, and policy. As such, solutions to the undersupplied rental market need to be presented at a legislative level. This could include anything from developing more “unicorn sites” to bringing Toronto’s outdated zoning codes up to date to optimizing the city’s development approval process.
In the meantime, steps need to be taken on the part of the government that will ensue immediate impact and supplement the supply that the GTHA so desperately needs. Though there’s hardly a one-size-fits-all solution to the problems facing the GTHA’s rental market, according to Tony Irwin, president of the Federation of Rental-housing Providers of Ontario (FRPO), something the municipal government could do in the interim is expedite approvals for land. Says Irwin, “By leveraging these sites and fast-tracking them, we could put a dent in the problem.”