Why Toronto's condo rental market is described as 'ridiculous'
'Fierce' competition for few units pushes prices higher as hot housing market keeps millennials in rentals
At the end of January, Nicole Meredith got a big, unpleasant surprise.
The rent on her one-bedroom condo apartment in Queen West was jumping in just 90 days from $1,275 a month to $1,700 — a $425 spike.
"It was totally shocking," says Meredith, 25.
Shocking, sure, but not entirely surprising in Toronto's pricey, competitive rental market, where a lack of units is pushing prices to new heights as the hot housing market keeps millennials like Meredith renting longer.
Open houses and bidding wars are now just part of the game, says real estate agent Dena Schiff, who works solely with clients looking for rentals.
"The competition is fierce," she says, citing the example of a recent listing in the Bay Street and Bloor Street West area for $1,800 a month.
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The condo owner hosted an offer night. Instead of meeting agents in real life, he used FaceTime — asking each to make a "best offer."
"It was pretty ridiculous," said Schiff.
Ridiculous, you'd think, considering all that construction downtown, right?
Not quite, if you were to listen to Shaun Hildebrand, senior vice president for Urbanation, a real estate consulting firm.
"The Toronto rental market is the strongest it's been in three decades, and a lot of [it] has to do with what's been happening in the ownership market," said Hildebrand.
"There is such a lack of affordable entry-level homes for sale, and prices are rising so quickly, that more and more would-be first-time buyers are being pushed out of the market and are renting for longer periods of time."
It's a sentiment borne out by data and echoed by real estate watchers interviewed by CBC Toronto.
Condo apartment rentals dropped in 2016
The number of condo apartments rented through the Multiple Listing Service (MLS) during 2016 in the Greater Toronto Area dropped two per cent to 26,602 units, according to January report released by the firm. That's the first annual decline reported by Urbanation since it started monitoring the data in 2011.
Condo rents rose 12 per cent in the fourth quarter of 2016 compared to the same period in 2015, with the average condo now renting for $30.80 per square metre ($2.77 per square foot), or $1,990 per month, says Urbanation.
According to another analysis by the Toronto Real Estate Board, the average rate for a one-bedroom condo apartment listed on MLS in the fourth quarter of 2016 is $1,776, up 7.4 per cent from the previous year.
The Toronto rental market is out of control.- Geordie Dent, Federation of Metro Tenants Associations
That comes after successive year-over-year increases of 7.2 per cent, 6.4 per cent and 4.8 per cent for each of the previous three quarters.
"The Toronto rental market is out of control," said Geordie Dent, executive director of the Federation of Metro Tenants Associations.
According to the Canada Mortgage and Housing Corporation's 2016 data, the condo apartment vacancy rate is at one per cent — the lowest in seven years, the housing agency says.
"And because of that, rents are shooting through the roof. You go to a showing in some parts of town, you're going to have a lineup around the block," Dent said.
The low supply squeeze
You'd think with all those cranes in the sky, supply wouldn't be an issue.
But once again, Hildebrand says, not quite.
The majority of new builds in Toronto are condos. Last year 18,000 condo units completed construction, down from 19,700 in 2015, and 21,000 in 2014, according to Urbanation's analysis.
"It directly impacts supply growth in the rental market," says Hildebrand. "And that's exactly what we're seeing right now."
About 50 per cent of all new condo units are bought up by investors, who then turn them over to tenants.
There needs to be something done to encourage developers to build more rentals.- Shaun Hildebrand, Urbanation
Hildebrand says what's desperately needed is purpose-built rentals.
Last year, just 1,700 rental units completed construction, he notes.
"There needs to be something done to encourage developers to build more rentals — allowing them more density or some kind of financial incentive, reduced developer chargers or lower interest rates."
Hot housing market
And then there's that fading dream of owning a home in the city.
Stricter mortgage rules and skyrocketing home prices are keeping many millennials renting longer.
"Prices are rising by 20 per cent year-over-year," Hildebrand said.
"Each year it's getting tougher and tougher for first-time buyers to get into the marketplace, so they're renting."
The mortgage rules boil down to a stress test for all insured mortgage applications.
The test is to determine if a borrower could afford to pay back a loan if the rate was higher, so a borrower will be judged against the five-year standard rate of 4.64 per cent for a five-year loan, even though many lenders are currently offering mortgages at far less than that.
Previously, that test was only used on certain segments of the market. But as of last October, it's now in place for any insured mortgage for a buyer putting down less than 20 per cent of the home price up front.
"Partly because it's so difficult to buy a home now in the Toronto area, it's forcing, perhaps, a lot of would-be buyers into the rental market — which makes the rental market even tighter," said real estate lawyer Mark Weisleder.
Everyone wants to live here
The secret's out — Toronto's a great place to live.
"We're seeing immigration levels to the GTA at 10-year highs, population growth in the core growing very quickly, and a robust job market as well that's leading to stronger rates of household formation for the millennial generation," said Hildebrand.
That has driven demand for rentals, he says, to a 30-year high.
Census figures show the City of Toronto grew 4.4 per cent between 2011 and 2016.
But much of that growth is concentrated in large swaths of the downtown core, which has seen major new condo construction since 2011. (Some neighbourhoods grew by 50 per cent, adding tens of thousands of new residents.)
You can see the areas of greatest growth in the below image marked in red.
The Toronto Foundation's recent vital signs report notes Toronto's outsize growth since the start of the century, saying that growth between 2001 and 2014 in Toronto was equivalent to 87 per cent of the total population of Calgary in 2015.
"Forty per cent of Toronto's youth who moved here within the last five years did so for better opportunities," the report says.
But finding an affordable place to call home when they get here is a real struggle, according to a number of young people who reached out to CBC Toronto with their stories.
For Meredith, who has been renting downtown since she was 18, the crunch might now be too much to handle.
"It's definitely a possibility I won't be able to afford to live here anymore," she says.
Are you a renter or landlord and want to share your story? Email me at Shannon.Martin@CBC.ca
With files from Lauren Pelley and Lakshine Sathiyanathan