Rents soar across Canada, even in cities that were once affordable
As per a latest article in Huffington Post Canada, rents have jumped by double digits in 2018 in 17 of 24 Canadian cities, with some of Canada’s affordable markets seeing the largest hikes.
Toronto has retained its position as the Canada’s most expensive rental market for one-bedroom units in December, with asking rents rising 11.9% in a year, to a median of $2,260. Two-bedroom rents rose 13.1% to $2,850 per month.
In comparison, rents in Mississauga grew by 11 % in December 2018 ($2,050) over December 2017 ($1,850) for 1 BR units and by 9% (from $2,200 to $2,400) for 2 BR units.
Many smaller and mid-sized Canadian cities closer to Mississauga also saw considerably faster rent jumps, with hikes in the 15% range in London and St. Catharines.
|1 BR Monthly Rents in December 2018 Across 10 Canadian Cities|
|City||Dec 2018 Rent ||Change from Dec 2017|
|St Catharines|| $1,200||15.4%|
Why are rental rates rising in many cities?
Key drivers of this include mortgage “stress test” that was put into place at the start of 2018 and rising interest rates that increased monthly mortgage payments.
Both the stress test and an interest rate hike were implemented to prevent Canadian home buyers from overextending themselves on their mortgages. One additional outcome is that many potential home buyers stayed put in rental housing in order to save up for a larger down payment.
Canadian population growth is another reason behind soaring rents. While the federal government has increased the quota of new arrivals to 300,000+, real estate market and housing development to cater to this increase in demand has not kept up pace with the population growth. As newcomers tend to rent rather than buy outright, this puts more pressure on the rental market than as opposed to the sales market, and there is an acute shortage of rental units.
GTA Real estate has created many self made millionaires in the last decade. And with soaring rents, it makes all the sense to buy and not rent.
Developers are slowly but surely adding rental apartment construction in Toronto and Mississauga. In fact, Toronto is witnessing the highest rate of purpose-built apartment construction the city has seen in three decades. However, many experts say that the upward pressure on rental rates will continue in 2019, in Toronto, Mississauga and elsewhere.
Rental Rules 2018
As per Ontario Rental Rules that came into effect in 2017, the permissible rent increase was capped at 1.8% for 2018. While the new Act provides significant protection to renters, landlords are allowed to raise the rent when their units become vacant. Landlords also continue to have the ability to apply to the Landlord Tenant Board for above-guideline increases. However, they must show that this is to cover extraordinary increases in operating costs or capital expenditures. More details can be found on the Landlord and Tenant Board site.
As illustrated in our 2018 Rental Market Report, the average rent growth exceeded the provincial guideline of 1.8% for 2018 as tight rental market conditions allowed landlords to charge new tenants significantly higher rents. High rent increases also made some existing renters to stay put at their current rental units. At the same time, high rents have encouraged individual investors to buy condos for the purpose of renting.
Rent control is lifted on certain units in 2019
As a result of changes made to Ontario Rental Rules on November 15, 2018, every new rental unit in Ontario created on or after November 15, 2018 will no longer be subject to rent controls. This means that the landlord will be able to increase the rent more than the government increase in 12 months. Source: Mark Weisleder, Real Estate Lawyer.
This move will see a revival of investor interest in builder new or pre-construction condo projects.