Is there any relief ahead for Toronto’s crowded rental market?

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September 7, 2012

What’s the Matter With Toronto’s Condos?

When relations with her roomate started to sour, Alice and her boyfriend thought it was a stroke of luck that the roommate decided to move out, leaving them with their Liberty Village apartment to themselves. Just one problem: their property management company wouldn’t simply let the apartment be rented under one name. Both names had to be re-approved, despite the fact that Alice had been a tenant for seven months already. Alice and her boyfriend were then told that a guarantor was needed. Shortly after they were told that even that wouldn’t suffice, and they decided to move out.

For Adam, the story was worse: trying to find a rental in the Annex, he found someone who needed to offload a lease early, but wanted to sublease to him at a higher rate than what he was paying to make a profit. This, it turns out, is illegal. The incumbent then asked for $1,000 to transfer the lease. The owner eventually broke the lease and let Adam move in—at a price $150 higher per month than the previous tenant.

With the exception of subleasing for a profit, most of these examples are legal. But they’re what Alice calls “a dick move” for many tenants, who are finding it harder and harder to find affordable housing in Toronto as the condo market sucks up all the money (and media attention). That same condo market is, in a way, responsible for the low rental vacancy rate in Toronto and the lack of new, purpose-built rental construction.

According to Shaun Hildebrand, senior market analyst at the Canada Mortgage and Housing Corporation, the current low vacancies in Toronto—falling from 3.2 per cent in 2007 to 1.5 per cent this past April—are due in large part to a slowdown in the predominant pattern of the earlier part of the decade, in which people moved from rental to homeownership, moving in to the many thousands of new condo units that were built during the 2000s. The condos are still being built, but people aren’t moving into them as quickly—leaving the existing and limited stock of rental housing full to bursting.

Which leaves those aforementioned condos. “Of the 15,000 condos built every year, about a third of those become rental properties,” says Hildebrand. “But there’s 10,000 new households entering the rental market every year.” That leaves the rental market 5,000 or so units short to meet the new demand every year, despite the building frenzy.

There are other ways for the market to pick up the slack—homeowners are busily converting basements into apartments, and there’s some relatively small number of purpose-built rentals being built—but the plain fact is that there’s not enough construction in the market to meet demand. That drives vacancies down and rents up.

The competition for apartments has led to some of the nastier elements of Toronto’s real estate market showing up in the rental market. Earlier this year, CBC reported on the trend towards bidding wars among renters, something that isn’t illegal according to an email from Ontario’s Ministry of Municipal Affairs and Housing.

The hope for the future is mixed, says Hildebrand. On the one hand, as the condo market cools Toronto is starting to see new purpose-built rental properties being proposed as the money flows to the best opportunities.

On the other hand, when Hildebrand is asked if there’s hope for the cost of renting to actually come down in the future, his answer is a point-blank “no”.

“I would assume that rent levels are going to continue to rise,” says Hildebrand. “Demand is exceeding supply, and demand is going to remain strong.”

The bright note to all this is that rents, says Hildebrand, are a sign of a growing, dynamic city. “Immigration levels are going to improve. Employment opportunities are going to improve. People’s earnings are going to improve.” More people, and more wealthy people, coming to Toronto will push rents up higher even as the market turns away from condos to purpose-built rentals.

It’s the dark cloud behind the silver lining of Toronto’s diversity: sure, the city draws talent from across the country (and the world), but everyone needs somewhere to live. And for now, we’re all bidding against each other for that space. 

John Michael McGrath

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