Toronto Condo and Apartment Rental Market
Is the Toronto rental market one of the most promising for 2019/2020? This market is rated one of the lowest in Canada for affordability making it similar to markets in California.
Yet the outlook is for growth in rental stock. However condo apartment rental prices haven’t moderated and may not in the years ahead.
Investors will have to study hard to determine whether the Toronto rental scene is for them, yet there may be some visible opportunities for property management companies looking for new units to add to portfolios.
Strong Toronto economy or not, investors here know the demand for rental unit in the city will always be strong. Home prices are very high with the city surrounded by a green belt that restricts development. With population growth and increased tourism, demand for short term and long term rentals has been very strong.
There are concerns about trade with the US, however housing demand remains strong in most regions, the millennial age group is big, and immigration is high. The market is attractive and given that you can buy in Canadian dollars, you’ll get a 28% premium on investments. This might be the multifamily market to investigate.
Airbnb’s Influence on the Toronto Market
If Airbnb rentals interest you, there is some suggestion that Airbnb is affecting the available rental pool and inflating home prices. Toronto is a popular international destination particularly due to the low Canadian dollar vs the US dollar.
In some neighborhoods, Airbnb rentals comprise 5% of the total rental housing stock. This eats away long term rental availability, thus propping up rent prices in Toronto. And Airbnb is likely going to keep or raise its presence in the local market. Toronto is much improved as a tourist destination. There’s a large array of property management companies that serve the short term rental market in Toronto.
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The Ontario government’s fair housing act initiated rent control at 2.5 % increases yearly. That has severely impacted new rental housing construction. New leases however can set rents at whatever owners or landlords would like.
Ontario now has a newly elected premier so there is a possibility the Fair Housing Act will be abolished. Stay tuned for updates on that.
Rental Property Demand
According to Coreadvisory group, there were 13,736 condo and purpose built apartments under construction in late 2017. Unfortunately, this will deflate rental prices for 2018 and 2019.
Absorption rates for new condos is back to normal levels however and some developers are currently offering incentives such as longer times to come up with down payments.
Urbanation reports that purpose built rental apartments have undergone a resurgence (2458 units under construction with 9207 proposed). They predict a 75% growth in purpose built units which may be a record for Toronto. Over the last 10 years, only 6700 units were built, so condo rental apartments are in a growth phase. For investors and property managers, this market has some opportunities.
Investors are reportedly fatigued and avoiding new construction due to increasingly negative cash flow, which reportedly reached $424 monthly. A further issue for investors is the potential for a housing correction. However, the worries over a housing setback have been strong for years and yet nothing has happened.
It points back to a persistent lack of housing in the GTA which has made the frequent warnings prove false each year.
Record Rental Prices in Canada
Toronto recently surpassed congested Vancouver as the most expensive rental market in Canada. 2017 was a record year for rent price increases. Condo purchase prices increased 8.3% YoY and sales have decreased 16% from one year ago. More inventory and an uncertain US trade agreement might be the top reasons.
Average monthly rents surged to $2206 /mo recently, which is surpassed only by the 11.% rise last fall. That was aided by the fact that new condo availability dropped to less than 2000 units, which was the lowest level in 8 years.
“improving employment in the city, stricter mortgage-lending regulations and escalating condo prices are pushing potential buyers out of the purchase market and into rentals.” — from a report in the Toronto Star.
The average income required to buy a home in pricey Toronto is $100k, $23k more than last year and that gives the rental market a big boost, whether it’s single family homes or multifamily units.
If investing is too risky and stressful for investors now, the 2018/2020 picture may present bargain prices. These same risk point to big opportunities for good property management companies. The demand for better tenant selection, vacancy advertising, online payment and cash flow optimization, and modern property management systems is pronounced. It’s the same dynamics that has supported growth in property management software solutions.
Check out ManageCasa’s Property Management Solution, perfect for property portfolios of 20 to 100 units.
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