Market Insight for July 21

Rents for GTA condos continue to soar, hitting an average of about $2,800 a month in the second quarter of 2023, an almost 32 per cent rise over the last two years. And the spike in rents has been even higher for micro units under 400 square feet.

“I’d say it’s alarming as this growth is occurring off of record highs from a year ago,” said Shaun Hildebrand, president of Urbanation. “There is a point where, and I think we’ve already reached, that the market becomes unaffordable and you start to see some resistance, and unfortunately the only relief is people leaving the city.”

The vacancy rate for purpose-built rental buildings is up slightly from 1.5 per cent a year ago to 1.9 per cent, but still very low.

Hildebrand blames sky-high rents on a “confluence of factors” including a strong job market, rising interest rates, high home prices that shut out first-time home buyers, and immigration. As well, more people are doubling- and tripling-up with roommates to be able to afford more.

If tenants want to live alone, they’re going to be shelling out for even the smallest spaces. Micro condos had the highest annual rent growth, of 15 per cent in the second quarter of this year, with an average rent of $2,121.

“I think this is a direct correlation with just how expensive the market has become,” said Hildebrand. “There really isn’t anything that runs for under $2,000 a month anymore.”

Meanwhile, they can build more micro units — too small for a child or even a pet — for a higher price per square foot. This does result in more supply, “but on the other hand,” said Hildebrand “is it really the type of supply that we need for the long term?”

There were 17,542 new condo units registered during the 12 months ending in June 2023, and nearly 37 per cent were rented through the real estate board, up from 31 per cent at the same time last year.

This suggests, said Hildebrand, that despite some investors losing money due to rising mortgage payments, some are hanging on as a “long-term investment.”

What happens in this environment is that tenants become “house poor” spending more than 50 per cent of their income a month on rent with little left over for basic necessities. They also end up taking on “peculiar” arrangements like staying in the same place as a partner after they’ve broken up or dividing a one-bedroom among three roommates.

Condos that were built after 2018 are not subject to rent control in the province, meaning that in the new towers going up “fast and furious” across the GTA tenants can be “economically evicted,” through huge yearly rent hikes.

The move toward smaller units, reflects the fact that condos make up a big chunk of the rental stock in the region, and they are increasingly not a place to raise a family or live long-term.