Toronto rents rise at fastest pace in a decade: report

Rents are climbing in the Toronto area at their fastest pace in more than a decade as vacancy rates fall, according to a new report released Tuesday that also warned of a worrying decline in rental construction.

Analysis by market research firm Urbanation found that the vacancy rate for purpose-built rentals in the GTA, which widened to 5.1% in the second quarter of 2021, has tightened to 1.4% in the same quarter this year, slightly above the 0.9% cent at the start of 2019.

Rents are also rising at the fastest rate since Urbanation began tracking them in 2010, says Chairman Shaun Hildebrand, as prices rebound rapidly after the pandemic-era tumble.

It’s the second straight quarter that price growth has topped the research firm’s previous records, with condo rental prices now up 16.7% from the same period last year.

« Rent growth itself was exceptional, » Hildebrand told the Star, pointing to factors ranging from falling unemployment rates to population growth. Another important factor, he argued, was the number of households being priced out of property and rising mortgage costs.

There was a record difference between rental and owning costs last quarter, he said. Using an average one-plus-den or two-bedroom condo unit as an example, he said a renter would spend about $2,533 per month in the GTA, while the monthly cost of owning the same unit condominium, assuming a 20% down payment, reached $3,125 – a gap of almost $600.

It only got worse in July, he said, as interest rates rose. When potential first-time buyers are barred from ownership, he said it only puts further pressure on rental supply.

Small units experience the most dramatic price increases. While studio condo costs have dropped significantly during the pandemic, Urbanation found they’ve increased 25% year-over-year. The average cost to rent one in the second quarter of 2022 was $1,895, the company found.

One-bedroom condo rental prices jumped 19% from a year ago, with the average price reaching $2,182 per month over the past three months.

Studios still cost a hair less, on average, than they did in the same quarter of 2019 – down 1%.

However, one plus den units are 6.4% more expensive than three years ago, while two plus den units are up 9.4%. According to Urbanation, it’s a trend related to renters looking for extra space during the pandemic, as many people were working from home.

But while demand is strong, new construction has all but stopped, says Urbanation.

Over the past year, there have been an average of 1,916 rental housing starts per quarter, according to its report. From April to June, there were just 87. It was the biggest quarterly drop since Urbanation began keeping tabs in 2015, despite a record number of units in the pipeline.

Long-term interest in rental housing continues to grow, writes Urbanation, with inventory of more than 103,192 proposed units not yet under construction, up from 88,252 a year ago.

And there can be volatilities in the data, he said. But with rising construction costs, rising borrowing prices and other factors reshaping the market, Hildebrand worries about the impact.

« With housing affordability at generational lows and continuing to deteriorate, it is concerning to see rental demand and supply deviate so sharply, » he wrote in the report’s release.

In Toronto, the consequences of the changing market are already being felt. Toronto Metropolitan University recently scrapped plans for a nearly 600-student residence hall, with the school citing a « drastic » increase in construction costs. A Scarborough non-profit says one of its affordable rental housing projects is also at risk of being frozen as interest rates rise.

« We’re not replacing anywhere near the number of units we’re finishing right now, » Hildebrand said, noting that the mismatch could thin the GTA’s rental housing pipeline.

« It leads in the wrong direction. »

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