Soaring Toronto real estate prices are hitting the rental market. Numbers from the Toronto Real Estate Board (TREB) show that the second quarter of 2017 saw a massive increase in price from the same time last year.
Listings Are Falling Faster Than Demand
There was increased demand for rental units across Toronto in the second quarter. TREB stats show that 8,553 rental leases were signed, a slight decrease of 0.1% from the same quarter last year. The number of listings fell to 11,890, a decline of 3.1% during the same period. This means 72% of inventory was absorbed, slightly higher than the 69% absorbed during the same time last year. This would create upward pressure on prices, and it did.
Average Lease Prices Are Up… A Lot
The pressure from absorption wasn’t exactly proportional to the increase in prices however. The average price of a one bedroom lease signed came in at $1,910, a 17% increase from the same time last year. Bachelor units rose to an average lease price of $1,588, a 15% increase from the same time last year. That’s a touch over the Consumer Price Index for inflation, which only came in at 1% last month.
Much Higher Than The Year Before
If you’re not a real estate pro, these numbers may not really mean much, so here’s some context. Rental prices typically don’t rise at around half the rate of real estate prices, they climb closer to inflation – if that. For example in the second quarter of 2016, a one bedroom apartment averaged a lease rate of $1,642, which was a 0.42% decline from the year before. In 2015 the average one bedroom went for $1,649, a 0.06% increase. So the steep climb is a more than historic norms. Just a little.
Rental prices have stalled for the past few years, but such a quick rise is interesting. Were landlord expectations set by soaring real estate prices? Are new landlords buying secondary units, and passing on the rapid rise in prices to tenants? Or was this just delayed increases that landlords have previously held back? We’ll crunch some more data, and see what we can find out.
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Rental prices are up because resale prices are up, they are all linked.
I really appreciate the work done on this site. The analyses and quality of communicating, in the articles I have read so far, are thorough and eloquent.
The new legislation regarding the Residential Tenancies Act is probably playing a significant role. Since rent control applies to all residential properties now in anticipation of not being able to raise rates above the guidance inflation rate, the rates are being set higher from the outset to filter out the worst tenants. Supply will only be more constrained going forward. Also, to be fair, the rental rates have been severely depressed over the last decade. When you look at the ROI from rent (not appreciation).
Toronto has many factors at play but if anyone cares to look at the new housing coming on line (not housing starts which lag 2-3 yrs) versus the number of people moving into the city every year you will see that for more than 5 years there has been a shortage in housing. These issues will only be exacerbated because potential supply of housing in the GTA is only becoming more constrained and the flow of people into the city will not abate as there aren’t many job opportunities outside major urban centers and immigrant groups like to move to where there are established immigrant groups for support and networking. These fundamentals rarely find coverage in the mainstream media. Unfortunately real estate is one of those aspects of the economy that receives rock star status but because the real estate market in inherently complex only scant treatment of these issues is made on the mainstream media sites – too much hype and very little substance.
Also, legislatively, Toronto is an island surrounded by municipalities East and West, water to the South and the greenbelt to the North. Only an economic crash will bring down prices but that would be bad for everyone.
[…] home prices come down, or rents soar? There’s some indication that rents have started climbing in places in like Toronto. It’s unclear if incomes are rising fast enough to support such massive rent increases. But […]