The Canadian Property Bubble Is Pushing Rents Higher As More Apartments Sit Empty

One of Canada’s frothiest market indicators surfaced — rents are rising with vacancies. Canada Mortgage and Housing Corporation (CMHC) data from their 2020 rental survey shows a sharp uptick in vacancies. Normally this is expected to bring prices down, but not in a property bubble. Rental prices continue to rise along with increasing vacancies. In some cases, multi-decade highs for rental vacancies are seeing price growth accelerate.

Toronto Rental Vacancies Hit An 18 Year High, Prices Growing 50% Faster Than Normal

Toronto rental vacancies saw a fast jump, pushing to the highest level in over a decade. The rate of primary rental vacancies reached 3.4% in 2020, an increase of 126.7% from the year before. This is the highest vacancy rate since 2005, and the biggest jump since 2002. A whole generation of the city has never seen vacancies this high. About 1 in 29 apartments were sitting empty at the time of the CMHC’s survey.

Toronto Rental Vacancies Vs Price

The rate of rental vacancies, compared to the annual change in price for Toronto.

Source: CMHC; Better Dwelling.

More empty apartments didn’t stop rental prices from climbing though. The average price of a rental apartment reached $1,536 per month in 2020, up 4.85% from the year before. Annual price growth was around 50% higher than the median over the past 10 years. More vacancies didn’t just fail to stop prices from rising. Price growth accelerated as more apartments sat empty throughout the pandemic. 

Vancouver Rental Vacancies Reached A 21 Year High, and Prices Are Still Growing

Vancouver’s notoriously tight rental market hasn’t been this well-supplied in decades. The apartment vacancy rate reached 2.6% in 2020, having increased 136.36% from the year before. It was the largest single-year increase since 2009, and put the rate at the highest level since 1999. Vancouver hasn’t seen this many vacant apartments in over two decades of data. 

Vancouver Rental Vacancies Vs Price

The rate of rental vacancies, compared to the annual change in price for Vancouver.

Source: CMHC; Better Dwelling.

Nope, that didn’t cause prices to fall either — although it slowed growth. A little. The average price of a rental apartment reached $1,519 per month in 2020, up 2.64% from the year before. The prior two years have seen over 6% annual growth, respectively. It is slowing a little, but it’s also larger than target inflation.

Montreal Rental Vacancies Jumped 80%, While Rents Grew At The Fastest Pace In Over 2 Decades

Montreal apartment rentals made the largest increase the city has seen on record. The vacancy rate hit 2.7% in 2020, up 80% from the year before. Montreal hasn’t seen decades of low inventory like Toronto or Vancouver though. It was last at this level in 2017. 

Montreal Rental Vacancies Vs Price

The rate of rental vacancies, compared to the annual change in price for Montreal.

Source: CMHC; Better Dwelling.

Montreal’s rising vacancies didn’t slow rental prices. In fact, they actually accelerated as vacancies climbed. The average price jumped to $892 per month in 2020, up 6.06% from a year before. It was the largest price increase ever, following the largest vacancy increase ever. 

It’s commonly accepted wisdom that more supply means lower prices. It’s simple — you build more, and then prices fall because of vacancies. Except in a property bubble.

Vacancies are at a multi-year high, while rental price growth even accelerates. In a speculative environment, fundamentals play little to no part in rising prices. Further deterioration, therefore, has little impact on the direction they’re heading. When the value of buildings rises more than the rent people pay, who cares if they sit empty? The value of the property increased by more than the median household income for these cities. 

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  • GTA Landlord 3 years ago

    Interest rates at this level make it more profitable to hold property empty than rent it out. The cost of maintenance is growing faster and faster, and rents aren’t covering it.

    Since equity is making a much bigger increase than the cap rate, rental income can be $0 or even negative for these operations. ,

    • Brian 3 years ago

      Why are maintenance fees rising for buildings with fewer tenants?

      • Trader Jim 3 years ago

        Insurance is a big one. Low interest rates mean lower fixed income returns, meaning higher fees for insurance, meaning higher rents.

        Made housing cheap, and now they’re watching every item around it start to become more expensive. Inflation is a heck of a drug. Although Depends are on sales, so average that out with rent, and the government probably gets 0% inflation.

        • Ethan Wu 3 years ago

          Yessir. Low-interest rates are breaking everything, but the government gets to brag about how manageable its debt is.

  • Trader Jim 3 years ago

    LOL. The solutions are just narratives. Yes, Canada needs more housing. It won’t stop price growth if the government keeps extending credit.

  • James Wilson 3 years ago

    Rents are tied to incomes, and very little else. It doesn’t matter if there’s no apartments, or 50,000,000 empty. They’ll rise with the incomes.

    Canada adopted the standardized belief housing should be 30% of income, regardless of where it is. It’s now equally affordable in the country as it is just outside of Vancouver, because geniuses took the fact 20% of income used to be spent on housing, and then decided to increase it by 10% to accommodate low-interest rates.

    The bank always gets what they want.

  • The Truth Shall Set You Free 3 years ago

    I can tell you 100% that this isn’t true. I have the data and see with my own eyes and rent has come down significantly since the pandemic and closures began and is continuing to stay at these low levels with more and more landlords offering perks to get their place rented over the next persons.

    • Ian Brown 3 years ago

      You’re most likely referencing the average asking price for condo apartments, which is what’s kicking around in the news. The CMHC uses purpose-built rental data, which is almost 30% lower than average asking prices.

      If you’re renting, go to a purpose-built building. It makes a lot more sense than trying to find a condo speculord that needs you to pay whatever negative cap they committed to.

      • Average Man 3 years ago

        Recently, my partner and I accepted we can’t afford to buy anything we’d actually want to live in, so we started looking for a new rental.

        Next month, we’re moving into our new apartment. It’s in a building we looked at three years ago, but was out of our budget. The price has dropped $250 since early 2018, and they offered us a free month.

        Purpose built buildings are 100% the way to go. I will be there until I buy or die as far as I’m concerned.

    • Paul 3 years ago

      Actually you are extremely out of touch.

      Please dip into a renters forum to get a better picture of what is going on.

      Evictions and rent increases are rampant. People are becoming homeless because they can’t afford a new place to live. Incomes are not increasing only those in fintech and the financial sector are seeing any real wage increase which is a very small percentage of the working population.

      The second thing that is happening is landlords are scared s$&tless of getting a “professional tenant” that will squat and destroy their new “toy,” so they elect to not rent out the property. In the interim this is an option for them but the only ones that can keep it up indefinitely are corporations who think they can squeeze the working class for their increases.

      I read stories about people not getting an apartment because they are single or renting as a group and not a family which is a huge mistake.

      My guess is that we will see spending in general dry up and then these empty units will start to dry up as the working class they have abandoned have moved on to greener pastures.

      James Wilson that last comment is for you since you seem to be out of touch as well.

  • Ian Brown 3 years ago

    In passing in this article they mention that one building complex has over 200 units empty. Is eery developer paying for foreign capital to return and pay higher rents?

    • Average Man 3 years ago

      That complex is a notorious shithole, but the landlords could get away with being scumbags when the vacancy rate was 0.8%.

  • Herry 3 years ago

    POS chinese…

  • RMD 3 years ago

    Can’t wait until downtown Vancouver is just blocks of empty towers. I wonder if the Empty Homes Tax in BC will start expanding to apartments.

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