The price decline that everyone was waiting for in Toronto happened, just not in the resale market. For the first time in years, average rental prices have dropped. Year-over-year rental prices declined in June by 6.1%, according to this study https://rentals.ca/national-rent-report. We are used to housing prices and rental prices rising in tandem, so what is going on? Here are two reasons:

1. JOB LOSS: The rental market tells the story of COVID-related job loss much better than the resale market. Unfortunately, much of the economic shut-down disproportionately affected Toronto tenants. Renters in Toronto are more likely to be employed in the service industry economy and have a much higher job loss rate than high-wage positions in Toronto. For this reason, many tenants are moving back in with family or are deciding to stay put in their existing apartment and putting off plans to upsize

2. MORE SUPPLY: The province banned short-term rentals, which affected many landlords who only rent their condos out on airbnb. Even with the province opening up again, many of those landlords are choosing to offer their units for more long-term tenants. More units on the market means prices go down.

 

What is the takeaway for the housing market? Toronto is fundamentally an end-user market. If this was a city full of investment properties, these changes to rents would prompt many investors to put their properties on the market for sale. This in turn would bring down housing prices. With the exception of a few downtown condo buildings known for hosting many airbnb units, our market hasn’t been flooded with new listings because investors are trying to get their money out.

Will lower rental prices deter investors from buying rental properties at higher prices? Maybe, but probably not. It has been very difficult to break even on a rental property in Toronto for a few years. Most investors are happy to simply hold on to property in Toronto and watch their investment grow with the market increases while letting a tenant cover most of their costs. With house prices still rising, this practice will likely not change.

 

Overall, this is good news for Toronto. In order to be a vibrant and diverse city we need a good supply of affordable rentals downtown. Getting rid of short-term units will go a long way to help the stability of the rental market in this city.

Robyn VanderVennen
The Kim Kehoe Team