The reality for renters right now: you're going to need to cough up at least $1,500 - $2,000 a month (plus utilities) for a one bedroom condo rental unit in Toronto. On average, this will get you between 500-700 square feet of living space.
There has been talk in the news recently about the fact that monthly rent has increased over 10% during the last two years. According to the CBC article, the average rent is now $1,856/mth or $2.33/sqft. In comparison, at the beginning of 2011, the average rent per square foot was $2.11.
Why Are Rents So High?
- When the mortgage rules changed last summer, a lot of would-be first time home buyers felt like renting might be the more financially feasible option for them, driving more prospective renters into the marketplace.
- The vacancy rate is around 1%, meaning that there is incredibly high demand for rental units. Demand is especially high for rentals in good locations, close to public transit. And as we know, when demand is high prices often increase. Landlords either price their rental high to begin with, knowing someone will likely be willing to pay their price out of desperation. Or they price their rental in line with average market rent, but the rent ends up getting pushed upwards through a bidding war.
- Shiny new condos are not subject to rent control guidelines. Any rental property on the market after late 1991 is not subject to rent control. This means landlords can set whatever price they want for their rental. If someone is willing to pay it, they are allowed to charge it. Over time, this has helped to continue the rise in rental prices, in downtown Toronto especially.
When Will Rising Rents Stabilize or Decline?
- Basic economics says that rents likely won't decrease or at least stabilize until there is a decrease in demand or an increase in supply.
- When demand decreases: Last summer after the mortgage rules changed, many would-have-been first time home buyers retreated to the rental market with the goal of saving up a larger down payment. For many of these people, renting was a short term plan, with the ultimate goal being to purchase their first home. When these buyers come back to the housing market (which we are already starting to see), we will likely see a decrease in demand for rental properties.
- When supply increases: There are thousands of new condo units currently being built. Once these are ready, many of them will likely go up for rent as opposed to actually being occupied by their owner. With an increase in the number of new rental properties on the market, renters have more choices. When supply is high, landlords could be motivated to lower their rents to help entice prospective tenants.
If you're wondering the difference in cost between renting vs. buying vs. staying at Mom and Dad's, drop me an e-mail and I could be happy to help run the numbers.
Think you might want to buy instead of rent? Check out my 8 step guide for How To Buy Your First Home.
Toronto real estate: Condo rents hit record high as would-be homebuyers stay on sidelines (photo in my post is from this article)