Last month, the CMHC released their annual Rental Market Report, providing insight and in-depth analysis on Canada’s major real estate hotspots. The report reveals that last year’s demand for rental housing far outpaced the increase in supply, causing the national vacancy rate to decrease significantly compared to 2021. This imbalance stems from a high number of immigrants coming to the country, the increased cost of homeownership, and international students returning to campus.
Let’s take a look at what this means for investors in the year ahead.
Canada Saw Record-Breaking Numbers in 2022
Throughout Canada, the vacancy rate in the purpose-built rental market reached 1.9% in 2022. This is a steep decrease from 3.9% the year before and the lowest rate we’ve seen since 2001. In fact, the average vacancy rate for purpose-built rentals between 1990 and 2021 was 3.2%. The vacancy rate in the condominium apartment market was even more impressive at 1.6%.
In terms of rent, the average two-bedroom purpose-built rental unit cost $1,258 a month, an increase of 5.6% from the year before. The average rent for a two-bedroom condominium unit was $1,930, a significant jump from $1,771 in 2021. Rent increased an average of 18.2% in two-bedroom units given to a new tenant, whereas the rent for units without turnover increased by 2.8%.
The decreased number of units available for rent and the hikes in rental prices have a common driving force: strong supply growth being surpassed by even stronger demand growth.
Renting is More Popular Than Ever
The strong desire to rent in Canada is a result of:
- Relaxed COVID-related travel restrictions leading to a higher number of immigrants being welcomed by Canada, with most coming to Ontario, British Columbia, and Québec. New immigrants are more inclined to rent than buy homes.
- Easing restrictions also triggered more students, including international students, to go back to on-campus learning and more professionals to return to working in-person.
- Those between the ages of 15-24, another demographic with a higher tendency to rent, have been experiencing stable employment conditions, supporting the demand from young households to rent properties.
- Mortgage rates and relatively high prices have caused the cost of transitioning to homeownership to shoot up, leading many to choose to continue renting. The national turnover rate fell from 15.5% in 2021 to 13.6% in 2022, showing that tenants are unwilling to vacate their units.
Toronto is Hotter Than Ever
Toronto and the surrounding GTA continue to be one of Canada’s most competitive rental markets. The vacancy rate in the purpose-built rental market reached 1.7%, down from 4.4% the previous year, and it was a mere 1.1% in the condo market.
Moreover, while hefty rent-growth was seen across Canada, there was a particularly large jump in Toronto real estate prices. The average rent for two-bedroom purpose-built units in Toronto reached $1,765 last year, an increase of 6.5% from the year before. In 2021, the average had only gone up by 1.5%. This is one of the highest statistics in the country, only second to Vancouver at $2,002, and significantly higher than the national average. Plus, the average two-bedroom condo rate rose to $2,671. Furthermore, the average rental rate for new units entering the market was 45.4% more than the average price for all units.
That’s not all. The City of Toronto showed the widest gap between rent growth in units where there was a tenant turnover and units where tenants stayed the same. The rent growth was 29.1% in units that experienced a turnover and 2.3% in non-turnover units.
The lack of available rental properties and high rental costs in Toronto and the GTA are a result of the stronger demand for housing in this area compared to the rest of Canada. According to Statistics Canada, Ontario saw the highest number of immigrants in the past 50 years. On average, 80% of new migrants to Ontario stay in the GTA. Additionally, Toronto is a major employment hotspot and is home to some of Canada’s most prestigious universities, including the University of Toronto and Toronto Metropolitan University.
These statistics reveal an urgent need for new homes.
New Developments Are Being Built at a Rapid Rate, but Will It Be Enough?
Between October 2021 and October 2022, there was a significant increase in rental supply, with the rental market growing by 55,000 purpose-built units, or 2.6%. This was the highest increase since 2013, but it was still not enough. The rental demand was even stronger, with the number of occupied units rising by 79,000, or 3.8%.
Toronto saw the largest discrepancy between the growth in demand and the growth in supply. The number of purpose-built rental units in the GTA rose by 2.1% or 7,175 units, which was the strongest increase in recent decades, driven by increased rental completions. Despite the rise in supply, demand continued to outstrip it.
Newly constructed condominiums play a key role in growing the rental stock, but fewer units were completed in 2022. The rate of condominium completions dropped by 23% to just over 17,000 units in the 12 months ending May 2022, which is the cut-off point for CMHC’s survey. Supply chain issues and labour shortages, which affected the construction industry over the past year, were the main reasons for this decrease.
What Does This Mean for Investors?
Canadian real estate, especially properties in Toronto and the GTA, have been a reliable investment opportunity for decades and will continue to be so for years to come.
While high interest rates have made many investors wary of the housing market, savvy investors can take advantage of lower prices and increased incentives from developers. The CMHC annual Rental Market Report demonstrated that rental properties are in extremely high demand, and being a landlord is only becoming more profitable with time. Buy today and reap the benefits of high investment returns tomorrow. Click on the link below for more information on how to invest in GTA real estate.