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Toronto Condo Rentals, Price Surge or Slump?

Toronto Condo Rentals, Price Surge or Slump?

The state of Toronto's condo rental market again made headlines over the last month as the results of 2016's first quarter trickled in along with more robust 2015 analytics. Yet, despite a consistent picture on paper of skyrocketing condo rents, that picture is, at times, inconsistent with renter & landlord experience of the market, on the ground.

So, are condos for rent in Toronto truly in short supply creating a landlord's market or are there still deals to be found for renters? And if so, how should renters go about their search?

Today and next Monday, in this special two-part series on the condo rental market in Toronto, I'm going to take you through the latest stats and studies along with my top tips for scoring a great rental at reasonable, market rates.

Are Toronto Condo Rentals More Expensive Than Ever or Are Prices Actually Softening?

Let's kick off this discussion with a sample of news headlines from the last 18 months. The most recent headlines are along this vein:

    And just one year ago, here's what people were being told:

      CBC, Toronto Condo Market Getting Better for Renters, April 15, 2015

    And a year before that:

      The Globe and Mail, Why Rents Are Softening and What's in Store for Toronto's Condo Market, August 19, 2014

    A quick read of the some of the comments sections of these media sites reveals an equally split perception of the market.

    Some renters are stating that they hate their current units but because their rent is reasonable, they can't afford to move. Yet others saying they've been given a bigger & better unit in the same building for the same price every year, or a month's free, as an incentive to stay.

    For every renter who's feeling stuck in their current apartment, not able to find anything better on their budget due to skyrocketing condo rents, there are renters who complain that once they left their rental, the landlord actually had to decrease the rental price to be more competitive, unable to find a new tenant at the price they attracted several years ago.

    It's no wonder why so many Toronto renters are left scratching their heads, unsure of what's really happening with Toronto condo rentals.

The truth is that the average condo rental price is higher than ever and continuing to increase at a rapid pace. Vacancy rates are also low. It's not just a seller's market in the re-sale market; it's also a landlord's market when it comes to rentals.

This is because - while condos have shot up in unprecedented numbers in recent years - there's been a huge increase in first time buyers, down-sizers and, likely, foreign investors (we'll know more about the true number of foreign investors within the next few years as StatsCan conducts research funded through the 2016 Federal Budget ).

The market is absorbing all of this new stock and, in particular neighbouroods and buildings where supply is short, there's been a frenzy of bidding wars on condos. This has pushed condo purchase prices up for investors - a cost that they then have to pass onto tenants via rising rents.

The bottom line is that this is very much a landlord’s market. There are always people with stories that contradict the trends but the reality is, it’s getting tougher to find a great apartment and when you do find one, it’ll likely come with a hefty price tag relative to previous years.

But (and there is a huge "but" here), averages are just that, average, and not representative of every building and every neighbourhood. And that's why you'll get these discrepancies between media headlines and personal stories of some renters who are being offered incentives by landlords to stay.

The other reason for the discrepancies between headlines and some people's on the ground experience is that the studies media stories are based on often have data sources and methodologies that aren't representative of the whole market.

I want to caution readers that not every study about the Toronto condo rental market is accurate and fulsome. Some studies look at MLS listings only, others may be rental company-generated, looking at sales coming only from their particular office. There's also typically no differentiation between furnished versus unfurnished, all-inclusive versus units where bills are extra and so the reality is, we just don't have the facts to paint a complete picture of Toronto's rental market.

You have to look at all real estate studies with a critical eye and ask yourself, what's the source data here? Sample size? Who's conducting the study? How does it compare to TREB's reports which, although they're limited to rentals sold through the Multiple Listings Service, are much more precise and fulsome than most other studies?

All of that said, we can get a pretty good sense of what's happening with prices by looking at TREB's data and some of the more robust independent studies. Let's take a look at the most recent stats.

The Rising Average Cost of Toronto Condo Rentals

The average rental price of a condo in Toronto is higher than it's ever been. That's a hard fact that renters can't escape.

Our team of Condo PROs primarily work with clients to buy and sell condos in Toronto and surrounding areas. But we do take on rental clients whenever possible. I've been working with a number of rental clients this year and although their budgets and wish lists are different, one thing is consistent - client frustration with the size and quality of unit their budget affords them.

On the flip side, we also work with many investors who are equally frustrated by the high costs of condos for sale in Toronto coupled with rising maintenance fees in many buildings and, for buildings built before 1991, limitations on annual rental increases.

A survey by Urbanation looking at the first quarter of 2016 reveals the following:

-We're experiencing the highest average rental price in Toronto's history - $2.53/sqft for an average rental price of $1,891 / month. That's a 6.8% increase over the same period last year.

-A good rental listing won't last long and, often, the listing price is just a jumping off point for negotiations. The Urbanation report showed a decrease in the average days on market from 27 days in 2014 to 23 days in 2015 and an increase of 59% in rental units that were leased above the initial asking price.

-The report also suggests a greater market constraint than previous years with vacancy falling to just 0.5%.

Urbanation uses TREB data to number crunch which is why we have more faith in these numbers than a lot of the less meaty studies out there right now. And the Toronto Real Estate Board's (TREB) own figures paint a similar picture.

TREB's Q1 2016 report broke the average cost of a Toronto condo rental down by bedroom, as well as apartment-style buildings versus townhomes:

Note that the figures above are specifically for condos leased through the Multiple Listings Service (MLS) and so they exclude units advertised direct by owner on sites like Kijiji.

The impact of these rising prices has caused much frustration for both landlords and tenants.

For condos built before 1991, the average increase in rental price that a landlord is allowed to make - 1.6% in 2015, raised to 2.0% this year - often doesn't cover the rising costs of carrying the property. These rent increase restrictions are a part of the Residential Tenancies Act (formerly the Tenant Protection Act) from 2006 which, a lot of critics feel, is out of date.

There are unfortunate stories of landlords giving their tenants notice, saying they plan on occupying the unit themselves, only to turn around the rent it out again for substantially more because they were unable to increase rents with their existing tenant.

This is illegal and any tenants who find themselves in this situation have a case they can bring forward to the Landlord and Tenant Board and they can also seek private, legal representation. But most renters feel it's just not worth the time and mental anguish to fight it, particularly if it means staying in the apartment after the case is over when there's now greater tension between them and their landlord.

For condos built after 1991 (as is the case with most condo rentals in Toronto), a landlord isn't tied to rent increase restrictions but that can also cause problems. For the tenant the issue is obvious - you could rent a condo for $1,600 / month in Year 1 and find it jumping to $1,800 / month in Year 2 or 3. For the landlord, if they underestimated their costs going in or had a surprise rise in maintenance fees or a special assessment, they may have to raise rents to afford the property and risk losing a good tenant in the process.

That's why landlords will focus on attracting the highest offer possible from the outset. Yes, I said "offer" because bidding wars are becoming rampant in the rental market now.

So, what's a prospective tenant to do when they can't pay the average 1 bedroom fee of $1,662 / month?

Finding the Right Apartment or Condo on a Budget

The important thing to remember is that, while rental prices have surged, there are still good deals to be found. However, you're probably not going to get a "steal".

Join me again next Monday when I'll take you through my top tips for finding a good rental for less in this hot Toronto condo market.

Lead image copyright © Ralf Kleemann from Shutterstock.