Do You Think House Prices Are Too High The Rental Market Is In Some Ways Even Worse And There S No Relief In Sight

Because as anyone who has signed a lease—or tried to—lately can attest, rent is rising across Canada at an unprecedented rate. According to data from rental website Rentals.ca, the average rent in October across Canada was $1,976. That’s an 11.9 percent increase, well above Canada’s inflation rate of 6.9 percent. The increases aren’t even across the country, as Atlantic Canada has seen rents rise by an impressive 32.2 per cent over the past year. Ontario, BC and Alberta have seen increases of 17.7%, 15.1% and 13.2% respectively. Other areas saw increases slightly below the national average, but in nearly every market across the country, renters are facing a huge jump in the cost of keeping a roof over their heads. Calgarian Kellie Knight knows this all too well. He rents a two-bedroom unit in the city for $2,200. That’s about a $500 jump compared to what he paid for a similar unit just before the pandemic. And it’s bad enough that her rent is now eating up about half of her monthly income — far more than financial experts say is appropriate. “I was shocked at how much the prices had gone up and had to realign my budget very quickly to make today’s rent work,” she told CBC News. “When you’re spending more than half of your monthly pay on rent, you’re not saving anything for a down payment.” Still, she was happy to sign up for a two-year lease recently to lock in that price, because it gave her a reprieve from the uncertainty she’d face if she had to move. “I moved here from L.A. and if you had told me at the time that I would be paying L.A. rent prices in Calgary, I would have thought you were delusional,” he said. Kellie Knight rents a 2-bedroom in Calgary for $2,200 a month. He says he’s been shocked by how quickly rents have risen in the city lately. (Rebecca Kelly/CBC)

Supply and demand imbalance

Normally, a slowdown in the real estate market can be good news for renters, as landlords can be more eager to find good tenants. But that’s not happening right now for a reason Canadians have become all too familiar with the pandemic: supply and demand. “Interest rates are actually working to push up rental inflation because a lot of people aren’t buying, so they’re renting more,” said CIBC economist Benjamin Tal. People who would normally like to own are finding themselves out of the market due to higher borrowing rates, forcing them to either enter or remain in the rental market. “They usually left the rental market [and] be homeowners,” Tal said. “But if they don’t leave their apartment, they’ll understand the supply that’s available … that’s like new demand.” When demand increases, it is often met with a corresponding increase in supply, but that is not happening right now because builders and owners are afraid of risk. “Developers are canceling projects because of construction costs,” Tal said. “Investors, because of the higher interest rates, are no longer investing in real estate.” Tal says that before the recent real estate slowdown, about half of the new condominium units in Toronto were owned by investors. Most of them had been rented out, but the sudden increase in mortgage rates on these units now makes them unprofitable, so these investors are selling them, often to people who plan to live in them themselves. “Higher interest rates reduce the incentive to invest in real estate, especially in the apartment space,” he said. “So if you don’t have those units, that’s another factor that drives up the cost of renting what’s left.” Faced with higher mortgage costs and lower prices, investors basically have two options: sell and get the unit off the market or raise the rent. And neither option is good news for renters. Charlene Irwin has listed her Thornhill, Ont., rental property for sale. She wants to sell before she renews her mortgage in December and pays a much higher interest rate that she says would leave her broke. (CBC)

Landlords have no incentive to maintain rental inventory

Charlene Irwin is a landlord in the exact scenario Tal describes. He has an apartment unit in the suburb of Thornhill, just north of Toronto, which he has rented out to pay the bills. But her mortgage is due in December, and based on the new interest rates, her payments will likely double — and that’s not even factoring in things like condo fees and other incidentals. “Even if I were to rent the unit for $3,000 a month, which seems to be the going rate, there’s no profit,” she told CBC News. Even if she could get away with it on paper, Irwin says it’s not worth the risk of a tenant leaving her stranded and not paying rent for up to a year while she goes through the eviction process. She had hoped to sell her unit before the new mortgage rate kicks in next month, but has so far been unable to find a buyer at her asking price. “When you’re talking about a situation like mine, where there’s not going to be any profit margin, then what’s the incentive to keep the rental inventory in Ontario?”

Effects of rent control

Skyrocketing rents are happening almost everywhere across the country.
Hannah McDonald, a student at Dalhousie University in Halifax, shares a house with four other roommates. They currently pay $2,700 a month, but their landlord recently advised them that he plans to raise their rent by 22 percent to $3,300 when the lease expires in May. “We’re basically left scrambling right now because it’s just not in our budget as full-time students,” she told CBC News. She says they have two months to decide whether to hand in their notice and move, but her preliminary inquiries into alternatives show there are very few available. “There are almost zero vacancies now because everything is being snapped up so quickly and people are basically desperate at this point,” he said. “We’re kind of stuck between a rock and a hard place right now.” Halifax implements a form of rent control that sees caps increase by two percent a year in most cases, but McDonald isn’t sure if her situation qualifies. A provincial government spokesperson told CBC News that while they don’t know her specific case, in general, anyone with a fixed-term lease, which McDonald and her roommates are, would be covered by the cap. “The rent cap applies to tenants who have a residential tenancy … and sign a tenancy for an additional fixed term in the same rental unit,” the government said. Tenants often clamor for rent controls, and while it can help on an individual level, Tal says rent caps make the overall rent picture worse because they reduce the incentive to build more units. Tenant rights advocates argue that rent control is needed more than ever because of the specter of high inflation. Even in places where it exists, there are loopholes. In Ontario, for example, the maximum a landlord is allowed to raise rent without special permission from the Landlord and Tenant Council is 2.5 per cent for 2023. But this only applies to units that were already occupied, while vacant units can be rented at whatever price they want. “Over the past five years, we’ve seen apartments in our building double in rent with minimal upgrades,” says Shelly Dunphy, a tenant rights advocate in Toronto. “We see apartments sitting empty for months at a time because families just can’t afford to pay.” Tal says rent control laws may make some sense in older buildings or with existing tenants, but argues that a blanket cap on rent increases will make the problem worse. “We need more supply, not less supply — and rent control can achieve the opposite.” By implementing hard caps on rent increases, Tal said, “you’re protecting current tenants at the expense of future tenants.” Given the time it takes to produce new projects and the bureaucracy involved in getting them up and running, Tal says he doesn’t see the situation being resolved anytime soon.

A change in mindset about renting is required

But beyond the real logistical problems facing Canada’s rental market, the biggest of all may well be psychological. “We need to create a situation where if you’re 35 years old, married, have two kids and rent, nothing’s going your way,” Tal said. “That’s the mindset we need to develop in this country — as it is in places like Manhattan, Berlin, London.” The federal government recently announced aggressive new immigration targets that could soon see up to half a million new skilled workers coming to Canada each year — a development Tal says could be a boon to Canada’s economy. But unless the problems with the housing market are fixed, Tal will be all for naught. “We take it for granted that immigrants will come, but if they can’t afford to live in Toronto, Vancouver and many other cities because the rent is going up and the house price is going up. They won’t come,” he said. “We are facing an affordability crisis [and rent] it has to be part of the solution.”

title: “Do You Think House Prices Are Too High The Rental Market Is In Some Ways Even Worse And There S No Relief In Sight " ShowToc: true date: “2022-11-27” author: “Clifford Ross”

Because as anyone who has signed a lease—or tried to—lately can attest, rent is rising across Canada at an unprecedented rate. According to data from rental website Rentals.ca, the average rent in October across Canada was $1,976. That’s an 11.9 percent increase, well above Canada’s inflation rate of 6.9 percent. The increases aren’t even across the country, as Atlantic Canada has seen rents rise by an impressive 32.2 per cent over the past year. Ontario, BC and Alberta have seen increases of 17.7%, 15.1% and 13.2% respectively. Other areas saw increases slightly below the national average, but in nearly every market across the country, renters are facing a huge jump in the cost of keeping a roof over their heads. Calgarian Kellie Knight knows this all too well. He rents a two-bedroom unit in the city for $2,200. That’s about a $500 jump compared to what he paid for a similar unit just before the pandemic. And it’s bad enough that her rent is now eating up about half of her monthly income — far more than financial experts say is appropriate. “I was shocked at how much the prices had gone up and had to realign my budget very quickly to make today’s rent work,” she told CBC News. “When you’re spending more than half of your monthly pay on rent, you’re not saving anything for a down payment.” Still, she was happy to sign up for a two-year lease recently to lock in that price, because it gave her a reprieve from the uncertainty she’d face if she had to move. “I moved here from L.A. and if you had told me at the time that I would be paying L.A. rent prices in Calgary, I would have thought you were delusional,” he said. Kellie Knight rents a 2-bedroom in Calgary for $2,200 a month. He says he’s been shocked by how quickly rents have risen in the city lately. (Rebecca Kelly/CBC)

Supply and demand imbalance

Normally, a slowdown in the real estate market can be good news for renters, as landlords can be more eager to find good tenants. But that’s not happening right now for a reason Canadians have become all too familiar with the pandemic: supply and demand. “Interest rates are actually working to push up rental inflation because a lot of people aren’t buying, so they’re renting more,” said CIBC economist Benjamin Tal. People who would normally like to own are finding themselves out of the market due to higher borrowing rates, forcing them to either enter or remain in the rental market. “They usually left the rental market [and] be homeowners,” Tal said. “But if they don’t leave their apartment, they’ll understand the supply that’s available … that’s like new demand.” When demand increases, it is often met with a corresponding increase in supply, but that is not happening right now because builders and owners are afraid of risk. “Developers are canceling projects because of construction costs,” Tal said. “Investors, because of the higher interest rates, are no longer investing in real estate.” Tal says that before the recent real estate slowdown, about half of the new condominium units in Toronto were owned by investors. Most of them had been rented out, but the sudden increase in mortgage rates on these units now makes them unprofitable, so these investors are selling them, often to people who plan to live in them themselves. “Higher interest rates reduce the incentive to invest in real estate, especially in the apartment space,” he said. “So if you don’t have those units, that’s another factor that drives up the cost of renting what’s left.” Faced with higher mortgage costs and lower prices, investors basically have two options: sell and get the unit off the market or raise the rent. And neither option is good news for renters. Charlene Irwin has listed her Thornhill, Ont., rental property for sale. She wants to sell before she renews her mortgage in December and pays a much higher interest rate that she says would leave her broke. (CBC)

Landlords have no incentive to maintain rental inventory

Charlene Irwin is a landlord in the exact scenario Tal describes. He has an apartment unit in the suburb of Thornhill, just north of Toronto, which he has rented out to pay the bills. But her mortgage is due in December, and based on the new interest rates, her payments will likely double — and that’s not even factoring in things like condo fees and other incidentals. “Even if I were to rent the unit for $3,000 a month, which seems to be the going rate, there’s no profit,” she told CBC News. Even if she could get away with it on paper, Irwin says it’s not worth the risk of a tenant leaving her stranded and not paying rent for up to a year while she goes through the eviction process. She had hoped to sell her unit before the new mortgage rate kicks in next month, but has so far been unable to find a buyer at her asking price. “When you’re talking about a situation like mine, where there’s not going to be any profit margin, then what’s the incentive to keep the rental inventory in Ontario?”

Effects of rent control

Skyrocketing rents are happening almost everywhere across the country.
Hannah McDonald, a student at Dalhousie University in Halifax, shares a house with four other roommates. They currently pay $2,700 a month, but their landlord recently advised them that he plans to raise their rent by 22 percent to $3,300 when the lease expires in May. “We’re basically left scrambling right now because it’s just not in our budget as full-time students,” she told CBC News. She says they have two months to decide whether to hand in their notice and move, but her preliminary inquiries into alternatives show there are very few available. “There are almost zero vacancies now because everything is being snapped up so quickly and people are basically desperate at this point,” he said. “We’re kind of stuck between a rock and a hard place right now.” Halifax implements a form of rent control that sees caps increase by two percent a year in most cases, but McDonald isn’t sure if her situation qualifies. A provincial government spokesperson told CBC News that while they don’t know her specific case, in general, anyone with a fixed-term lease, which McDonald and her roommates are, would be covered by the cap. “The rent cap applies to tenants who have a residential tenancy … and sign a tenancy for an additional fixed term in the same rental unit,” the government said. Tenants often clamor for rent controls, and while it can help on an individual level, Tal says rent caps make the overall rent picture worse because they reduce the incentive to build more units. Tenant rights advocates argue that rent control is needed more than ever because of the specter of high inflation. Even in places where it exists, there are loopholes. In Ontario, for example, the maximum a landlord is allowed to raise rent without special permission from the Landlord and Tenant Council is 2.5 per cent for 2023. But this only applies to units that were already occupied, while vacant units can be rented at whatever price they want. “Over the past five years, we’ve seen apartments in our building double in rent with minimal upgrades,” says Shelly Dunphy, a tenant rights advocate in Toronto. “We see apartments sitting empty for months at a time because families just can’t afford to pay.” Tal says rent control laws may make some sense in older buildings or with existing tenants, but argues that a blanket cap on rent increases will make the problem worse. “We need more supply, not less supply — and rent control can achieve the opposite.” By implementing hard caps on rent increases, Tal said, “you’re protecting current tenants at the expense of future tenants.” Given the time it takes to produce new projects and the bureaucracy involved in getting them up and running, Tal says he doesn’t see the situation being resolved anytime soon.

A change in mindset about renting is required

But beyond the real logistical problems facing Canada’s rental market, the biggest of all may well be psychological. “We need to create a situation where if you’re 35 years old, married, have two kids and rent, nothing’s going your way,” Tal said. “That’s the mindset we need to develop in this country — as it is in places like Manhattan, Berlin, London.” The federal government recently announced aggressive new immigration targets that could soon see up to half a million new skilled workers coming to Canada each year — a development Tal says could be a boon to Canada’s economy. But unless the problems with the housing market are fixed, Tal will be all for naught. “We take it for granted that immigrants will come, but if they can’t afford to live in Toronto, Vancouver and many other cities because the rent is going up and the house price is going up. They won’t come,” he said. “We are facing an affordability crisis [and rent] it has to be part of the solution.”