Overall, rental apartment units in the Greater Toronto Area are more affordable than condo apartment rentals, but that may not be the case for much longer.
According to a recent report from Rentals.ca and Bullpen Research & Consulting, purpose-built rental rates outpaced condo rent growth from October 2018 to July 2019. Last month, condo rent in the GTA averaged $2,639 a month, and rental apartments averaged $2,133 a month on Rentals.ca.
Condo rental rates were flat during this time period, averaging between $2,600 and $2,650 a month. Purpose-built rental listings were around $2,000 a month in January 2019 and have since increased more than 7% to $2,133.
On a per square foot basis, the average rent for a condo unit in the GTA fell from $3.80 to $3.76 month-to-month (June to July). The average purpose-built price psf also fell from $3.17 to $3.16 over the same time period. The difference is that the condo rental rates psf are actually trending down from October 2018, whereas purpose-built rent is trending up.
The City of Toronto had the highest average condo rent year-to-date for 2019 at $2,616 a month. Purpose-built rent in Toronto averaged $2,072 a month. The most affordable area to rent a condo in the GTA was Markham, averaging $2,121 a month. Markham is also the only region where condo rent was more affordable than purpose-built rent ($2,196 a month).
The most affordable rental apartments can be found in Mississauga ($1,781 a month) and North York ($1,839 a month).
According to Rentals.ca and Bullpen, the premium for condos is roughly 20% to 30% across the GTA, mostly because the buildings are relatively newer and located in prime neighbourhoods.
So, what does it all mean? Have condo rents peaked? You have to wonder how much condo prices can keep growing if rental rates are falling flat and even dropping. Investors play an essential role in the new condo market. They’re part of the reason developers even hit their sales targets for financing.
With the average price psf in downtown Toronto’s new condo market well above $1,000 and climbing, there’s going to be a point when investors can’t make money because there’s a smaller pool of tenants who can afford the rent required to cover costs and make a profit.
If investors start pulling back from the new condo market, we could see a dip in prices, but also a drop in sales, which will lead to fewer units coming to market, which is the last thing the GTA needs.
It will definitely be interesting to see how the condo market adjusts over the busy fall season.