You think Toronto’s residential rental market is tight now? According to a recent report from the Royal Bank of Canada, the demand for rent is only going to get stronger, and there’s not enough inventory to accommodate it.
Due to high home ownership costs in Toronto, there’s been a big shift to the rental market, and with home prices expected to increase, rental demand is showing no signs of waning.
Purpose-built rental in Toronto has quadrupled since 2014, and with 4,300 units hitting the market, completions hit a 25-year high recently. But, this is less than 20% of the inventory needed to meet demand.
According to RBC’s study, Toronto is sitting at a deficit of 9,100 rental units (as of late 2018), even with approximately 7,900 condo rentals coming to market over the last 12 months. A healthy vacancy rate would be 3%, and Toronto has a vacancy rate of 1% for rental apartments and 0.7% for condo rentals.
RBC estimates that Toronto’s rental stock needs 53,500 new units over the next two years, or average at least 26,800 a year. Renter-households in Toronto are expected to go up by an average of 22,200 a year in the medium-term.
As you know, with limited supply and strong demand, prices go up. In the last year, the average rent for a two-bedroom in Toronto increased 4.5%.
In order for Toronto to even come close to building enough rental units, RBC says there has to be “deliberate” policy to boost supply, with specific targets and incentives to achieve the targets. Aiming to increase supply to a vacancy rate of 4% in Toronto is the only way of seeing some rental relief.
RBC says incentivizing building more would work better than rent control measures, which typically just help existing tenants and can even discourage the development of new rental units.
New policy should also aim to remove “regulatory obstacles (e.g. disadvantageous property tax treatment, overly restrictive zoning by-laws) discouraging the development of purpose-built rental apartment buildings and secondary suites...”
According to the bank, the Ontario government’s More Housing, More Choice Act is a “step in the right direction,” but funding would have to be increased and incentives introduced to encourage even more builders to get on board with new rental projects.