Hoping to see GTA rents drop with home prices? Experts say you’re out of luck

The sale price of homes in the GTA has dropped - a headline that may have seemed inconceivable to some observers in recent years, as the market seemed to endlessly swell out of reach.

But rents are going the other direction, and not just in the city of Toronto.

In cities across the GTA and wider cuts of southern Ontario, listing prices have gone up by double-digit percentages in the last year, according to analysis of rentals.ca network data by the market research firm Urbanation.

In Burlington, the average one-bedroom listing went up 16.1 per cent from December 2021 to December 2022, to a cost of $2,135 - while the sale market saw a roughly 14 per cent drop, per the Toronto Regional Real Estate Board.

Two-bedroom rental listings in Burlington rose to $2,546, a 9.7 per cent year-over-year hike. In Brampton, one bedroom rental listings went up 9.1 per cent, to $1,786, while the average two-bedroom listing increased faster, by 14.7 per cent to $2,170 as of December.

It's a reality that's placing increasing financial pressure on renters who have to find a new place to live, whether by choice or necessity. That pressure comes at a time of high inflation that has seen other cost of living hikes, like soaring grocery bills.

It's also a trend that analysts don't expect to change, with Urbanation forecasting continued rent price growth throughout 2023. The hikes may be more moderate, it predicted - citing rising interest rates and affordability constraints among renters - but given demand, with a rising population and an increased number of priced out would-be buyers, the research firm still expects the average listing cost will rise.

If you stayed in your unit, you're not seeing all this wild and crazy stuff," said rentals.ca's Paul Danison. If you didn't? Yeah, rents can go up - and you had to make some hard decisions."

A number of factors can push average rents up. One is new builds: when new rentals come onto the market, whether purpose-built or as part of new condominium developments, they often come with shiny new amenities and a higher price tag. Another is demand: when an area has a tight vacancy rate, with numerous tenants competing for units, prices go up.

While most units occupied before November 2018 in Ontario are covered by rent control, meaning annual rent increases are capped at a certain rate - 2.5 per cent this year - controls only apply to sitting tenants. When a unit becomes vacant, the rent can increase by any amount the owner chooses.

David Hulchanski, a housing expert with the University of Toronto, says a lack of purpose-built rental units is a key issue when it comes to affordability. He points to research from the university's Neighbourhood Change Research Partnership that shows within the city, an average of 2,100 rental units have started construction each year since 1992, compared with an average of 14,200 starts for condominium units.

Around a third of Toronto-area condo units are used as rentals, Hulchanski noted, but the rental-specific unit supply hasn't matched the depth of demand for some time.

It's a decision of both the public and private sector not to build rental," he said. The public sector had long ago stopped building large amounts of purpose-built rental housing, he said, and the private sector didn't currently get the same level of subsidies they had in past decades. Without enough subsidies they don't build - and I don't blame them, because they can't make money," he said.

It's a problem echoed in a separate report released this week by GTA homebuilders and landlords, which said the Toronto region needed to double its purpose-built rental starts in the next decade to accommodate a growing percentage of tenant households. It suggested a need for 300,000 units in the next 10 years, and predicted a shortfall of 175,000 units.

While the Canada Mortgage and Housing Corp. (CMHC) says the GTA saw its strongest increase in rental units in decades last year, it noted that growth still couldn't offset the rise in demand. Moreover, it said that units that are affordable to low-to-middle income households had the lowest vacancy rates - meaning it's the tightest, most competitive end of the market.

While condos can offer more options, CMHC says the average condo apartment rent in the GTA last year was more than 50 per cent higher than average rents in the purpose-built rental market.

Danison believes some GTA cities have seen increased demand from former Torontonians seeking cheaper housing. He pointed to Kitchener, London and Guelph - where Urbanation says the average listing price for a one-bedroom increased 32 per cent, 26 per cent and 18.8 per cent in the last year, respectively. That put the average listing cost at $1,968 in Kitchener, $1,808 in London and $2,049 in Guelph.

But even outside of demand from Torontonians, Hulchanski said those markets would face many of the same supply-crunch challenges as the bigger city in recent years.

While there was a softening in GTA rental markets during the early COVID-19 pandemic, with higher vacancy rates, Danison said the forces driving demand had since resumed - from student populations flocking back to campus to reignited immigration and people moving for reasons related to employment.

Both Danison and Hulchanski also noted the growing split between asking rents and incomes. In Burlington, 44.9 per cent of tenant households spent more than 30 per cent of their pre-tax income on shelter costs in 2021, according to the national census. That is the mark where housing is considered unaffordable. By contrast, 10.7 per cent of homeowner households reported being in the same position.

The split between incomes and home prices was also what kept higher-income tenants from moving into the ownership market, Hulchanski said. Even as sale prices dropped, he noted that higher interest rates mean mortgages will be more expensive, wiping out that advantage."

Toronto-area sale data also suggests it isn't the lower end of the market that's seen the biggest price reductions. Condo prices dropped by eight per cent year-over-year as of January compared to a 23 per cent drop for detached houses.

While tenants able to hold onto their units won't feel the same crunch - including sitting tenants, CMHC says the average cost for a two-bedroom purpose-built rental in the Toronto-area increased by 6.5 per cent in 2022 and 1.5 per cent in 2021 - the Urbanation analysis shows renters having to move will face increasing sticker shock.

If you're a lifelong renter, say you're 40 or 50 years old, you can be in trouble if you don't have that stable rental situation," Hulchanski said. That's what's happening ... it's unfortunate."

With files from Tess Kalinowski

Victoria Gibson is a Toronto-based reporter for the Star covering affordable housing. Reach her via email: victoriagibson@thestar.ca