Rentals.ca November 2019 Rent Report

According to Rentals.ca listings data, the average rent for Canadian properties in October was $1,940 per month, a decrease of 0.7% monthly, but an increase of 5.5% annually. The median rental rate was $1,850 per month in October, up 8.9% from a year earlier ($1,700).

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National Overview

The 5.5% increase over the past year is not consistent across property types and bedroom types. Rented townhouses are experiencing much higher rent growth at 19.7% annually, keeping in mind the composition of units listed is not consistent month by month. The chart below looks at the annual change in average rents by built form on the left, and by bedroom type on the right.

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The average rent for single-family homes (single-detached and semi-detached houses) has increased by 12% annually to $2,685 per month.

The biggest sample size of listings on Rentals.ca belongs to rental apartments, at 57% of the total in October. Therefore, the results for this property type is likely the most reflective of actual rental market conditions in Canada. The average rental apartment was listed for $1,574 per month in October 2019, up 7.7% from the same month last year ($1,461).

Condo apartment rents increased by less than 1% annually, rising from $2,477 to $2,497 per month.

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Growth by bedroom type showed that two-bedroom suites increased by 12.1% annually, almost twice as much as any other unit type. One-bedroom units increased by 4.5% year over year.

The unit size is not available for all Rentals.ca listings, but the share of units with available square footage is much higher for apartments. The chart below looks at the average rent per-square-foot (psf) for rental apartments and condominium apartments in October 2018 and October 2019 in Canada.

The average rent per-square-foot for condominium apartments declined by 4.5% year-over-year from $3.42 psf to $3.27 psf, which can be partially explained by the fact that the average unit size was larger in October 2019 at 812 square feet (sf) versus October 2017 at 777 sf. Generally speaking, the rent per-square-foot declines as suites get larger, with the exception of condos on penthouse floors or with generous balcony sizes.

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On a per-foot basis, rental apartment monthly asking rents increased by 11.2% annually from $1.82 psf to $2.03 psf. There is clearly more demand in the more affordable segment of the market. However, there was a noticeable change in the size of rental apartment units listed year-over-year, dropping from 895 sf in October 2018 to 825 sf in October 2019.

Provincial Rental Rates

On a provincial level, Ontario had the highest rental rates in October, with landlords seeking $2,334 per month on average (all property types), unchanged month-over-month, but rising 9.1% annually from $2,139 in October of 2018.

The average rental rate in Alberta declined for the third consecutive month to $1,265, but is still up 2.2% over October of 2018 ($1,238).

In Saskatchewan, the average monthly rent for all property types was nearly identical for October in 2018 and 2019, dropping from $1,104 last year to $1,102 this year.

Municipal Rental Rates

The chart below shows how median rental rates have changed in various municipalities in Canada on a quarter-over-quarter basis. Median rents are used to eliminate outliers.

The median rent was the same or higher in Q3-2019 versus Q2-2019 in most of the major municipalities on the east side of Canada, while many geographic areas on the west side of the country, including Vancouver, Calgary, Edmonton, Saskatoon, Regina and Red Deer all experiencing declines.

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The chart below looks at the average rental rate for rental apartments by municipality (only includes cities with 50 or more listings in Q3-2019). The colour of the box represents the average rental rate, and the size of the box represents the median rental rate.

Not surprisingly, Toronto (former City boundaries, pre-amalgamation) is the highest priced rental apartment market with an average rent of $2,200, compared to $2,156 in East York, and $2,103 in Vancouver. Although the sample size is small, with just 54 listings in the quarter, Yellowknife has higher average rents than many Ontario municipalities at $1,929 per month.

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Toronto, Vancouver and Montreal

A recent report on the rental market in Canada by RBC Economics states: “Strong demand has pushed rental vacancy rates to historically low levels and rents are now reaching uncomfortable highs. In the coming years, rental demand is only set to go up—way up in the case of Toronto and Vancouver, where high home prices have crushed some home-ownership dreams. If big cities have any hope of tackling affordability issues, rental supply must increase significantly. There are reasons to be optimistic about Montreal and Vancouver, where strong apartment and condo construction will send a wave of new rental units to market. Calgary, meanwhile, has breathing room thanks to elevated rental vacancies. But Toronto is a different story. Despite purpose-built apartment construction rising four-fold since 2014, rental supply is unlikely to come close to demand in the coming years. A deliberate policy to boost rental supply is needed—with specific targets and incentives to achieve them.

RBC concluded that Toronto is 9,100 units short on rental supply, Montreal is 6,800 units short and Vancouver is 3,800 units short. These estimates are based on the number of units required to reach a 3% vacancy rate.

When looking at Rentals.ca listings data over the past year for rental and condominium apartments (two property types that compete for the same tenants), Montreal rents have been relatively flat over the past year. Vancouver rents are up about $150 on average over the past year, while Toronto is up over $200 per month on average. This “price signal” suggests that Vancouver would need more units than Montreal, as there is likely a lot more latent demand waiting to rent if there were more units available.

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Montreal Condo and Rental Apartments

Montreal is a unique rental market, including both four-bedroom and five-bedroom rental units in many rental apartment buildings. When you strip out those unique units and focus solely on studios to three-bedroom rental and condominium apartment suites, the quarterly data does show that Montreal rents are increasing.

Rental rates declined for one-bedroom and three-bedroom units in Montreal quarter-over-quarter, however, when you look at the rent per square foot, all bedroom types increased in Q3-2019 over Q2-2019. When looking at one-bedroom and two-bedroom units, which account for about 75% of the rental market, rents per square foot are up 6.4% and 8.6% quarterly for one- and two-bedroom suites, respectively.

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Toronto Condo Rental Market

Rental rates per square foot in the Toronto condo rental market continue to trend upward, but the chart below shows that average studio and three-bedroom rents have been relatively flat over the past year, while one-bedroom and two-bedroom units slowly appreciate. Two-bedroom units have been the clear favourite among prospective tenants, with the slope of the linear trendline showing the largest upward angle.

The data also shows the relationship between unit size and per-foot rental rates. The smaller the unit, the higher the rent per square foot.

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Getting even more granular, the chart below shows condo projects in Toronto with five or more listings on Rentals.ca in each of the last four quarters.

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The most expensive projects are now pushing above $5 psf in rent, with the majority of the most expensive condominium apartments experiencing rent growth quarter over quarter.

Conclusion

Providing incentives is the only way developers can make the numbers work on rental in many Canadian markets, but its impact on affordability and rental rates may be small.

As RBC reported, the markets in Canada’s major cities are already significantly undersupplied, and much of the new construction is only making up for past shortfalls. Rent subsidies will increase demand in the rental market, and may also result in tenants seeking out larger apartments than they could normally afford.

Between July 2018 and July 2019, Canada’s population grew by a whopping 531,000 people according to Statistics Canada -- that’s roughly one person every minute. The annual growth rate was 1.4%, the highest among G7 countries. As we know, these increases are driven mainly by immigration (82% of the total). The growth rate was even higher in Ontario at 1.7%. Expect to continue to see rent growth outside of the western provinces.

Rentals.ca Data

The data used in this analysis is based on monthly listings from Rentals.ca. The data is much different than the more familiar numbers collected and published by Canada Mortgage Housing Corporation (CMHC).

Rentals.ca data includes basement apartments, rental apartments, condominium apartments, townhouses, semi-detached houses and single-detached houses, where CMHC’s primary rental data only includes rental apartments and rental townhouses. CMHC collects some data on the secondary market, but it is reported separately.

The CMHC rental rates are based on the entire universe of purpose-built rental units in Canada (the stock), while Rentals.ca data is primarily based on the asking rents of vacated units only (the flow) -- this is a smaller sample size, but more representative of the actual market rent a prospective tenant encounters. The Rentals.ca data set typically produces much higher rental rates in comparison to CMHC, as vacated units are not subject to rent control.

The average and median rental rates via Rentals.ca can also skew higher than CMHC’s data for several reasons: The inclusion of larger and more expensive unit types like singles, row units and condos; the survivorship bias (overpriced units remain in the sample longer); and the multiple listings of the same property at different rent levels every month.

It should also be noted that properties listed for above $5,000 a month and below $500 a month are eliminated from the sample of units analyzed. Also, short-term leases, single-room rentals, and furnished rental units are eliminated from the sample where identifiable.

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Ben Myers

Ben is the President of Bullpen Research and Consulting Inc., a boutique residential real estate advisory firm.

With over 15 years of real estate research experience in both the United States and Canada, Ben has acquired extensive knowledge on land values, new home prices and rental rates, and macro-level housing trends. Ben has held several positions in Toronto, including urban economist at Altus Clayton, and Executive Vice President at condominium apartment data tracking firm Urbanation Inc. Ben has previously been the keynote speaker at ULI and PWC’s flagship Emerging Trends Conference.

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