Canada’s Out-Of-Control Rental Market Is Getting Worse in 2019

Residents are bracing for double-digit price hikes and more “renovictions” in some cities.

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Jan 3 2019, 3:54pm

Photo via CP Images/Bayne Stanley

This article originally appeared on Free CA.

If you thought 2018 was tough on renters, 2019 is shaping up to be even rougher in some parts of the country.

New research released today by Rentals.ca suggests that it’s likely to cost you more, with average rents expected to rise by six percent across the country. Toronto could see a spike in rental rates of 11 percent, 9 percent in Ottawa and 7 percent in Vancouver. There will also be more competition in hot markets for less spots, which brings on its own set of problems.

A number of factors are stoking demand, including rising interest rates, tougher rules to qualify for a mortgage, home prices that have cooled off but keep climbing—all of these things will keep many prospective buyers from home ownership, so they’ll rent. Plus, a record number of immigrants, who typically rent during their first years in the country, will continue to increase pressure on the rental market.

“Many young couples and families have decided to postpone purchasing a home, which has driven two-bedroom rental rates to nearly $2,600 a month in Toronto and over $2,000 a month in Ottawa,” says Matt Danison, the CEO of Rentals.ca.

The supply side is getting crunched for a variety of reasons, too. According to the Canadian Mortgage and Housing Corporation (CMHC), vacancy rates are at multi-year lows across the country. In fact, we haven’t seen this few vacancies Canada-wide since 2009. And experts expect to see more landlords selling their investment rental properties in the coming year. Recent figures show a significant share of condo apartment owners in Toronto and Montreal aren’t making enough on rent to cover their costs.

There’s also the “renoviction” trend, where landlords evict tenants in affordably-priced housing in order to renovate and charge higher rents for upgraded units. That’s going to get worse, and Danison says governments are going to have to respond. “Or they will have disgruntled seniors, students, and renters with steep rent increases knocking on their doors.”

Here’s a look at what to expect in major urban centres across Canada for the coming year. (Forecasts are based on input from the experts who participated in the research report, including CMHC market analysts, economists, academics, Bullpen Research, and Rentals.ca.)

Vancouver

Average 2019 rent increase expected: 7 percent

Affordability is a hot-button issue in Vancouver where both home ownership and renting costs have escalated over the years. Even though there are signs that the four new taxes meant to boost affordability are taming the once red-hot market, it remains a city where one in every four homes is valued at $3 million or more. Add to that a rental vacancy rate of less than one percent, which is one of the lowest in Canada.

Jean Swanson is a Vancouver city councillor who says the affordability issue has lead to “lots of young people living with their family until they are 35, and many are doubling, tripling and quadrupling up.” Prices aren’t the only issue, it’s about being able to find a place that’s suitable. She says she recently met a young couple whose rent is only $500 a month but they were living with six others in a two-bedroom place. “The issue is scarcity,” she explains. “Owners are buying out buildings at inflated prices and without vacancy control they are buying out the tenants... The older the building, the more vulnerable the tenants.”

Swanson, who is also a housing activist, calls for a combination of vacancy control and a rent freeze on the current 2.5 percent increase. She says vacancy control would stop landlords from raising rents in between tenants, which could curb a trend known as “renoviction,” and a rent freeze would put a lid on yearly increases. The problem with these measures is they disincentivize the creation of new rental units, which the city desperately needs, and can create even bigger problems in years to come.

Swanson’s solution is to increase the number of modular housing units available in Vancouver. Six hundred of these 320-square foot houses were built in the past year. They are built offsite and then moved to a location. They’re meant to be a temporary solution, for up to five years, but they can be made permanent with a solid foundation. Swanson says unlike typical social-housing units in Vancouver, which can take up to seven years to build, modular homes can be ready in nine weeks. She says finding funding to create more of these units will improve the vacancy rate and tackle homelessness, which is also a pressing issue.

Edmonton

Average 2019 rent increase expected: flat

There are a few things happening in Edmonton that is turning the city into both a buyer’s market, and a renter’s market. For starters, the average sale price of a condo fell to $238,141 in 2018 from $260,411 in 2017. It has a rental vacancy rate of about 5 percent, which is well above the national average. Edmonton, like other cities in Alberta, is impacted by the price of oil and the recent tumble affects the amount of disposable income that people have available to spend on housing.

Jim Fowler is the executive director of homeEd, an NGO that provides social housing for Edmonton. He says being strategic about choosing a rental can pay off. “Take some time to see what’s out there and use your findings as leverage with your current landlord.”

He points to a list of 6,000 people waiting for affordable housing in Edmonton, and he says it doesn’t have to be that way. “We need to find a way to work with landlords to fill a large number of vacant units. There’s an inventory sitting there that’s not being used.”

Calgary

Average 2019 rent increase expected: 4 percent

Like Edmonton, Calgary has thousands on the waitlist for affordable housing. And, like Edmonton, Calgary’s economy and its housing market, is linked to the oil market. But unlike Edmonton, the rental market is tightening up in Calgary, where apartment rental rates have been rising after declining for two years in a row. Alberta does not have rent control.

With a jobless rate at around 8 percent, and the price of oil still tumbling, many in the city are opting to rent rather than own. “Given high unemployment and recession, affordability has been eroded across Calgary,” says James M. Cuddy, a senior analyst for CMHC. “Vacancy rates declined to 3.9 percent from over 6 percent the year before. These affordability challenges are putting an increased demand on rentals and the millennial generation and international migrants are leading this demand.”

Although Calgary’s jobless rate improved in December, the average duration of unemployment across the province has increased to 23.5 weeks. A decade ago, the average jobless duration was about seven to 10 weeks. The energy sector is a major employer in the province, making up about a quarter of its economy. There’s increasing concern that many of the high-paying oil patch positions in Alberta may never come back because of industry efficiencies like automation. Distress counselling and food bank use remain high in the city.

Cuddy says he’d like to see more tiny homes built in the city, along with insurance programs that allow for flexible financing. There are around 4,000 people on the waitlist for affordable housing and 3,000 homeless people in the city.

Saskatoon

Average 2019 rent increase expected: 2 percent

Saskatoon is also sensitive to the price of oil, but not all oil is created equal. “Heavy crude,” which is what is taken from the Alberta oilsands isn’t as much of a driver in neighbouring Saskatchewan — about 60 percent of its oil is “light or medium crude” and gets a better price because it doesn’t require as much refining. “It’s not as dire as it is in Alberta,” says CMHC senior market analyst Goodson Mwale.

The city’s stable employment growth, affordable housing and proximity to a less volatile oil market will all boost interest and rental rates by a modest amount. It currently ranks among the cheapest major Canadian cities to rent a condo. Mwale says he’s hopeful Canada’s young population, including millennials, will be drawn to Saskatoon as an alternative to popular hubs in B.C. and Ontario.

Winnipeg

Average 2019 rent increase expected: 3 to 5 percent

Immigration, construction and rent control are the three factors affecting Winnipeg’s rental market in the coming year, according to Avrom Charach, vice president of Kay Four Properties and a spokesperson for the Professional Property Managers’ Association of Manitoba. “Rent control is bad here; it’s one of the worst in the nation,” he says. While it’s not ideal for landlords, it’s a win for tenants in the short-term.

Rent increase rules across Manitoba kicked in two days ago — landlords can raise rent by 2.2 percent for apartments, rooms, houses and duplexes. There are exceptions to this and landlords can apply to increase rent by more than this if they can prove they’ve spent more than that 2.2 percent to maintain a place. For large institutional buildings, that typically means a hike of 3 to 5 percent, according to Charach. But this approach puts “mom and pop” landlords, which are offering more affordable housing options, at a disadvantage because they typically don’t have the time to go through the application process.

Toronto

Average 2019 rent increase expected: 11 percent

The Toronto market has the lowest turnover rate in the country, and possibly on the continent, according to industry analyst Ben Myers of Bullpen Research & Consulting, which also compiled the rental trends report. It’s a vicious cycle where high rents lead to low turnover rates which lead to high rents.

Richard Florida, who is an urban planning expert and a University of Toronto professor, says the city’s rental market is unique. “When new students or researchers come to the University of Toronto, they tell me they have to endure an auction where people actively bid on apartments. I’ve never seen anything like it anywhere else in North America.” Florida says the city needs “more rental housing at each and every price point.”

David Hulchanski is a housing and community development professor at UofT. He says student housing is one of Toronto’s biggest challenges and currently there’s no federal or provincial help for student-specific units. He points to the fact that in the 1960s and 70s, homes for students were part of social housing programs, but he says that’s no longer the case. “It’s much worse today. Families are now being forced to double up in units, and this is putting stress on building systems and creating even worse issues.” He adds that “there’s no fancy way to fix the affordable housing crisis.”

Access to transit is a key piece of the puzzle in terms of deciding where that future housing needs to go, according to Valesa Faria who manages the City of Toronto’s Affordable Housing Development division. She’s working on a municipal initiative to create eleven “transit-oriented sites” on what is currently surplus city land. The plan is to create 3,300 more affordable units a year, but it takes time to build and they’re not expected to open their doors until 2020. Toronto Mayor John Tory’s goal is to add 40,000 affordable housing units in the next 12 years.

Ottawa

Average 2019 rent increase expected: 9 percent

Proximity to transit is a major consideration for real estate investors and renters alike in the city of Ottawa, where rent is expected to shoot up by an average of 9 percent this year.

Access to the capital city’s light rail has made Rich Danby, owner of Rich Ottawa Investments and ROI Construction, bullish on areas and neighbourhoods with proximity such as Stittsville and Little Italy. Nearby transit, a high walk score and good restaurants make him optimistic about Lebreton Flats as well. “There are higher rents than ever before. For a two-bedroom, the average rent rose by its highest level in fifteen years,” he says.

Millennials, meaning renters between the ages of 25 and 35, will continue to outpace Baby Boomers and Gen Xers as the majority of renters. Rental.ca’s CEO Matt Danison says attracting and keeping millennials will be all about the amenities and things like breakfast bars offering coffee, juice and oatmeal in common areas of buildings, free WiFi, smart appliances and co-working spaces will be key… in areas that are close to transit.

Montreal

Average 2019 rent increase expected: 1 percent

Montreal is a renter’s market — it has more rental units available than any other major urban centre in Canada. And there are more coming onto the market in the coming year, which is going to keep rents low.

A November survey found that three out of every four condo landlord respondents were cash flow negative — meaning they don’t collect enough in rent to offset what it costs to maintain their rental condo. CMHC economist Francis Cortellino says Montreal has been and will likely continue to be one of the most affordable places in the country to buy or rent with its combination of new units as well as older buildings offering homes at various price points.

Halifax

Average 2019 rent increase expected: 4 to 8 percent

High immigration rates are driving population growth in the city of Halifax which has led to a rental market that is “going gangbusters,” according to housing analyst Neil Lovitt. He says even though there’s “a larger pipeline of rental housing under construction, supply and demand are in a tight race, but so far demand has been winning.” There are no caps on rent increases in Nova Scotia. Rents in Halifax are expected to increase by an average of 4 to 8 percent this year.

St. John’s

Average 2019 rent increase expected: 1.5 to 2 percent

The St. John’s rental market is mainly fueled by two things: students and oil workers. The 18,000 students at Memorial University provide a steady supply of tenants. For years, people working in the energy industry have also boosted the market, but the recent decline in oil prices has made a dent in that. CMHC senior market analyst Chris Janes sees that as temporary and he says within the industry “most companies will remain profitable.” A modest average rent increase of two percent or less is expected for the coming year.

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