Metro News Toronto

The “seemingly insatiable” demand to live close to downtown has driven condo rents to a new high of $1,875 per month and shows no signs of letting up despite a surge of new units coming on the market.

Comment: What surge? Most years see 10,000 – 16,000 completions, with a 10-year average of 15,000. One year got close to 18,000 but that was an aberration. There is no surge of condos coming, just the same old steady 15,000 or less that there was last year – and the year before… and the year before that…

A record 6,541 GTA condos were rented via the MLS system in the third quarter of 2013, up an unprecedented 39% from the same time last year, says condo market research firm Urbanation in a new report released Friday.

By the end of this year, a total of about 20,000 condo units, most of them in the City of Toronto, will have been rented largely to young professionals keen to live near work and major transit lines.

Comment: So more are being rented alone, than are being completed. Thus, if we hit the average of 15,000 completions this year, that leaves a deficit of 5,000 units. Which means demand is 33% higher than supply. Explain to me how an average of 15,000 completions next year is going to alleviate that demand.

That’s up from the 15,355 rented last year, and 13,674 in 2011, says Urbanation.

Comment: So we have an average of over 16,300 condos being rented every year. But only 15,000 condos are completed, on average. Can anyone else see why there are bidding wars for rental condos and why rents are being pushed up? And along those same lines, can we all see the reason why new condos keep selling at such a furious pace?

And that’s not counting thousands of others that will be leased via classified sites such as Kijiji and Craigslist, making most of those granite and glass skyscrapers sprouting up on the skyline a now critical part of Toronto’s apartment stock.

Comment: True dat! Heck, MLS rentals might only account for 50% of all condo rentals. Imagine 30,000 condo rentals and only 15,000 new ones each year…

What’s especially stunning about the quarterly numbers is that they show the escalating impact of investors on Toronto’s exploding condo sector – and how they are dramatically affecting how and where tenants live.

And this may just be the tip of iceberg. The condos now coming on the market were actually bought in the preconstruction phase back between 2007 and 2009 and don’t yet include rentals that will result from the frenzied peak of investors purchasing in 2011.

Most of those 28,190 units – at least 40% of which are believed have been bought by people who don’t plan to ever live in them – won’t be completed, or put up for rent, until at least early 2015.

Comment: We have NO IDEA how many condos are bought by investors. Every number is simply a guess, nothing more.

That coming rush of rentals should lead to a more “balanced” market, says Urbanation, and ease demand that remains so strong, especially for new condos in the core, that bidding wars have broken out.

Comment: Even if every single one of them is completed in one year, which is VERY unlikely, that would still only basically supply the demand for that year. Never mind the demand deficit building up each year. Even with 20,000 rentals and 15,000 new condos each year, we are leaving a backlog of 5,000 potential tenants each year. If we have 5,000 this year and 5,000 in 2014, then we could be looking at 30,000 – 40,000 potential rental condo seekers in 2015. And a best-case scenario has just over 28,000 new units being added that year.

The report shows that, in just a year, the average size of condos for rent in the GTA has shrunk 20 square feet, to an average 778 square feet. That’s largely because there’s been a big jump, some 91%, in units under 500 square feet.

Comment: Blame builders, they are the ones creating these tiny units.

Those smaller units are popular with investors, and their growing presence on for-rent listings shows that those buyers are “now clearly affecting the condominium rental market,” the report says.

Comment: Of course, because they are the less-expensive units.

There is demand because their rents are lower, says Urbanation. In fact, their popularity helped keep the overall average rent increase for the GTA condo market to just 1.6% in the third quarter, year over year, in spite of the fact overall average per-square-foot prices for rental condos across the region were up 4.2% to $2.41, says Urbanation.

What’s especially telling is where all these new rental condos have been popping up.

Some 52% were in the epicentre of the boom, the City of Toronto, where almost 3,370 condo leases were signed, up 79% year over year, says Urbanation.

Comment: What blows my mind is that 48% of condo rentals were thus in the 905. I expected to see 90% in the 416.

Close to 600 were concentrated in west-end Liberty Village, where a rash of new completions were quickly snapped up by young professionals happy for rents slightly less than in the core but within eyesight of the CN Tower.

A distant second was North York, where rental volumes were up 10%, to 1,273 suites, mostly around the towering North York City Centre area.

Mississauga saw an increase of 25% from 634 new condo rentals.

Of the total of 4,609 new units registered across the GTA in Q3 of 2013, 24% were put up for rent and less than 2% were put up for sale, suggesting investors are looking to hold for the longer term rather than flip for a quick profit, says Urbanation.

Comment: That is a much more meaningful number than the “believed” 40% above. If around a quarter of units are put up for rent, then I think we can safely assume that around 25% of condos are bought by investors. Better than pulling a number of the air and making stuff up.

The perfect storm of forces driving this extraordinary demand for rental condos is “more structural than temporary,” says Shaun Hildebrand, senior vice president of Urbanation and a former GTA market analyst with the Canada Mortgage and Housing Corporation.

The “unrelenting” growth of low-rise house prices, and tougher mortgage lending rules is forcing potential first-time buyers to rent longer. Even condos aren’t proving to be as attractive an alternative for buyers as many people think, with the gap between owning and renting a condo now about $665 a month, says Urbanation.

Comment: It is funny. A few years back I thought that one possible brake on the real estate market would be when condos got too pricey for first time buyers. Take the bottom out of the market, or slow it down, and then the next level suffers, as those with entry-level units can’t sell and move up. But then they started renting instead of buying. So the unit was still purchased, but just by someone else. So that ruins my theory.

Demand for rentals remains high, at least for now, because the bulk of echo boomers are still in their peak rental years. As well, immigration to the region remains strong, says Hildebrand.

Adding to all that has been the unprecedented shift to downtown living.

For that, people seem willing to pay a hefty price – even if it keeps climbing for spaces that just keep shrinking.

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Contact Laurin Jeffrey for more information – 416-388-1960

Laurin Jeffrey is a Toronto Realtor with Century 21 Regal Realty. He did not
write these articles, he just reproduces them here for people who are
interested in Toronto real estate. He does not work for any builders.
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