It can be costly to rent a condo, especially in the downtown core, but Millennials are willing to pay the price

Susan Pigg – Toronto Star

Toronto’s condo boom may look to some like a giant bubble – with eager developers pumping out far more glass-and-granite highrise units than there can possibly be buyers.

Comment: But those are the ones who don’t understand the market. And the media continues to spin and misrepresent, furthering mistaken assumptions and creating confusion and hype. Developers cannot built before the majority of the building is paid for. Banks won’t lend them any money until they have sales in the 70-80% range. By the time you see a crane, a condo is at least 80% sold. By time people move in, it is up to 90 sold. By the time people take title, condos are close to 100% sold. So it cannot be a bubble, what you are seeing being built, those are all the condos that are ALREADY SOLD.

But that’s not the case at all, according to a new Canada Mortgage and Housing Study released this week that took a deeper look at what’s happening in the hallways of all those condo towers.

In fact, they have become much-in-demand rental stock in a city where almost no purpose-built apartments have been constructed in decades.

Comment: From first time buyers to couples with children turning to alternative family homes. Investors and renters, pied-a-terres and more. Parents buying condos for their university-student children, rather than pay rent. Anti-commuters and those who don’t want to live in the suburbs. There are myriad reasons for the popularity of condos.

Even though some 14,000 to 15,000 new condos came onstream across the GTA in 2014 – about 29% of which were rented out by their investor-owners – supply is struggling to keep up with rental demand, largely from Millennials keen to live close to work.

Comment: It was actually more than 20,000… but whatever. Even so, that fit well with my own estimates. I say it is around 20-25% of condos that are rented out. That would be 4,000-5,000 based on 20,000 completions. There were 7,868 condo rentals through MLS in Q3. Simple extrapolation posits that it could be in the 31,500 range for the year. Assume another half are private and you could be looking at 60,000+ condo rentals every year in Toronto. Never mind apartment buildings. Now, if there are tens of thousand people moving to the GTA every year, the demand only ever increases. Even the most conservative estimate has 30-50,000 new households being formed in the GTA annually – but less than 30,000 new housing units being built. They don’t all buy, many will rent. So there has to be a rather large and steady supply of rental stock.

The annual Rental Market Report released earlier this week, shows that renters are willing to pay a premium to live in what’s now a key form of rental housing, especially in the highly sought-after core of the city.

CMHC also looks at the costs of rental condos compared to older purpose-built rental apartments that, until the condo boom, were the primary form of rental housing for GTA residents.

Comment: Of note, though, is how this conflicts with their foreign ownership report. CMHC say only 2.3% of condos in Toronto are foreign-owned, yet every seems to think that it is these foreign investors that are buying the rental condos. If 29% are rented out but only 2.3% of owners are foreigners… then the math doesn’t work. Just sayin’.

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

Laurin Jeffrey is a Toronto real estate agent 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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