Toronto condo rents went boom last month with numbers exploding to a whopping $2166 per month, which begs the question: how did this happen?
Rents aren’t just randomly assigned to a unit. They require some serious number crunching, accounting for carrying costs, mortgage payments, repair costs, and so on. SmartAsset, for example, recommends that landlords charge a percentage of the total value of their home—somewhere between 0.8% and 1.1%.
Typically, two things drive rental prices: local wages, and the supply/demand equilibrium. When we’re talking about Toronto, another big factor comes into play: housing regulations. Specifically, the Fair Housing Plan.
Here, I refer to PayScale, which has conveniently aggregated income data from thousands of wage earners in Toronto. According to their info, the average Torontonian makes around $57,823 per year. Keep in mind, this average reflects salaries for junior- to mid-level roles, i.e. salaries for younger workers, so it might skew on the lower side. That said, its a pretty reasonable estimation of what the typical condo renter makes, since they’re also younger. Tenants will usually try to spend around 30% of their annual income on rent. Assuming the Toronto average is spot on, that’s $17,346, or around $1450 per month.
Obviously, average condo rents in Toronto are substantially higher, even if we look at the average rents for each condo type instead of the total $2166 average.
This tells us that Toronto condo rents are high compared to local wages. I know, big surprise, right? If a tenant is making PayScale’s average, it would cost them about 34.5% of their annual income to rent out a studio condo.
But keep in mind, in high-rent cities like New York, tenants often pay 40-50% of their gross incomes on rent.
The Supply/Demand Equilibrium
This made headlines all of 2017. And it will this year, too.
Toronto does not have the rental stock to accommodate its growing population, plain and simple. Right now, the city’s vacancy rate is hovering around 1%, the lowest its been in sixteen years. Shockingly, only 5% of the city’s purpose-built rentals were constructed in the last thirty-seven years. It should come as no surprise, then, that—as of right now—demand in the city is absolutely dwarfing supply.
Investor-owned condos have helped to address the city’s demand for rentals, but it’s not nearly enough. Right now, renters are being squeezed out of Toronto and rushing to the 905 just to find vacant units. So if you own a piece of Toronto, lucky you. You’re in high demand.
For renters, the Fair Housing Plan has been anything but fair. In September, I talked a little bit about how this piece of legislation has negatively impacted the supply of new rentals in the city. The rent control provision, specifically, has discouraged developers from adding new rentals.
New mortgage rules have also kept some people in the rental market who might’ve otherwise looked at ownership, and because rents are capped at 2.5%, tenants are staying put, which is influencing rent inventory.
All this said, Toronto is by no means an unaffordable city to live in—especially when you compare it globally. Unfortunately, there aren’t statistics that exclusively cover condo rentals, so instead we’ll have to look at purpose-built rental prices overall.
Topping off the list at a whopping $4,643 per month (CDN) is, of course, New York City. While Toronto rents have certainly been high of late, they’re still among the cheapest, which is to say that you should be expecting plenty more growth.