How condo rentals affect Toronto’s rental apartment market

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How condo rentals affect Toronto’s rental apartment market

condo rentals, apartment, Janice Cracknell

October 7, 2011

By Jasmine Cracknell

Looking around Toronto, it’s hard to miss the number of construction cranes and newly completed condominium apartment buildings around the downtown core and even in the suburbs. Already this year 18,055 high-rise units have sold (January to August), according to RealNet Canada Inc.’s August Market Report. But what does this mean for the rental apartment market?

The Canada Mortgage and Housing Corporation (CMHC) estimates that roughly 20 per cent of all existing condominium apartment product in the GTA becomes private rentals. As of October 2010, CMHC’s most recent report, this equates to more than 50,500 condominium apartment rental units across the GTA. Applying this conservative 20 per cent factor to scheduled occupancies of new condominium apartment projects currently selling, more than 16,000 new rental condominium units will be added to the GTA marketplace over the next five years. Looking even further, based on development applications submitted in the GTA planning departments, approximately 209,000 condominium apartment units are being planned. Roughly 55 per cent of these units are proposed in the City of Toronto, followed by the Region of York, with 31 per cent, Peel Region at nine per cent, Region of Halton at three per cent and Region of Durham at two per cent. Overall, these 209,000 condominium apartment units could represent almost 42,000 new rental apartment units. It should be noted that many of these applications are not anticipated to come to market in the near term.

With this significant influx of supply, one has to wonder about demand. With the bulk of the GTA’s rental apartment buildings being developed prior to 1975 and virtually no new rental housing being constructed, it’s not surprising that people are drawn to these new condominium apartment rental units. With contemporary finishes, added convenience features such as ensuite laundry and extensive building amenities that condominium apartment buildings offer many renters are choosing these more modern units. Safety is also an important feature, particularly for singles, and many condominium apartment buildings offer 24-hour concierge service. As with all real estate, location is the top selling feature, with condominium apartments typically situated near high-order transit, close to work or within vibrant neighbourhoods.

However, rents for condominium apartments are anywhere from 30 per cent to 40 per cent more than traditional rental apartment buildings. With low mortgage carrying costs, CMHC reports that the pricing gap between owning versus renting a condominium apartment is tightening. In October 2010, a combination of increased supply, renters moving into home ownership and rising rents all caused the vacancy rate for condominium apartments to increase to from 0.8 per cent the previous year to 1.6 per cent (CMHC). This rate is still considered extremely tight and well within balanced market territory. Over the same time frame the vacancy dropped for traditional rentals, from 3.1 to 2.1 per cent (CMHC). With a somewhat static supply, lower price points and increased immigration, traditional rental apartments have been able to capture a big piece of the rental market.

Despite the significant impact of condominium apartment rentals on supply and demand conditions, traditional rental apartments will continue to offer substantial marketing advantages such as diversity of location, more affordable rents, larger suite sizes, more bedrooms, security of tenure (Rental Protection Act), fewer pet restrictions and professional landlords.

Dynamic employment growth in downtown Toronto and in the 905, combined with provincial planning policy forming land use intensification and transit over sprawl initiatives will ensure ongoing demand for rental housing for decades to come.

Jasmine Cracknell is a Senior Associate at N. Barry Lyon Consultants Limited.

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