GTA condo rental prices soar as demand outweighs supply

The construction cranes seem to be everywhere you look in downtown Toronto, but finding a condo to call home is becoming increasingly more difficult, and costly, for a legion of desperate renters.

Recent statistics compiled by real estate consulting firm Urbanation show rental costs have spiked in tandem with a sudden supply shortage.

According to its annual report, condo rents in the Greater Toronto Area have risen nine per cent in the fourth quarter to an average price of $2,166. The average monthly price was even steeper in downtown Toronto at $2,392.

But it also appears more people are staying put in their condos, and a large number of construction projects remain incomplete, leaving fewer units available to renters.

“Lease activity declined in 2017 to 8.3 per cent, the lowest level of condo rental turnover since 2013,” Urbanation said. “Lower condo rental supply in 2017 was the result of an increased share of units resold as investors took advantage of quickly rising condo prices, as well as a decline in new project completions to a four-year low.

“At the same time, high rent levels and new rent control regulations are leading tenants to move less often, further reducing available supply.”

But Urbanation believes the supply issues will embolden developers to continue building at a rapid pace.

“Persistently strong rent growth throughout 2017 was simply the result of demand fundamentals for renting far outweighing supply” said Shaun Hildebrand, Urbanation’s senior vice president.

“This has raised the confidence of developers to add more units to the pipeline, a trend that will need to continue in order to meet future housing needs for the GTA.”

Here are some of Urbanation’s key findings.

• Average monthly rents grew by 9.1 per cent year-over-year in the fourth quarter to $2,166.
• Per-square-foot rents increased by 5.8 per cent to $2.93, marking a slower rate of growth than previous quarters due to compositional changes from a shift in activity to the suburbs.
• The number of units leased in the fourth quarter fell 11 per cent annually as listings dropped 16 per cent.
• Supply has been weighed down by low condo completions and reduced rental turnover rates.
• The average length of time between lease transactions increased to a high of 23 months.
• The share of units leased through companies as opposed to individuals was 10 per cent in the fourth quarter.
• Rents for available purpose-built units built since 2005 grew 10.8 per cent, with vacancy of 0.3 per cent.
• Rental development increased to a two-decade high of 7,184 units under construction

Luxury living here to stay

Coming off a strong showing in 2017, luxury real estate markets in Canada’s three largest cities will remain robust this year, according to Sotheby’s International Realty Canada’s Top-Tier Real Estate Report.

Sotheby’s President and CEO Brad Henderson says that with strong projected GDP growth in Toronto and Vancouver, there will be a strong absorption of luxury properties.

“Luxury properties in great locations will always be in demand,” Henderson told REP. “There were strong, stable prices over the last year and I expect that will continue over the coming year. GDP growth in Vancouver and Toronto is expected to be well over 2.5%, so it should continue strong in both markets.”

Activity in the GTA’s top-tier condominiums market last year outpaced all other Canadian markets, both in percentage gains and volume. Sales in the region’s million-plus category were up a whopping 59% year-over-year, and even more impressively, sales for $4mln-plus homes were up 91%.

“When we saw the actual statistics, what we were surprised at is how resilient condos were in Toronto in the face of the Fair Housing Plan,” said Henderson.

Sales in Vancouver’s luxury condo market weren’t up quite as high, although the 27% year-over-year increase in 2017 was still robust.

Montreal has been riding a high the last couple of years, and there’s nary a reason to believe that won’t continue in 2018, according to the report. While activity has been overshadowed by Toronto and Vancouver, where growth is beginning to taper, the Quebecois metropolis is enjoying an ascendance it hasn’t seen in years.

“Montreal is going to continue to be a very healthy market,” said Henderson. “When you compared it to Toronto and Vancouver in the past, it always looked like a comparatively slow-growing market. But that was always comparing a relatively healthy market with markets experiencing hyper growth. Toronto and Vancouver are retrenching, but Montreal’s standing out as a strong performer. Expect it to continue on over the next couple of years with upward pressure on price.”

Henderson says 2018 will be a strong year in Calgary, where GDP growth is expected to surpass 3%, suggesting the worst is behind the city. Henderson

“I would think that’s most people’s views, and what we’ve seen, is better quality properties in better quality neighbourhoods have responded first and fastest, and that will have allowed other properties to come along with them,” he added.

No brakes on the Toronto condo price train

In its latest data release, the Toronto Real Estate Board (TREB) stated that the average selling price for condominium apartments went up by 17.9% on a year-over-year basis in the fourth quarter of 2017, up to $515,816.

“While this annual rate of growth was down from earlier in 2017, the condominium apartment segment was still the leader in terms of price growth in the second half of the year,” TREB said in its release.

TREB president Tim Syrianos also announced that brokers in the Greater Toronto Area reported 5,773 condominium apartment sales through the Board’s MLS® System in that same quarter. This volume was down by 15.4% compared to the last three months of 2016.

Meanwhile, new condominium apartment listings increased by 9.8%, up to 8,186. And while sales declined noticeably relative to listings, market conditions still remained tight with a sales-to-new listings ratio of 70%.

“Demand for condominium apartments remained strong relative to listings in the fourth quarter. Even with the uptick in listings, which was certainly welcome, there was enough competition among buyers to prompt double-digit annual rates of price growth. This points to the fact that we still do have a supply problem in the GTA that needs to be addressed to ensure the long-term sustainability of the marketplace,” Syrianos explained.

Seller’s market conditions remained in place for the condominium apartment market segment in the fourth quarter. Based on price point, this housing type remains top of mind for many first-time buyers. In addition, as home prices have grown year-over-year some buyers who initially may have considered the purchase of a low-rise home have chosen to purchase a condo apartment as well,” TREB director of market analysis Jason Mercer said.

Monthly Market Figures Reported By GTA REALTORS®

Toronto Real Estate Board President Tim Syrianos announced that Greater Toronto Area REALTORS® reported 92,394 sales through TREB’s MLS® System in 2017. This total was down 18.3 per cent compared to the record set in 2016.

Record sales in Q1 were followed by a decline in Q2 and Q3 after the Ontario Fair Housing Plan (FHP) was announced. The pace of sales picked up in Q4, as the impact of the FHP started to wane, and some buyers arguably brought forward their home purchase in response to the new OSFI stress test guidelines effective January 1, 2018.

“Much of the sales volatility in 2017 was brought about by government policy decisions.  Research from TREB, the provincial government and Statistics Canada showed that foreign home buying was not a major driver of sales in the GTA. However, the Ontario Fair Housing Plan, which included a foreign buyer tax, had a marked psychological impact on the marketplace.  Looking forward, government policy could continue to influence consumer behavior in 2018, as changes to federal mortgage lending guidelines come into effect,” said Mr. Syrianos.

The average selling price for 2017 as a whole was $822,681 – up 12.7 per cent compared to 2016.  This annual growth was driven more so by extremely tight market conditions during the first four months of the year.  In the latter two-thirds of 2017, fewer sales combined with increased listings resulted in slower price growth.  In December, the MLS® Home Price Index (HPI) Composite Benchmark was up by 7.2 per cent year over year, and the overall average selling price was up by 0.7 per cent year over year.

“It is interesting to note that home price growth in the second half of 2017 differed substantially depending on market segment.  The detached market segment – the most expensive on average – experienced the slowest pace of growth as many buyers looked to less expensive options.  Conversely, the condominium apartment segment experienced double-digit growth, as condos accounted for a growing share of transactions,” said Jason Mercer, TREB’s Director of Market Analysis.

“TREB will have much more to say about the year to come on January 30 when we will release our third annual Market Year in Review and Outlook Report.  The report will feature an outlook for home sales and prices; new Ipsos consumer survey results covering buying intentions, including insights on new federal mortgage lending guidelines; new research on housing supply options surrounding the ‘missing middle,’ and important new reports on the movement of people and goods throughout the GTA,” added Mr. Syrianos.