Think house prices are too high? The rental market is even worse with no relief in sight

While the dramatic impact of higher lending rates on the housing market has been well documented, what's happening in the rental market hasn't gotten nearly as much attention.

As anyone who has signed a lease ortried to lately can attest, rent is going up across Canada at an unprecedented pace.

According to data from rental accommodation website Rentals.ca and analyzed by data firm Urbanation, the average rent in October across Canada was$1,976, across all types of properties, from bachelor apartments all the way to three-bedrooms. That's an increase of 11.9 per cent, well ahead of Canada's inflation rate of 6.9 per cent.

The increases aren't even across the country, either, as Atlantic Canada has seen rents riseattheeye-watering pace of32.2 per cent in the past year. Ontario, British Columbia and Alberta have seen increases of17.7 per cent, 15.1 per cent and 13.2 per cent, respectively.

Other regions experiencedincreases of slightly below the national average, but in just about every market across the country, tenants are facing a huge jump in the cost of keeping a roof over their head.

WATCH| Why rent is getting so expensive across Canada:

Soaring prices leaving some renters priced out

2 years ago

Duration 2:02

While the housing market may be cooling down, the rental market is on fire, with the price of an average unit up 10 per cent compared to last year. That has left many renters scrambling to find suitable housing.

CalgarianKellie Knight knows thisall too well. She rents a two-bedroom unit in the city for $2,200 a month. That's a jump of about $500 compared withwhat she paid for a similarunit just before the pandemic.And it's bad enough that her rent now eats up about half her monthly income far more than financial experts say is advisable.

"I was shocked how much prices had gone up and very quickly had to rearrange my budget to make today's rent work," she told CBC News in an interview. "When you're spending over half of your monthly pay on rent, you're not saving anything for a down payment."

Yet she was happy to sign up for a two-year lease recently to lockin that price, because it gave her a reprieve fromthe uncertainty she would have faced if she had to move.

"I moved here from Los Angeles, and if you had told me at that time that I would be paying L.A. rent prices in Calgary, I would have thought you were delusional," she said.

Supply and demand imbalance

Normally, a slowing real estate market might be good news for renters, as landlords might be more eager to find good tenants. But that's not happening right now for a reason that Canadians have become very familiar with in the pandemic: supply and demand.

"Interest rates are actually working to elevate rent inflation because many people are not buying, so they are renting more," CIBC economist Benjamin Talsaid.

People who would normally love to own are finding themselves priced out of the market by higher lending rates, which is causing them to either enter or stay in the rental market.

"Usually they wouldleave the rental market [and]be homeowners," Tal said."But if they will not move out of their apartment,they will occupy the supply that is available ... that's like new demand."

• Here's where to find cheap rent in Canada

When demand surges, it's often met by a corresponding increase insupply, but that's not happening right now because builders and owners are fearful of the risk.

"Developers are cancelling projects because of the cost of building," Tal said. "Investors,due to higher interest rates,are not investing in real estate anymore."

Tal says prior to the recent real estate slowdown, about half of the new condominium units in Toronto were owned by investors. Most of them were rented out, but the sudden increase inmortgage rateson those units now makes them unprofitable, so those investors are selling them often to people who areplanning to live in them themselves.

"Higher interest rates reducethe incentive to invest in real estate, especially in the condo space," he said. "So if you don't have those units, that's another factor driving up the cost of renting what's left."

Faced with higher mortgage costs and lower prices, investors basically have two options: sell and take the unit off the market, or increase the rent. And neither option is good news for tenants.

Landlords not motivated to keep rental stock

Charlene Lewin is one landlord in the exact scenario Tal described.

She owns a condo unit in the suburb of Thornhill, just north of Toronto, which she has been renting out to pay the bills. But her mortgage is set to expire in Decemberand, based on new rates, her payments will likely double and that doesn't even factor in things like condo fees and other ancillary costs.

"Even if I rented the unit for $3,000 a month, which seems to be the going rate, there's no profit," she told CBC News in an interview.

WATCH | Average rents skyrocket across Canada:

Average rents in Canada skyrocket to nearly $2,000/month

2 years ago

Duration 2:03

The average rent price in Canada has increased to nearly $2,000 a month according to Rentals.ca, leaving renters scrambling to find an affordable place to live while higher mortgage rates are forcing some landlords to make tough decisions.

And even if she managed to break even on paper, Lewin says it's not worth the risk that a tenant would leave her in the lurch and not pay rent for up to a yearwhile she goes through the eviction process.

Lewin had hoped to sell her unit before the new mortgage rate kicks in next month, but so far she's been unable to find a buyer at her asking price.

"When you talk about a situation like mine, where there is not going to be any profit margin at all, then what's the motivation to keep the rental stock in Ontario?"

Impact of rent control

The rapid escalationin rents ishappening just about everywhere inthe country.

Hannah MacDonald, a student at Dalhousie University in Halifax, shares a home with four other roommates. They currently pay $2,700 a month, but their landlord recently advised them that he plans to raise their rent by 22 per cent, to $3,300, when their lease expires in May.

"We are basically left scrambling right now because it's justnot within our budget as full-time students," she told CBC News. She saidthey have two months to decide whetherto hand in their notice and move, but her preliminary inquiries into alternatives suggest there's very little available.

"There's likezero vacancies now, because everything's being snatched up so quickly and people are essentially desperate at this point," she said.

"We are kind of stuck between a rock and a hard place at the moment."

Halifax has a form of rent control in place that caps increases at twoper cent per year in most cases, but MacDonald isn't sure if her situation qualifies.

A spokesperson for the provincial government told CBC News that while they are unaware of her specific case, in general, anyone on a fixed-term lease, which McDonald and her roommates are, would be covered by the cap.

"The rent cap applies to tenants who have a residential lease ... and are signing a lease for an additionalfixed-termin the same rental unit," the government said.

Tenants oftenclamour for rent controls, and while it can help on an individual level, Tal saidcaps on rent actually makethe overall rental picture worse because they reduce the incentive to build more units.

Tenant rights advocates argue thatrent control is needed more than ever, due to the spectre of high inflation. Even in places where it exists, there are loopholes. In Ontario, for example, the most a landlord is allowed to raise the rentwithout special permission of the province's Landlord and Tenant Board is 2.5 per cent for 2023.

But that only applies to units that were already occupied, while vacant units can be rented for any amountlandlordswant to set. "Over the past five years, we have seen apartments in our building double in rent with minimal upgrades," Toronto tenants rights advocate Shelly Dunphy says. "We see apartments sitting empty for months at a time because families simply cannot afford to pay."

Tal saidrent-control laws can make some sense on older buildings or with existingtenants,but he argues that a blanket cap on rent increases would make the problem worse. "We need more supply, not less supply andrent control can achieve the opposite."

By implementing hard caps on rent increases, Tal said, "you protect current tenants at the expense of future tenants."

Given the lead times in building new projectsand the red tape involved in breaking ground on them, Tal said he doesn't see the situation resolving itself any time soon.

Change needed in mentality around renting

But beyond the very real logistical problems facing Canada's rental market, the biggest one of all may well be psychological.

"We have to create a situation in which, if you are 35 years old, you are married, you have two kids and you are renting, nothing is wrong with you," Tal said. "That's the mentality that we should develop in this countrythe way it is in places like Manhattan, Berlin, London."

The federal government recently announced aggressive new immigration targets that could soon see up to half a million new skilled workers come to Canada every yeara development Tal saidcould be a boon for Canada's economy.

But unless problems with the housing market are fixed, Talsaidit will all be for naught.

"We take for granted the fact that the immigrants will arrive, but if they cannot afford to live in Toronto, Vancouver and many other citiesbecause rent is rising and the price of homes rising, they will not come," he said.

"We are facing an affordability crisis, [and rent]must be part of the solution."