Toronto condo rents rise 10% in 2 years as rental demand outpaces sales

The rental market in Toronto condominiums is heating up, with increasing numbers of units being leased rather than sold and rents continuing to rise in the first quarter of 2013,an analysis by the market research company Urbanation suggests.

There were 31 per cent more condo units leased in the first quarter than a year ago, Urbanation found, and rents were up 4.4 per cent, a gentler jump from the5.9 per centincrease that occurred between the first quarters of 2011 and 2012 but still a significant rise, said Pauline Lierman, Urbanation's director of market research.

The average rent was $1,856, or$2.33 per square foot,in the first quarter compared to $2.11 in Q1 2011.

Thatjump in rent of more than 10 per cent in two years is mainly a product of demand, with the most desirable units in downtown locations close to transit lines and amenities, Lierman said.

"The vacancy rate is barely over one per centfor rental condominiums," Lierman said. "The market has remained tight."

Investors who have bought condosare choosing to rent them out instead of selling them, Urbanation's senior vice-president, Shaun Hildebrand, said in a news release.

"For the first time in a while, rents are rising faster than prices," he said.

New units going straight to rental market

Of the 773 new condominium unitslisted in Q1 2013, 13 per cent were rented out, versus four per cent of listed units in Q1 2012. Only two per cent of the new listed units were resold, down from 2.8 per cent last year.

"You're seeing a higher trading factor rather than a resale factor," Lierman said. "What you're seeing is more [units] are going into the rental market. These people may be investors or people who bought and aren't going to use their units and are not putting their units into the market."

Much of the increase in rentals in Q1 2013is owing to the fact that more than twice as manycondominium projects were completed that quarter than in 2012: 4,859 new units wereregistered in Q1 2013 versus 2,127 in Q1 2012.

Many condo projects were started in the volatile periodof 2008-2009 and experienced construction delays because of the recession and are only now making up the deficit, which is in part why the number ofavailable newcondo unitswas so much lowerlast year, Lierman said.

Tighter mortgage rules putting off buyers

Lierman says that another factor driving more people to rent condo units instead of buying them is the furthertightening of mortgage ruleslast year, which shortened the maximum amortization period for government-backed insured mortgages and reduced themaximum size of home equity loans.

"The changes have definitely seen first-time buyers put off; they're renting," she said. "It's hard to quantify, but you can definitely see the resale market has slowed down throughout thelatter half of the year. Even the new sale market slowed down. We were ahead of the year before during the first half of 2012 and then everything eased off. Prices have flattened out."