CMHC Yearly Rental Report - January 2023
The vacancy rate for primary rental apartments in the GTA fell to 1.7% in 2022, from 4.4% in the previous year. This was a level more consistent with the 10-year pre-pandemic (2010–2019) average of 1.5%. Fewer disruptions to economic activity and immigration in 2022 resulted in a surge in rental demand.
As a result of more businesses reopening, there was a near complete recovery in full-time employment among youth (ages 15–24). This group was disproportionately employed in industries adversely impacted by public health measures. Their employment recovery is important for the rental market, since youth have the highest propensity to rent according to Census data.
Full-time employment among people aged 25 to 44 was also up in 2022 and above pre-pandemic levels. This age group accounts for nearly half of renter households in the Toronto CMA. Improved labour-market conditions for the
GTA’s youth, the population aged 25 to 44, and the broader population, enabled some to enter (or re-enter) the rental market in 2022.
A strong resurgence in population growth due to eased COVID-19 border restrictions and higher immigration targets also contributed to strong rental demand. The latest estimates from Statistics Canada (2021/2022) indicate that Ontario had the highest level of international migration in the past 50 years. A record gain in non-permanent residents was one reason for this. Historically, the GTA accounted for approximately 80% of net international migration to Ontario. New migrants typically rent in their first few years of living in Canada.
Amid rising mortgage carrying costs, many debating between renting and owning likely opted to rent. Meanwhile, some prospective buyers currently renting chose to occupy their units for longer, as evidenced by declining turnover rates. Exceptionally weak sales volumes for both existing and new homes, through the second half of 2022, further suggest decreased mobility between renting and homeownership.
Supply increased, but affordability challenges persist
The GTA’s primary rental apartment universe increased by 2.1%, or 7,175 units, in 2022 from the previous year. This was the strongest increase in recent decades and was due to elevated rental completions in recent years.
While rental supply increased, it couldn’t offset the growth in demand. Moreover, access to affordable supply remains a challenge for low- and middle-income renter households (the second and third income quintiles). For instance, units affordable to these households had the lowest vacancy rates in the GTA. Meanwhile, the average rent for new supply entering the market was 45.4% higher than the average rent for all units. Newer units would only be affordable to households in the higher (fourth and fifth) income quintiles.
Sharp rent growth, especially for units turning over
There’s little doubt that increased competition for fewer units led to strong rent growth in the primary market. The same-sample average rent for a 2-bedroom apartment grew by 6.5% in 2022, well surpassing the 1.5% increase recorded in 2021.
When isolating for units in the same structure that turned over to a new tenant, the change in the average 2-bedroom rent was markedly higher, at 29%. Rent increases for most units that didn’t turn over were limited to the provincial increase guideline.
Rental demand for condominiums surged as pandemic restrictions eased
Easing pandemic restrictions resulted in more students (including international students) returning to in-person learning and more workers going back to their offices. Immigration also resumed at very high levels. As they did in the primary rental market, these factors caused demand for rental condominium apartments to increase. The vacancy rate for condominium apartments decreased to 1.1% in 2022, from 1.6% in the previous year.
Average condominium apartment rents were more than 50% higher than average rents in the primary rental market. The low vacancy rate for condominiums indicates strong demand from higher-income households. The people who rent condominium apartments tend to be young professionals employed in higher-paying sectors like technology and finance.
Newly built condominiums lead growth in the rental stock, but fewer units completed in 2022
The increase in the rental condominium apartment universe was led by newly completed units, as opposed to existing units being converted to rentals. However, the rate of condominium apartment completions fell in the 12 months ending in May 2022 (the cut-off point for inclusion in our survey). Completions were down by 23%, reaching just above 17,000 units. Supply-chain issues and labour shortages, which impacted the construction industry over the past year, were the main reasons for this decline.
The share of apartments held by long-term investors grew to 36.2% in 2022. A pandemic-softened tourism/travel industry (particularly in late 2021 and early 2022) and stricter short-term rental rules resulted in more landlords converting their short-term rental units into long-term ones. Also, some short-term investors who bought pre-construction units to sell upon completion listed their newly completed units for rent instead. This was a response to waning homeownership demand throughout much of 2022.
In recent years, about 50% of newly completed units added to the condominium apartment universe were offered for rent. However, in 2022 and 2021, units offered for rent accounted for only about 37% of newly completed units added to the universe. The resale home market showed record- breaking price appreciation in late 2021 and early 2022. This appreciation likely persuaded some condominium owners to sell their units instead of making them available for rent.
Rents stayed high for condominium apartments
There was no statistically significant percentage change in the same-sample average rent for condominium apartments. Still, condominium rent levels remained significantly higher than those in the primary rental market. This was because of a compositional effect of the rental stock. The increase in the condominium rental stock was driven mainly by brand-new units in 2022. Existing landlords were forced to keep rent increases to a minimum to compete with brand new units, which likely offered the latest in amenities.
Source: https://www.cmhc-schl.gc.ca/-/media/sites/cmhc/professional/housing-markets-data-and-research/market-reports/rental-market-report/rental-market-report-2022-en.ashx