As anyone who has signed a lease, or tried to, recently can attest, rent is rising across Canada at an unprecedented rate.
According to data from rental housing website Rentals.ca and analyzed by data firm Urbanation, the average October rent in Canada was $1,976, across all property types, from bachelor apartments to three-bedroom apartments. from bed. That’s an 11.9% increase, well above Canada’s inflation rate of 6.9%.
The increases aren’t even nationwide, as Atlantic Canada has seen rents rise at a staggering 32.2% rate over the past year. Ontario, British Columbia and Alberta recorded increases of 17.7%, 15.1% and 13.2% respectively.
Other regions have seen increases slightly below the national average, but in nearly every market in the country, tenants are facing a huge increase in the cost of keeping a roof over their heads.
Calgarian Kellie Knight knows this all too well. She rents a two-bedroom apartment in the city for $2,200 a month. That’s a jump of about $500 from what she paid for a similar unit just before the pandemic. And it’s bad enough that her rent now consumes about half of her monthly income, far more than financial experts say is advisable.
“I was shocked by the price increase and very quickly had to rearrange my budget to make today’s rent work,” she told CBC News in an interview. “When you spend more than half your monthly pay on rent, you’re not saving anything for a down payment.”
Yet she was happy to sign a two-year lease recently to lock in that price, because it gave her a respite from the uncertainty she would face if she had to move.
“I moved here from Los Angeles, and if you told me right then that I was paying Los Angeles rental prices in Calgary, I would have thought you were disappointed,” she said.
Imbalance between supply and demand
Normally, a slowdown in the housing market could be good news for renters, as landlords may be more eager to find good tenants. But that’s not happening right now for a reason Canadians have become very familiar with during the pandemic: supply and demand.
“Interest rates are actually working to drive up rental inflation because a lot of people aren’t buying, so they’re renting more,” said CIBC economist Benjamin Tal.
People who would normally like to own find themselves out of business due to higher loan rates, causing them to enter or stay in the rental market.
“They usually leave the rental market [and] being homeowners,” Tal said. “But if they’re not going to move out of their apartment, they’re going to fill the available supply…it’s like a new demand.”
When demand increases, it is often met by a corresponding increase in supply, but that’s not happening right now because builders and homeowners fear risk.
“Developers are canceling projects due to the cost of construction,” Tal said. “Investors, due to higher interest rates, are no longer investing in real estate.”
Tal says that before the recent real estate slowdown, about half of the new condo units in Toronto were owned by investors. Most of them have been leased, but the sudden rise in mortgage rates on those units now makes them unprofitable, so those investors sell them, often to people who plan to live in them themselves.
“Higher interest rates reduce the incentive to invest in real estate, especially in condominium space,” he said. “So if you don’t have those units, that’s another factor that drives up the cost of renting what’s left over.”
Faced with higher mortgage costs and lower prices, investors basically have two options: sell and take the unit off the market, or raise the rent. And neither option is good news for tenants.
Landlords are not motivated to keep rental stock
Charlene Irwin is a hostess in the exact scenario described by Tal.
He owns an apartment building in the suburb of Thornhill, just north of Toronto, which he rents out to pay the bills. But his mortgage is due in December and, under the new rates, his payments will likely double, and that’s not even accounting for service charges and other incidental costs.
“Even though I’ve been renting the unit for $3,000 a month, which appears to be the going rate, there’s no profit,” he told CBC News in an interview.
And even if she managed to break even on paper, Irwin says it’s not worth risking a tenant leaving her in the lurch and not paying rent for up to a year while she goes through the eviction process.
Irwin had hoped to sell her unit before the new mortgage rate takes effect next month, but has so far been unable to find a buyer at the asking price.
“When you talk about a situation like mine, where there’s going to be no profit margin, then what’s the motivation to keep the rental stock in Ontario?”
Impact of rent control
Rapid rent escalation is happening virtually everywhere in the country.
Hannah MacDonald, a student at Dalhousie University in Halifax, shares a house with four other roommates. They are currently paying $2,700 a month, but their landlord recently informed them that he plans to raise their rent by 22%, to $3,300, when the lease ends in May.
“We’re basically left scrambling right now because it’s not within our budget as full-time students,” she told CBC News. She said they have two months to decide whether to turn in their notice and move, but her preliminary inquiries into alternatives suggest there is very little available.
“There are zero vacancies now, because everything is stolen so quickly and people are essentially desperate at this point,” he said.
“We’re stuck between a rock and a hard place at the moment.”
Halifax has a form of rent control that in most cases increases by two percent a year, but MacDonald isn’t sure her situation is suitable.
A provincial government spokesman told CBC News that while they are unaware of his specific case, in general, anyone with a fixed-term lease, such as McDonald and her roommates, would be covered by the cap.
“The rent cap applies to tenants who have a residential lease … and are signing a lease for an additional fixed period in the same rental unit,” the government said.
Tenants often clamor for rent controls, and while that may help on an individual level, Tal said rent caps actually make the overall rent picture worse because they reduce the incentive to build more units.
Tenant rights advocates say rent control is more necessary than ever, given the specter of high inflation. Even where it exists, there are loopholes. In Ontario, for example, the maximum a landlord can raise rent without special permission from the province’s Landlord and Tenant Board is 2.5 percent for 2023.
But that only applies to units that were already occupied, while vacant units can be rented out for any amount the owners want to set. “Over the past five years, we’ve seen apartments in our building double their rent with minimal updates,” says Toronto tenant rights advocate Shelly Dunphy. “We see apartments empty for months at a time because families simply can’t afford to pay.”
Tal said rent control laws may make sense on older buildings or with existing tenants, but argues a cap on rent increases would make the problem worse. “We need more supply, not less, and rent 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 projects and the bureaucracy required to open them, Tal said he doesn’t see the situation resolving anytime soon.
Necessary change in mindset regarding rent
But beyond the actual logistical problems plaguing Canada’s rental market, the biggest of all may be psychological.
“We have to create a situation where if you’re 35 and married and have two kids and you’re renting, there’s nothing wrong with you,” Tal said. “That’s the mindset we should be developing in this country, as it is in places like Manhattan, Berlin, London.”
The federal government recently announced aggressive new immigration targets that could soon bring up to half a million new skilled workers to Canada each year, a development Tal says could be a boon to Canada’s economy.
But unless the problems with the housing market are resolved, Tal said it will be for nothing.
“We take it for granted that immigrants will come, but if they can’t afford to live in Toronto, Vancouver and many other cities because rents go up and house prices go up, they won’t come,” he said.
“We are facing an accessibility crisis, [and rent] it has to be part of the solution.”