When the COVID-19 pandemic forced the country to hit the pause button, there was, unsurprisingly, a great deal of speculation regarding the state of the Toronto real estate market: Canada’s largest. Would this red-hot real estate market finally ease up, or would it continue as normal? Like the typical Canadian during this unprecedented situation, the Toronto real estate has been resilient.
As the province of Ontario reopens and Toronto tries to regain some semblance of normalcy, property values have been steadily rising. But while the focus had been on the buying and selling of properties at the onset of the coronavirus, a dramatic shift in the rental market is also turning heads and generating buzz.
After years of dramatically low rental inventory, The Six has recently seen a decrease in demand and a jump in supply. This has contributed to downward pressure on rental rates, something that many thought would never happen again in Toronto. Is this a permanent rental trend in Canada’s biggest market? Or is it a blip on the radar?
Toronto Real Estate: Rental Trends in 2020… and Beyond
Is a re-balance finally taking place within Toronto’s rental market after such a long stretch of climbing prices and low inventory?
In the second half of June, the number of new leases signed tumbled 27 per cent year-over-year, up from the 41% decline in May. According to Urbanation, a real estate research firm, new listings increased by 74% in the first half of June.
The organization says that the average condo rent slipped 1.3% from May, and it is down at an annualized rate of 5.7% to an average of $2,313.
This downward trend is also cropping up in other statistics mapping trends within the rental market. New data from Padmapper, which connects tenants with apartments, revealed that the average one-bedroom unit in Toronto cost $2,180 per month in June. This is down from the all-time high of $2,500 in October 2019. It has also been estimated that the rents of furnished listings have tumbled by 10% since the start of the pandemic.
This pattern could persist heading into 2021 as more newly built units come online and additional construction projects get underway. Urbanation reported that more than 20,000 units could be available in the open market by the end of 2020.
Moreover, there are other pandemic-related factors impacting the trends within this market. One factor that has contributed to the cooling of the Toronto rental market has been the slowdown in immigration, with permanent residents and students abroad reconsidering their plans. Plus, as more classes move online, many students have decided to move back home.
Short-Term Rentals in Toronto’s Rental Market
In April, Queen’s Park banned short-term rentals during the duration of the coronavirus crisis. Ontario declared that short-term rentals would only be allowed for individuals who needed accommodations during the emergency period. Although the province permitted the short-term rental of properties to resume, the disruption may have helped the long-term rental market.
Over the last couple of months, the Toronto condo rental market saw a surge in listings and a decline in renters. This meant more competition between landlords – and a pullback in prices. Landlords and investors were listing their short-term vacation rentals as long-term units. The spike in listings more than doubled the condo rental inventory.
The impact of Airbnb and other short-term rentals has been one of the key drivers of higher rents due to the decrease in supply. According to a June, 2019 study by David Wachsmuth, a professor in urban studies at McGill University, Airbnb eliminated 31,000 units from Canada’s long-term rental market.
A lot of industry observers are waiting for Canada Mortgage and Housing Corp. (CMHC) to publish a report on the state of the nation’s rental market. The country’s top mortgage insurer recently released a grim outlook on the national real estate market and forecast that prices could fall as much as 18% over the next 12 months, with a rebound not seen for a couple of years. This triggered some disagreement from the real estate industry.
For now, the province is still recommending the short-term rental industry to adhere to the health and safety guidelines.
“Owners should consult health and safety guidelines related to the tourism and hospitality sector when considering how they can reopen their doors to guests,” the province said in a statement. “Operators and guests should continue to practice physical distancing, wear a face covering when physical distancing is a challenge, and wash hands frequently.”
Renters: Enjoy the softening market, while you can!
Toronto real estate has been a challenge for many, however recent softness in the Toronto rental market may continue for the next several months. Rental supply is climbing, while demand is sliding due to lower immigration levels and the economic downturn. It is, however, only a matter of time before the Toronto rental market rebounds. Until then, urban renters can finally enjoy a reprieve, even if it is only a couple of hundred dollars.
Every cent counts when you’re living in North America’s fourth-largest city!