I'll first provide a run down of various statistics related to the rental market, which will then be followed by an analysis of the presented data.
With the month of supply dropping so dramatically from Q3 to Q4 and no relief in sight, it's safe to predict that the rental market will remain hot for the foreseeable future. This dwindling supply has a real domino effect on the market. With fewer available suites and increasing demand this places upward pressure on rental prices, thus resulting in strong month-over-month increases. With the former city of Toronto seeing an annual increase of 15.9% a full recovery from the impact of the pandemic is in sight.
A real consequence of the rental market becoming increasingly more expensive is that fewer rent controlled tenants tend to move on an annual basis leading to further supply constraints. Buildings that were occupied before November 15 2018 would be under rent control increases as stipulated by the city, which typically allows for roughly 2% annual increase on the existing rental received from a current tenant. Buildings that occupied after this date would not be constrained by a predetermined increase percentage, thus allowing landlords to increase the rent on existing tenants to the current market rate. Therefore, tenants are incentivized to stay in their rent controlled units to avoid a large year-over-year increase, again limiting available supply in the market and pushing up prices.
An intriguing number to focus on is the average monthly carrying cost between ownership and rental. Currently there is a $318.00 gap, which has been trending upwards throughout 2021. This points to the price of condos increasing at a faster rate than rentals and thus resulting in renters staying in the market longer and could certainly help to explain why higher priced rentals of $3,000+ grew in demand, which is typically represented by larger 2 and 3 bedroom suites. As renters stay in that market later in life, the larger suites become more in demand as the space is needed to accommodate a growing family. With a smaller percentage of a given building consisting of 2+Den and 3 bedroom suites, demand for these unit types will only increase and therefore rental rates as well.
What This Means For Investors
The current state of the market is very positive from an investors point of view. The resale market witnessed large gains by the end of 2021 and the rental market is at record low inventory with rents increasing month-over-month. For those looking to invest through pre construction, now is certainly the time to do so as prices will only continue to rise throughout the year. It's best to buy now than to pay more later for a comparable suite.
Smaller suites have traditionally been the most in demand investment opportunity from investors, with studios and 1 bedrooms selling out before all other unit types. However, there is a shift developing in the market, whereby tenants are renting for longer in their life resulting in a higher demand for larger 2 and 3 bedroom suites in order to accommodate a growing family. Not just that, but as work from home becomes more prevalent, increased utility of the space is becoming more desired, a feature that only the larger suites can comfortably provide to renters. For these reasons, among others, larger 2 and 3 bedroom investment opportunities have now emerged as not only a viable option for investors, but one of the smartest decisions that can be made.
I'm always happy to jump on a call to discuss with you the state of the market and top investment opportunities, both available now and those that are to become available later this year. Feel free to reach out at any time and we'll schedule a time to chat.
(647) 375 2787
Keller Williams Referred Urban Connect Realty, Brokerage
624 King St W, Toronto ON, M5V 1M7