Saving for a downpayment is a huge hurdle for renters in Toronto. Could a much-publicized condo crisis in the city bring rents lower?
For Torontonians hoping to take their first step in purchasing a home, the eyewatering cost of renting in the city is a familiar thorn in the side. A chronic shortage of supply and sky-high demand saw rental costs spike in the decade between 2013 and 2023, with a brief respite during the COVID-19 pandemic proving short-lived.
But with average rent in the city finally sliding in recent months, and rental inventory increasing amid a much-publicized condo market crisis, could there be better times on the horizon for Toronto renters trying to stash away enough money to eventually fund a downpayment?
Renters are likely to see “a little bit of relief” in the months ahead, according to mortgage executive Michel Durand (pictured top), even if rent in Toronto probably won’t take a nosedive anytime soon.
Firstly, developers who’ve seen sales fall through may take to listing inventory for rent while they attempt to find a buyer. “The condo inventory is going to be competing with the rental market, which is going to be good for renters,” Durand, chief executive officer of the MCommercial brokerage, told Canadian Mortgage Professional.
What’s more, a “tipping point” could be at hand, he suggested, with renters simply no longer able to absorb the enormous increases in average rent seen in Toronto over the past five years.
“It’s been a hockey stick of a curve on the rental rate,” Durand said. “Renters and consumers cannot control the price that they pay at the grocery store.
“They can’t control the interest they’re paying on their credit cards. But they’re going to get to a point – and I think we’re at that tipping point now – where renters are going to say, ‘I can’t afford the increase. That’s it,’ and the landlords are going to have to adjust. I think we’re going to see that it’s not sustainable to continue to support these increases.”
Bank of Canada rate cuts are easing financial pressure for some, but newcomers and those with limited credit history are struggling, according to Equifax Canada’s Q3 2024 reporthttps://t.co/njoGBjWFrE#mortgagetrends #CanadaEconomy #interestrates
— Canadian Mortgage Professional Magazine (@CMPmagazine) November 27, 2024
Don’t expect a Toronto condo crash anytime soon
That’s not to say the outlook will change massively for renters in the city. At the beginning of the year, TD forecast that rent growth in major Canadian cities is likely to “cool, rather than collapse” and the woes of the condo market don’t seem set to translate into a steep drop for rental prices.
That condo crisis is causing plenty of headaches for developers. In many cases, buyers teed up a purchase while a condo building was under construction – but surging interest rates and borrowing costs in the intervening years left plenty ultimately unable to close on the property.
“If there’s a developer that’s going to be delivering 1,000 units, generally over the last three years when the building started, they were sold out,” Durand said. “So the 1,000 units are sold out – but a good 20%, if not up to 30%, won’t be able to close.
“So there’ll be a few hundred units that will just be inventory where the developer is either going to rent those or just refinance through inventory to take out his equity and move that onto the next buildout that he wants to do.”
Sluggish construction outlook likely to slow influx of new supply
The value of condos – particularly smaller units – is likely to see downward pressure as a result in the short term, with demand also potentially plummeting and developers either putting the property on the rental market or slashing the listed price to try and get units off their hands.
But the challenges facing the condo space could also have a negative impact on the construction outlook, with developers set to take a more cautious approach to the market as a result of those difficulties.
Canada Mortgage and Housing Corporation (CMHC) said that condo starts in Toronto tumbled to 28,559 in the first nine months of this year, down by more than 21% from the same period in 2023.
Overall starts across the country, meanwhile, remain well below the level required to help buyers bridge the affordability gap. In September, the pace of construction was 5% higher than the prior month – but remained significantly below the level expected by economists.
Make sure to get all the latest news to your inbox on Canada’s mortgage and housing markets by signing up for our free daily newsletter here.
