Activity in the Toronto residential rental market should soften throughout the year in tandem with the economy at large, and that’s good news for consumers considering the CPI Rented Accommodations Index, which is currently up by 0.6%, the highest it’s been in four decades.
Bank of Canada Rate Cut Projections Reduced to Three Times in 2024
According to a report from Edge Realty1, the Bank of Canada is expected to reduce its lending rate three times this year, according to a report from Edge Realty. This is a revision from an earlier prediction of five rate cuts, which was forecasted after disappointing Q3 GDP data. This adjustment to the original forecast was made after there were improved economic conditions in Canada and the United States. Subsequent data have shown even stronger economic performance.
These cuts are expected to benefit home buyers.
In total, Edge Realty estimates the Bank of Canada’s policy rate will decline by 75 basis points this year.
Impact on Renters
Among prospective renters—of whom there’s certainly no shortage in all major Canadian markets—the more trigger-shy should be encouraged by this news. However, that won’t come at the expense of landlords, who find themselves buoyed by the addition of 800,000 temporary residents, most of whom are renters, to the Canadian population in 2023.
Although there are strong indications the federal government is looking to cleave the number of annual entrants to Canada2, the rental pool in all major Canadian markets will remain at excess capacity.
There are presently 200,000 rental units in the construction pipeline, of which 165,000 are condos. The Edge Realty report estimates half of them are slated for the secondary rental market at completion. Despite the increase in rental units being constructed, rent prices should continue trending skyward.
A crucial factor contributing to the ongoing rise in rent prices is the extension of the federal government’s ban on non-resident buyers until 2027, coupled with the fact that the bulk of new entrants into Canada aren’t permanent residents. As a result, the country’s pool of prospective renters will keep growing.
But rental market conditions will nevertheless normalize this year, Edge Realty asserts, noting that new listings in the secondary market rose by 46% year-over-year in 2023 while the lease/list ratio was the second lowest it’s been in a decade.
In Toronto, there were 7,408 new condos delivered in Q4-2023, surging by 26% year-over-year, with at least as many expected this quarter. In downtown Toronto’s two densest districts there are an estimated 3,600 condo units available for rent, of which nearly 60% are vacant.
While it wouldn’t appear to make sense that vacancies are rising despite Toronto’s population boom, there is, in fact, no shortage of qualified tenants. However, landlords in the city have grown accustomed to triple-A qualified tenants who earn upwards of $90,000 to $100,000 a year and live in single-occupant dwellings.
They will need to adapt to the new reality: amid economic headwinds, rising consumer prices and record-high rents, Torontonians are tightening their belts, and landlords might have to lower their qualification standards.
