Toronto rents expected to jump by another 15% over the next six months

Fahd Mobada has never had trouble renting an apartment in Toronto until this year.

The 22-year-old engineering student at the University of Toronto and his roommate applied to nearly 10 two-bedroom rentals in June, but despite having good credit scores, savings and references, prospective landlords chose applicants who were putting down offers hundreds of dollars above asking price.

“You have people coming in with that kind of money and you have no chance of competing with them. It’s really frustrating,” Mobada said. “They were like ‘we’re not even going to look at the application because we just got an offer above asking price, so we don’t even want to consider who you are.’ ”

Unfortunately for prospective renters like Mobada, the situation won’t improve any time soon. Skyrocketing demand and costs for rentals are expected to continue to soar over the next six months, real estate experts say.

“In the next six months we’re going to see a bare minimum of a 15 per cent increase,” says Simeon Papailias, a broker with Royal LePage who specializes in investment real estate and the co-founder of The Real Estate Centre Canada. “There is an upward trajectory that is only going to get exponentially worse as every rate increase hits the market.”

To bring rising inflation back under control, the Bank of Canada raised the benchmark interest rate 2.25 percentage points since March, an aggressive move expected to continue to cool the housing market, which has already been on the decline due to rising interest rates. As home prices drop, rapidly increasing mortgage rates due to rising interest are making it more difficult for buyers to qualify for those mortgages, causing many to rethink their housing intentions and rent instead.

Gus Papaioannou, an agent with Realosophy Realty in Toronto, expects there to be another jump in rental prices by the end of September.

“Prices could plateau by the end of the year but short term, in the next 30 days, we’ll likely see an increase again based on the activity on the ground that we’re seeing now, because there’s so much pent-up demand and so few to choose from,” Papaioannou said.

The rental crunch is a result of a combination of factors including rising interest rates and a precipitous drop in property listings causing more and more prospective buyers to shift to renting amid market uncertainty. As vacancies plummet in the Toronto area, rents are soaring at their fastest rate in more than a decade, according to a July report from market research firm Urbanation. Adding even more strain on renters and home buyers, developers are expected to delay building 10,000 new condominium units as preconstruction sales plunge amid interest rate hikes.

When asked what it would take for rental prices to balance out, Papailias said “We need a huge surge of supply in Ontario, and in the GTA specifically, a huge surge of actual homes to come to market,” adding that supply needs to double.

“It’s a perfect storm of factors that are creating this incredible competition that we’re seeing,” said Andrew Harrild of Condos.ca.

“It’s not just interest rates that have caused buyers to shift to the rental market and for rent to increase. People are also moving back into urban centres like they weren’t 18 months ago during the pandemic, so there’s a whole new branch of renters.”

Buyers who haven’t been able to purchase and have entered the rental market have added to the increasing demand while supply is decreasing, said Lorry Greenspan, an agent with Forest Hill Real Estate.

“We’re not seeing the traditional cycle that we’re used to seeing, of renters leaving the market and becoming buyers,” Greenspan said.

Adding to the lack of inventory, sellers, many of whom are not getting desirable offers, are cancelling property listings, leaving prospective buyers with limited options, according to Anu Joshi, a realtor at home life Miracle Realty who works with several first-time buyers.

“Sellers are reluctant to put their homes on the market … and so we have an inventory issue. Buyers don’t have that much choice,” Joshi said. “It’s slim pickings out there. I’m working with a buyer right now who’s looking for a two-bedroom condo. They’ve expanded their search and literally they get two or three listings a week that sort of make sense and fall into their criteria.”

The shortage of options is causing buyers to wait out the storm.

“A lot of buyers are waiting on the sidelines to see what’s going to happen over the next few months,” Harrild said. “Are prices going to adjust and by how much? How high is inflation going to go? When are we going to get back to some degree of normality? But nobody really has a crystal ball.”

Amid the uncertainty, Mobada has decided to extend his current lease for another year until he graduates. He and his roommate have given up the search after putting down offers on rentals higher than the asking price but still getting rejected.

“The hope is that once we graduate we’ll have larger incomes and are able to meet the prices that are set right now because it’s just not feasible at the moment,” Mobada said.

Greenspan, who has worked with Mobada and other clients to find rentals, said even the most qualified applicants are being turned down.

“What’s most concerning is many of these individuals come from privileged backgrounds and they’re privileged themselves,” Greenspan said.

“If these individuals are struggling to find accommodation, what does that say about those who don’t come from the same privileged background? That’s what scares me the most.”

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