Welcome to this month’s installment of Dear Urbaneer, where I take on tough real estate questions from my clients. This time I’m responding to an urban professional who is wondering about the state of the Toronto rental market and what some of the processes are when looking to rent a property.
I’m now working at home and could really do with more living space than my current rental apartment provides. I’ve been hearing reports in the media about declining rents in Toronto due to the COVID-19 pandemic and how it has impacted the rental market. Is now the right time to move?
Longing For A Luxe Lease
Here's my reply:
Dear Luxe Lease:
Like so many other things in our lives, COVID-19 has had a significant impact on Toronto real estate, from the way we design our built spaces, to how we approach real estate to how we’ve modified our lifestyles and the way we use our homes. Check out my COVID-19 & Toronto Real Estate series for my observations.
In terms of the rental market, COVID-19 has had a swift impact, creating opportunities for renters who are considering looking for new digs, in sharp contrast to the brisk market with high rents and razor-thin vacancy that has characterized the market over the last several years in Toronto.
So what is causing this shift and what is likely to come in the months ahead in the Toronto rental market? What should prospective tenants have in mind during their dwell hunt?
A Snapshot of the Rental Market
The rental market has largely taken a hit across Canada, but stats show that Toronto has been particularly affected with average rents per square foot has fallen 20 percent, year-over-year between November 2019 and November 20, according to this report from Rentals.ca. That works out on average to a drop in rent of $520 per month.
Padmapper’s Monthly rent report pins the decrease at a similar 17 percent. And according to their stats, this decrease has been enough to knock Toronto off the top of Canada’s most expensive city for rents, where it has been for some time. Click here to read "Toronto Is No Longer The Most Expensive City In Canada For Apartment Rentals".
For a little context, around this time last year, rents had seen an 8 percent increase from 2018 to 2019. Click here to read "Toronto Rents Are Down A Whopping 20% Since Last Year".
And although Toronto as a city has seen decreases, some neighbourhoods have seen greater slides. Greektown rents fell on average by 22 percent and Roncesvalles rents fell by 18 percent. Even right smack downtown, between Queen Street and King Street, saw rents fall in the same range, by 18-22 percent. Do you have a neighbourhood in mind? Check out this story by Narcity: "These Toronto Neighbourhoods Have Seen Their Rent Drop By More Than $500 Since 2019."
A healthy rental market depends on a few factors: a robust local economy, economic prospects, and a stream of immigrants, helping to fill the rental product pool. The rental market has been incredibly tight over past years, due to the growing population, as well as the emergence of short-term rental companies like AirBnb which prompted investors to snap up much of the stock for ghost hotels (rental units used strictly as short term furnished rentals) that would otherwise be available for rent to long-term tenants.
COVID-19 has affected the factors that drive demand. COVID-19 closed the borders to travel, squeezing immigration. Most post-secondary school education has gone online this year, which was also a typically large rental pool - and those students are staying in their hometowns, rather than coming to Toronto to study. Similarly, with the 'work from home' movement, more and more people are seeking other accommodations out in the suburbs or countryside. For those remaining in the urban core, many are looking for larger units.
One of the greatest lures for urban living, which sometimes means sacrificing space and paying a premium for location, is having proximity to amenities. However, with the pandemic, many shops, services, bars, and restaurants have either had limitations on their operation or have been outright closed. This perk isn’t as appealing now, so many renters are looking to other areas, willing to sacrifice amenities for more space.
This CBC article outlines that trend, and discusses how some urban renters are heading outside of the urban core, even though rents are dropping in the city: "Why The Pandemic Is Pushing Young Tenants Out Of Their Tiny Rentals In Toronto's Core"
Many renters are swapping their small condo-style apartments for larger spaces that better suit work from home, or that offer additional benefits like a stellar view, upgraded finishes, more storage, or impressive outdoor space.
Rental Supply Increases
Meanwhile, as the demand has been hampered, the supply gates have opened, with condos flooding the market. According to the latest statistics from TRREB, the number of condominium rentals on market has risen a whopping 113.9 percent in Q3 2020 over the same period last year.
This has been exacerbated by COVID-19, which arrived on the heels of the City of Toronto introducing a new policy that banned 'ghost hotels' - which are residences being used exclusively as AirBNB rentals without an owner-occupant. This forced a slew of property investors to get out of short-term furnished rentals and instead offer their units for long-term furnished or unfurnished lease. Here's my post on the subject called Dear Urbaneer: So Why Are There New Airbnb Regulations For Toronto?.
What will happen in the new year? Supply is likely to continue to increase, as property investors (largely owners of condo units in large buildings) get out of the rental market and shift focus on listing their properties for Buyers looking for investment alternatives to generate better ROI or end-users seeking a home.
Toronto has notoriously had a lack of purpose-built rentals, which had been contributing in past years to the razor-thin vacancy rates and higher rents. However, to remedy this, there has been a push from developers to create purpose-built rentals, with more apartments expected to have been completed in 2020, than during any year in the 30 years prior, according to the Rentals.ca report.
Meanwhile, restrictions around short-term rentals will continue (if not get stricter) and there is also the possibility of a vacancy tax, making this a less attractive option for investors, who may sell units or put them in the long-term lease market.
*** What is to come with the condo market in 2021 could most definitely influence the rental market over the next 6 to 12 months. Here's my most recent essential read on the impact of COVID-19 on the condo market: An Overview Of The 2020 Toronto Condo Market And What Lies Ahead: Part One and Part Two. ***
Timing is Everything
What a difference a year makes. This time last year, tenants may have been willing to stay put in cramped quarters, perhaps in a place needing maintenance or repairs, the market has shifted substantially. From a tenant’s point of view, there are some excellent opportunities available.
Some analysts feel that average rents will continue to decline for the first part of 2021, with a trend reversal in the latter half of 2021. The hope is that as more Canadians get vaccinated, many of the restrictions from COVID (i.e. travel restrictions, re-opening borders, re-opening of in-person learning at post-secondary institutions) will be relaxed or lifted, creating the potential for growth again. It is likely that the market may move toward balanced territory as demand begins to creep back up, while supply continues to come to market as the year progresses.
When that happens, rent will increase. According to that report from Rentals.ca, it is forecast that rent will increase by 4% by the end of 2021.
Getting Ready for Your Dwell Hunt
Working with a realtor can be a great way to find the right property for you, as they can help to guide on neighbourhoods, opportunities, and help you to negotiate rents and the terms of your lease.
At the outset, your budget should be the first parameter. It’s wise to target a lease price, where the rent represents a max of 25% or less of one's combined total household income (In urban centres, realistically, this may be a bit more.)
When you are viewing prospective rental properties, look them over with a critical eye, particularly if they are in good shape; sometimes landlords can make even a deficient unit pretty (or "slap lipstick on a pig", as the saying goes.) If the suite is in a condominium or apartment complex with amenities, inquire whether you may view the common spaces (a lot of common spaces are currently closed due to COVID-19), and ensure they're well maintained and tidy.
Also, pay attention to things like street noise and light exposure, particularly if you have issues sleeping well. This can definitely affect your living experience, and may not be overtly obvious during a visit when you have so much to see and process.
In addition to putting together a wish list of unit features, neighbourhood, and amenities, it’s smart to think ahead to the application process, keeping in mind that sometimes the applications for renters can be rigorous. Even though the market is softening slightly in favour of tenants, it is advisable to be prepared and ready to roll in advance.
In anticipation of starting the application process, it’s smart to clean up or shut down all social media, including asking kids/teens to do the same, as both listing realtors and landlords will google them and be very critical. The landlord will be wanting to mitigate risk in taking on tenants, and rightly or wrongly, social media communicates that.
Get your ducks in a row for the application process, so that you can take advantage of snapping up the perfect unit when you find it.
Here is an article by RealtyBizNews that contains additional helpful hints for renters on their house hunt: "Renting In Toronto: Tips To Keep In Mind."
What Do I Need for the Application?
Submit the following to your realtor in advance, so that the realtor can vet items and ensure that everything necessary is in hand ahead of time.
• Rental application.
• Proof of income:
--> a) Employment letter, showing that employment is current, tenure and their annual salary; OR
--> b) hourly wage + confirmation of weekly hours worked OR
--> c) Notice of Assessment of the past 2 years if an independent contractor OR
--> d) listing a guarantor, if the tenant is a student or has insufficient income
• Equifax credit report, indicating both your credit score and detailed report (landlords are looking for scores of “Very Good or Excellent”). Again, past behaviour is usually a predictor of future behaviour (with exceptions of course). Your credit report helps to assess the risk to the landlord in that light.
• Previous landlord reference and contact info (written letters are preferred).
• Client reference letters, if you are an independent contractor.
• Last 2 pay stubs (must be most recent).
• Photo of government-issued identification.
It is a good idea to review the Residential Tenants Act, which is a summary of the law surrounding rental agreements. It covers off important information around rent collection, deposits, rent increases, maintenance and repairs, entry to the unit, and ending the tenancy, including from both the tenant and the landlord perspectives.
The province of Ontario puts out a brochure for new tenants that landlords are required to provide at the beginning of the tenancy (or prior). It’s a great resource, and well worth a read, even if you are a seasoned renter. Both the landlord and the tenant have rights and responsibilities and it is advisable to know what is expected and required from both sides. Knowledge is power!
Here's A Winsome Executive Rental Near Davenport And Symington, offered for rent at $2,590/month. Embracing that well-worn yet super sage mantra of real estate (location, location, location!) this rare-to-market executive luxury rental paves the way to experience all the niceties and amenities that the urban dweller has come to expect at their fingertips.
This 3-storey executive condominium residence of around 1300 square feet with east and west exposures was completed in 2003 and is one of 32 townhomes in its development. The entertainment zone features hardwood floors, a living and dining area, and a generous open concept kitchen with a chef's island perfect for gathering friends and family around - all of which connects to a west-facing private terrace! In addition to two generous bedrooms - both with ample storage - and a luxe 4-piece washroom with a separate shower and deep soaker-style jacuzzi tub on the second level.
And it has parking!!!
Or how about this Pristine Perch Overlooking Liberty Village, offered for rent at $2000/month? For the budget-conscious renter, it’s not always easy to find a residence that reflects your personality and that is located in a neighbourhood designed for your lifestyle. After all, a true 'home' integrates into your life seamlessly with ease. So, if you're an urbanite that embraces the ease and enrichment of a pedestrian lifestyle, you’ll want to take note of this dazzling condominium for lease!
As you enter this efficient and smartly-designed suite, you're immediately struck by its calming white walls and soft muted laminate floors - it's the perfect serene canvas to put your personal stamp on. The suite's entertainment area is bathed in natural light and oozes relaxation. You'll love the expansive wall of glass that frames the neighbourhood beyond, making you feel connected to something much larger than yourself. The open kitchen sits quietly along one wall, awaiting your culinary creativity; who wouldn't love to prepare a meal at a fully outfitted workspace with contemporary cabinetry and stainless steel appliances?
And nothing beats the ability to walk out into fresh air on your own private balcony - ideal for enjoying a morning cuppa or taking in evening bright-lights big-city views!
Having choices available is a great thing when you are house hunting, but how do you know if you are making the right choice? You can count on the advice of a seasoned realtor, well-versed in the market trends and in the nuances and flavours of Toronto’s many neighbourhoods.
My team and I are here to help!
With decades of experience navigating the ever-changing Toronto real estate market, a commitment to promote the sale of properties like yours with interesting and relevant information, and the ability to guide Buyers with credible insights and well-informed guidance, we are here to help without pressure or hassle.
Thanks for reading!
-The Urbaneer Team
Steven Fudge, Sales Representative
& The Innovative Urbaneer Team
Bosley Real Estate Ltd., Brokerage - (416) 322-800
- we're here to earn your trust, then your business -
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