Apartment vacancy rates have always been a problem in Canada. With a robust immigrant influx, rental demand is one of the largest in the world. Cities like Toronto and Vancouver are staples of high rental prices.
However, COVID-19 seems to be defying that. Major cities have undergone noticeable shifts in supply and demand. How have these changes affected rental control? That’s what we’ll find out.
How has rent control traditionally functioned in Canada?
Every province in Canada has different rules for rent increases. Some provinces let landlords raise the rent whenever they want. Others require them to ask tenants to approve the raise.
Ontario is a great example. It technically has rent control, but many rentals aren't subjected to these regulations. Landlords can set different rents between tenancies, yet there’s a maximum allowable increase.
Rent control isn't always mandatory
As we mentioned, not all provinces place strict rent control on landlords. However, even those that do so often have exceptions. For example, apartments built after the 1st of November 1991 are exempt from these controls.
Similarly, buildings built before that date are still exempt as long as they entered the market afterward.
Rising prices have been a challenge for a while now
Even in the linked report, written in 2017, rapid increases in rental prices have been a staple for most cities. The main reason why these controls aren't adequate is that they were created in a different context.
The legislation came in 1992. During that time, rental properties were in short supply, and these incentives aimed to boost construction projects.
Low vacancies and high rent: is it getting out of control?
The Globe and Mail have an excellent article detailing the reasons behind Canada's low vacancy rates. While the report and interviews are from 2016, it does offer solid observations.
The article also sheds light on a long-standing problem: prices have been escalating rapidly for years now. Even in 2016, vacancy rates were as low as under 1% for specific cities.
A challenge for everyone
The report begins with the story of a woman struggling to find a home for her family. Even less-luxurious spaces than where she’d been staying were over $200 more expensive. Her story included waiting among crowds waiting for the same thing: a rental.
That’s a problem many have experienced. Even recent reports state how difficult it is to find spaces to rent in multiple sectors.
Is discrimination a problem?
Immigration is a significant factor responsible for Canada’s rental demand. However, many prospective tenants report landlords hesitating to lease their spaces to immigrants.
The problem also seems to be true for young people and even those under social assistance. It's led to the creation of organizations like the Center for Equality Rights in Accommodation.
Supply issues
Construction for spaces intended for rentals in the long-term is considerably slower than those intended for sale.
The move from focusing on rentals to building for sale has been a growing trend for decades now. The problem has called for special incentives, including fee waivers and density bonuses for building rentals.
Have incentives worked?
Historically, cities like Vancouver have been commended for their housing efforts. Even Toronto and similar cities have attempted to boost their rental building supply.
However, inventory is still too low for the quickly-growing population. Immigration and young adults setting out to find independence inflate demand daily. Experts still argue that the market focuses too much on homeowners instead of supporting renters.
What do experts believe?
The report points out that 1984 was a vital year for this shift. It saw the cancellation of tax-incentives and similar programs. Between the 60s and 70s, these programs were responsible for countless units produced per year.
Additional changes, like ending social housing programs, have also contributed to the dwindling rental supply.
Are rentals becoming a luxury?
Curiously, the article also mentioned that supply is relatively healthy for high-income individuals. Those facing the real problem are lower-income populations, like millennials, service workers, and similar demographics.
Rental options include remains of buildings built during the 80s, few subsidized social housing projects, and smaller spaces, like basement suites.
Is it the same for all markets?
Finally, the article explains multiple property types. For instance, condo investment usually focuses on short-term leases while waiting for buyers. Annexes only appear as homeowners need an extra income.
Purpose-built spaces offer more stability, but fixed-term leases and other loopholes are standard for landlords needing to adjust their rents. The social housing market has also faced challenges for keeping rates low while coping with rising service bills.
Has anything changed during the COVID-19 crisis?
This report from the CMHC provides an excellent overview of the rental market before COVID-19 became a pandemic. The article starts by mentioning a 1% vacancy rate in apartment rentals closing 2019.
Naturally, that means increases in average rents in the market. The survey also revealed Vancouver and Toronto topped the pricing lists.
Secondary rental is more expensive
The secondary rental condominium market had surpassed purpose-built spaces. That’s true for all cities in the survey. Unfortunately, homeownership affordability drives more demand for rentals.
The report also mentions two programs from the CMHC focused on increasing the housing supply. Time and more research will be necessary to determine if they're successful.
COVID-19’s spread and the rental market: What happened?
The COVID-19 crisis brought intriguing developments to Toronto's rental market. For instance, the Greater Toronto Area experienced the highest vacancy rate in over a decade. As the pandemic spread, the vacancy rates for big cities increased by over 1%.
Short-term rentals lost their attraction with travel restrictions. Unemployment also placed significant stress on people trying to meet their rent. As Landlords struggled to keep renters, negotiating power for prospects increased.
Naturally, it also means that implementing modern property management software becomes more of a need than an advantage.
The hit in rental demand
The main reason behind these changes is how rental demand has decreased considerably with the pandemic. Student population, migration obstacles, and employment conditions mean the main fall in the renter population.
Non-permanent residents have been vital in maintaining renter demand. The largest cities experienced between 2% and 3% vacancy rates. However, regions like Regina and Edmonton saw 7.5% and 7.2% spikes, respectively.
An exciting shift: has the pandemic made life easier for renters?
Now, the report mentioned that landlords were still hesitant to lower their rents. However, they’re a lot more open to giving leisure in other areas.
The data they collected suggested that lowering deposit fees, giving free months in rent, and even including utilities in the rent were more popular.
Vacancy rates surging amid coronavirus
Continuing the previous subject, the CBC also reported on the record highs experienced by Toronto in vacancy rates. More specifically, it’s the first time in approximately 50 years in which Toronto has experienced such high numbers.
The fall in demand amid COVID-19 coincided with a record number for new condominium developments. Therefore, the Greater Toronto Area experienced a whopping 4.6% vacancy rate for 2020’s fourth quarter—over four times 2019’s numbers.
Young working population: the most prominent victim?
Purpose-built space has been experiencing constant falls every year. We also need to consider how the younger population was the biggest unemployment victim in 2020. The portion that young workers occupy in the renter population played a massive role in increasing vacancy rates.
With vaccination and immigration rising consequentially, population growth will likely drive demand back up. The same is likely accurate for employment rates.
The pandemic and population outflow
The article also mentioned that rent averages have decreased throughout most of Canada. The monthly decline marked 8% from 2019 rates for the last quarter. The number was 5.7% for the entire year.
Most decreases happened for Vancouver, with a 6.7% decrease. However, Gatineau, Hamilton, and other cities experienced up to 22% rate increases in 2020. Outflow from urban regions to more affordable spaces was a key factor.
Has the case been the same for the entire country?
However, this article from CBC News explains that not all of Canada has experienced the same drop in rent prices. For instance, London experienced record highs in 2020, with a 7% boost to a $1,119 monthly average.
Interestingly, vacancy rates in the region are 0.2% above the national average. However, rent prices haven’t reached the $1,500 national average yet.
The reason for that increase without rent prices the following suit is because of the supply causing it. The main reason for the vacancy rate increase was an influx of new rental units instead of a weaker demand.
Is it mainly for the upper tiers?
It also means that the supply of cheap apartments is running low. Only 2.3% of rentals in the region were 30% of a household's average income, thus considered affordable.
Landlords understand that business will recover once the pandemic is over. That means they'll have the liberty of dictating prices with the regularly-high demand from pre-COVID levels.