Trick or Treat! It’s Halloween and we have some trick or treat rental numbers that I’d like to share with you. Traditionally during Halloween, kids go trick or treating and most of the time, they get the treat. Kids are practically trained to expect treats, candy and chocolate when they put on a costume. If only that were the case with real estate! Unfortunately, we have a trick with this rental update.
Good News, Bad News – I’ll share the bad news first because like all media outlets, negativity catches eyeballs! The bad news is rental rates on apartments are still increasing by 6% from last year (around this time of the year). Yes, rental rates are still increasing year-over-year and above the inflation mark. That’s what happens when we have a supply issue, and when additional immigration and lots of jobs are being created in Toronto.
Now for the good news!
#1 – A year-over-year rental rate increase of 6% seems like a pretty steep increase but when you map it out to the previous 3 years, that 6% rental rate increase is actually about 40% less as compared to the increase over 3 years. Over the last 3 years, we saw an average of 10% increase in rental rates year-over-year, which explains why we’re now averaging about $2,515 per month for rental rates. So depending on how you look at it, the rental rate increase slowing down from 10% to 6% is nice.
#2 – We’re seeing more project completions than before, which means that more supply became available. Take a look at the chart below. We saw an additional 27% increase in units available.
Having more supply is definitely going to help alleviate the rental crisis we’re experiencing. The challenge right now, and this is back to bad news, is that despite the additional supply, we still have a rental crisis on hand.
Despite 27% more units becoming available since Q3 2018, the vacancy rate only increased by 0.2%. Any vacancy rate under 1% is still incredibly low, and as a result, we should see rental rates increase. I’m just happy to see a 6% rental rate increase as that is a lot more steady and stable because wages clearly never catch the rate at which rental rates increase.
Less Cranes, Less Construction – Another unfortunate piece of bad news is that we’re dealing with less construction starts yet again. We saw a decrease of 32% construction starts between Q3 2018 and Q3 2019. This means that in a few years time, we’re going to continue to have supply issues if the supply pipeline remains this way (i.e., fewer construction projects underway). Remember, it takes a number of years to complete condo projects, and this 27% increase in supply was from the construction starts from a few years back. As a result of this, I would expect the rental rates to continue increasing at a more moderate pace.
The Wrap – So how you view all of this will be up to you. Are you a landlord? Are you a tenant? Are you a cup-half-full kind of person or cup-half-empty kind of person? Personally, I like to view this as good news for us investors because rental rates are still increasing at a very healthy and stable rate, and it still looks like there will be a supply issue coming down the pipeline. For investors, this means that there are still opportunities for us to find cash flow properties right now as a result of the increasing rental rates. If you’re looking for an investment property, then make sure you contact me immediately, Zhen@PrimePropertiesTO.com. Increasing rental rates typically means increasing purchase prices in the near future – don’t snooze so that you don’t lose!
Until Next Time, Happy Real Estate-ing,Zhen