Condo leasing up 31 per cent in wake of tighter mortgage lending rules, new study finds.
Would-be first-time homebuyers are fuelling such unprecedented demand for rental condos across the GTA, they’ve helped push average rents to a record $1,856 per month, says a new report by condo research firm Urbanation.
Since mortgage lending rules were tightened last July, pushing many first-time buyers to the sidelines, demand for rental condos has skyrocketed, says the report released Tuesday.
The number of condos leased via the MLS jumped 31 per cent in the first quarter of 2013 over the same period a year earlier.
Rents have climbed 10 per cent just in the last two years, the report notes, after a decade of largely flat or minimal increases.
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“For the first time in a long time, we’re seeing rent levels grow stronger than resale and new condo prices,” says Shaun Hildebrand, senior vice president of Urbanation and a former market analyst with the Canada Mortgage and Housing Corporation, who has watched the rental market closely for years.
“What we’re seeing is investors who are recognizing that the real strength in the market is on the rental side right now, not the resale side.”
Units listed for rent on the MLS grew 19 per cent in the first quarter, year over year, as investors opted to rent rather than sell units into a market where sales have seen double-digit declines and prices have flattened since last summer, according to Urbanation.
That high rental demand has had the unintended effect of helping stabilize a condo market that many housing watchers, including Finance Minister Jim Flaherty, feared was a bubble about to burst.
Flaherty told The Canadian Press Tuesday that he believes tighter lending rules imposed by Ottawa, including limiting amortizations to 25 rather than 30 years, are at least partly responsible for the “healthy” slowdown in the housing market and the fact house prices haven’t collapsed as some had anticipated.
Flaherty said he’s been happy to see a slowdown in the condo market in big urban centres, “moderation” in new home construction and lower demand for mortgages.
House prices are usually the last thing to slip in a housing slowdown, and Tuesday the latest Teranet housing report showed home prices up just two per cent in April, compared to 2.6 per cent in March.
“I’m happy with where we are,” Flaherty told The Canadian Press in a telephone interview from France, where he announced funding for a new Vimy Ridge visitor’s centre.
Flaherty added that he has no plans to further intervene in the mortgage market, after tightening up lending rules four times in as many years.
Rent increases are expected to stabilize, but not likely fall, as more first-time buyers save up bigger down payments and move into the resale market, says Hildebrand. The addition of tens of thousands of new condo units slated to come onstream over the next three years should also ease competition for rental condos, especially in the downtown core, where the vacancy rate now hovers at just one per cent, he noted.
The fact that rents have now reached record levels — with the average index rent now about $2.33 per square foot — means more would-be buyers are realizing it’s starting to make more financial sense to buy than to rent.
Maziar Moini, Broker of Record - Home Leader Realty Inc.
300 Richmond St. W., #300, Toronto, ON M5V-1X2
