COVID-19 Impacts On The Toronto Rental Market
Introduction
When you hear about the real estate in the news, it’s usually about property prices! But if you’re a landlord, you’re probably just as interested in knowing how COVID-19 has impacted the Toronto rental market.
On our team, we manage over 200 income property units in Toronto, so we’ve been feeling a lot of the rental market action lately. We’ll go over how COVID-19 has impacted the Toronto rental market and how these changes impact you as a landlord. So if you’re ready, let’s get started.
Changes To Rental Supply
There’s a lot of condos in Toronto, and there’s more to come. But even with so many projects in the works, our city is still not creating enough rental supply to meet rental demand – that is before COVID-19 hit.
So what was happening before the pandemic hit was that a portion of these condos have been occupied by Airbnbs. So to help address the shortage of supply, the City of Toronto approved a new regulation in 2017 that only allows Airbnbs to operate in principal residences – but that only got implemented this spring right when COVID-19 started getting bad in Toronto.
This is a great idea to help balance the rental supply and demand. But with COVID-19 taking down rental demand in the short term and now we have more airbnbs being converted into long term rentals, we’re seeing an unusual situation with more condo rental supply than demand.
If you’re not a condo landlord, the good news is that you’re not as affected by this increase in supply because the tenant pool is different. People who rent houses don’t usually move into condos. Having said that, COVID-19 did cause damage to rental demand across the board.
Changes To Rental Demand
Immigration
We attract a lot of immigrants to Toronto and when they first move here, they’re most likely to start renting first. So a big part of rental demand growth is from new immigrants. With COVID-19 in the picture, immigration to Toronto slowed down by 60% and that growth number isn’t anywhere close to what we expected of 100,000 new immigrants each year.
International Students
Another big contributor to the tenant pool come from international students studying in Toronto universities. We have over 350,000 international students coming into Canada each year, and a big portion goes to Toronto. With universities switching to online classes in September, many international students don’t need to physically be in Toronto.
Office Workers
The good news is that most of these renters have maintained stable income during COVID-19 and switched to a work from home arrangement. But because they’re staying at home more, their preferences have changed. So instead of wanting to live closer to the core in smaller and denser downtown condos with pools and gyms that can’t be used anymore, a survey by OREA’s latest Monthly Pulse Check tells us that renters are now wanting more space, a backyard, and less density.
Service & Hospitality Workers
Unfortunately, their jobs are most impacted and affordability is a big concern. In fact, Rentals.ca did a survey of 1,600 tenants across Canada in April and May and 40-50% where looking to move with the main reason being affordability. When tenants can afford their existing homes, we’ve see tenants decide to move back home with family and we’ve also see them move in with friends and sharing bigger units.
Impact To Toronto Landlords
More Turnover Of Tenants
Affordability is a big concern for renters, so you might be concerned about not getting rent from tenants. The truth is, most tenants are very respectful and responsible! Instead of seeing tenants hold back on rent, we’ve actually been seeing a much higher turnover where our tenants are taking the opportunity to move since there are cheaper options out there. So for you as a landlord, this means you need to expect extra work to do in terms fo finding new tenants.
Longer Time For Leasing
With more supply than demand, renters have more choices. It also means that it’s taking longer to rent out units. Instead of being able to rent out units in a few weeks, it might take double the time now.
So once you receive your 60 days notice from your tenant, we recommend that you start looking for new tenants as soon as possible if you want to avoid vacancies. If you just purchased a property, you can start looking for tenants before your closing date. And if you’re renovating, start advertising as soon as it’s photo ready even before you finish up the major fixes.
Lower Rents
Last of all, your new rents will get a haircut. According to Rentals.ca, the average 1 bedroom condo in Toronto is down 9.3% YoY in July. On our end which are primarily houses, we’re seeing a drop of around 10% YoY from smaller units and a slightly lower 5-8% drop in larger units.
If you’re thinking about buying a property but lower rents is holding you back, here’s one thing to remember. When people purchased a house last year, their mortgage rates may have been 1% higher than what you’re getting now. So, even if their rents are higher, your net cash flows are actually more or less the same.
How We Can Help
In the long run, Toronto’s diverse economy remains unchanged so the Toronto rental market will remain strong. People still want to move to Toronto for work and school. Even with reduced rent now, income properties in Toronto still bring you stable appreciation and decent cash flows yielding you double digit returns.
If you’re looking to buy an income property, we’re be happy to chat. We’ll get to know you more so we can recommend the best income properties on the market that fit your needs.
