RENT IN CANADA

How top rents in Canada compare to those in the U.S.

New survey looks at 33 rental markets

Canada’s two priciest rental housing markets rank moderately when mixed in with the largest urban centres in the United States. Newly released data for the second quarter of 2022 from Lee & Associates Commercial Real Estate Services pegs average market rent in Vancouver at USD $1,145 (CAD $1,468) and in Toronto at USD $1,113 (CAD $1,427), well below the U.S. index average of USD $1,640 (CAD $2,115).

Vancouver and Toronto recorded the lowest vacancy and cap rates among 33 surveyed markets, of which 31 are located in the U.S.. In fact, the Canada-wide vacancy rate, cited at 1.9 per cent, is 10 basis points (bps) lower than the tightest U.S. market, Santa Barbara, California, while the Canadian average multifamily cap rate of 3.6 per cent is just a notch higher the U.S. low of 3.5 per cent in San Francisco. Yet, market dynamics appear similar on both sides of the border.

“The steadily rising cost of home buying has been keeping people in the rental market longer. Mortgage rates are up, and existing home prices reached a record median $407,600 (CAD $526,000) in May. Due to supply-chain disruptions and lengthening construction timelines, deliveries of new apartments have been flat,” the Lee & Associates report states. “With rent growth surging, investment capital has been pouring into the multifamily sector. Multifamily sales activity topped the four major real estate categories, and investors see rent growth remaining above the long-term average and the shortage of available housing not changing in the short term.”

Lee & Associates analysts report 9.2 per cent rent growth across the U.S. during the first half of this year — a pace that has nevertheless slackened from the 11.2 per

cent growth of 2021. San Francisco, with a vacancy rate of 7.4 per cent, commands the highest average market rent at USD $3,092 (CAD $3,989). New York City, Boston, Orange County, California and East Bay, California round out the top five with average market rents ranging from USD $2,980 (CAD $3,844) in New York to USD $2,426 (CAD $3,130) in East Bay.

Rents are roughly comparable to or lower than in Toronto and Vancouver in six of the surveyed U.S. cities: Spartanburg, South Carolina; Indianapolis, Indiana; Saint Louis, Missouri; Cincinnati, Ohio; Omaha, Nebraska; and Cleveland, Ohio, which bottoms out the rankings with average market rent of USD $1,066 (CAD $1,375).

Per-unit sales values soar in California

San Francisco also boasts the highest average sales price per unit for Q2 at USD $669,238 (CAD $863,317). That compares to Vancouver’s average price per unit of USD $322,027 (CAD $412,856) at a cap rate of a 2.4 per cent, and Toronto’s USD $207,575 (CAD $266,122) unit average at a cap rate of 3.5 per cent.

Rent in the GTA

According to Urbanation’s latest rental market data, GTA rents in Q2 rose at their fastest pace on record, with smaller units experiencing the strongest growth rates since the onset of the pandemic. This was due to a reacceleration in population growth, near record-low unemployment, and a sharp reduction in home purchasing power as interest rates increased.

For the fifth consecutive quarter, rental demand outstripped growth in supply, causing market conditions to tighten significantly. Condo lease transaction activity in the second quarter remained close to the record high reached last year at 12,048 units, down by 6 per cent, while the total volume of condo rental listings in Q2 declined 21 per cent. Condo rental inventory dropped to a record low 0.3 months of supply and the quarterly ratio of leases-to-listings rose to a record-high 90 per cent. This led average per-square-foot condo rents to rise 5.9 per cent quarter-overquarter to a new high of $3.57 ($2,533), with annual rent growth reaching a record pace of 16.7 per cent.

As the GTA rental market fully recovered from the effects of COVID-19 and rents reached new highs, the smallest and least expensive unit types experienced the strongest growth rates.

Vacancy rates fell to 1.4 per cent as rental demand flowed back into the core. Meanwhile, as rental demand heated up, new construction almost completely stopped in the second quarter with a low of only 87 rental starts, down from an average of 1,916 starts during the preceding four-quarter period. This occurred while 1,263 new rental units began occupancy, resulting in the largest quarterly decline in total rental inventory under construction since Urbanation began tracking the data in 2015. However, at 18,976 units, the number of rentals under construction remained near a multi-decade high. Furthermore, long-term interest in purposebuilt rental development continued to grow as the inventory of proposed rentals that have not yet started construction grew to over 103,192 units in Q2, up from 88,258 units a year ago.

“The GTA rental market was as strong as ever heading into the peak summer months, which is sure to place further downward pressure vacancies and upward pressure on rents,” said Shaun Hildebrand, President of Urbanation. “Although the drop in construction during Q2 may be partly attributed to data volatility, it was also likely impacted by quickly rising construction and development costs, long delays in obtaining approvals, rising borrowing costs and tighter lending conditions. With housing affordability at generational lows and continuing to deteriorate, it’s concerning to see rental demand and supply deviate so strongly.”

Four of the five markets recording the highest average per unit sales values are located in California — including Orange County, San Diego and East Bay along with San Francisco. Boston is the exception, with an average per unit sales value of $492,525 (CAD $635,357) at a 4.2 per cent cap rate.

Ventura, California, New York and Seattle also surpass the USD $400,000 (CAD $516,000) mark for average per unit sales value. Vancouver is ranked 14th, sandwiched between Miami, with average an per unit sales value of USD $345,245 (CAD $445,366), and Naples, Florida, which posted an average per unit sales value of USD $313,245 (CAD $404,086). Vancouver surpasses and Toronto lags the U.S. index average of USD $257,272 (CAD $331,880).

At the bargain end of the scale, the lowest average per unit sales values were found in Cleveland, Vineland, New Jersey, Detroit, Omaha and Cincinnati. Cleveland offered up the best bargain with an average per unit sales value of USD $82,695 (CAD $106,676) at a 7.5 per cent cap rate.

Atlanta saw the most sales volume in a 12-month period with nearly USD $20.9 billion (CAD $26.9 billion) in deals. The next four markets are Phoenix, New York, Los Angeles and Washington, D.C.. Collectively, the top five markets account for USD $78.5 billion (CAD $101 billion) in multifamily sales since the second quarter of 2021, representing slightly more than 26 per cent of the cited U.S. index sales — USD $298.5 billion (CAD $385 billion) — for the 12 month period.

Expanding purpose-built rental housing inventories

Currently, there are nearly 853,000 units of purpose-built rental housing under construction across the U.S.. With approximately 47,700 purpose-built units underway, Canada is adding the equivalent of 5.6 per cent of that new inventory in a country with a population roughly 11.6 per cent of the size of the U.S.

However, Toronto ranks seventh among the 33 surveyed markets with 25,185 units of purposebuilt rental units under construction. New York tops the list with nearly 57,000 units under construction, followed by Dallas-Fort Worth, Washington, D.C., Phoenix, Atlanta and Los Angeles.

Together, Toronto and Vancouver account for 75 per cent of current Canadian construction. New construction in Vancouver is largely on par with activity in Chicago, at 10,606 and 10,815 units respectively. However, Vancouver’s inprogress complement is equivalent to 7.7 per cent of its existing inventory of purpose-built rental housing, while Chicago’s represents a more modest 2 per cent of existing stock. When viewed in relation to the status quo, Vancouver is also expanding at a greater pace than Toronto, where new construction amounts to 6.6 per cent of existing inventory.

Nashville, Miami and Orlando stand out as rapidly expanding U.S. markets with the equivalent of 12 to 14 per cent of their current purpose-built rental inventories now under construction. In sheer numbers that ranges from 20,348 units in Nashville (14 per cent of existing inventory) to 23,803 units in Orlando (12.4 per cent of existing inventory).