Across Canada, rents are falling amid the novel coronavirus pandemic.
Rents declined between March and April for both purpose-built rental apartments and condo units, which constitute the bulk of rental properties in Canada, according to an analysis by rental listings site Rentals.ca.
The declines are widespread across cities and regions, with average April rents now significantly below year-ago levels in some of the country’s priciest markets.
In Toronto and Vancouver, for example, average rents were down by five per cent and nine per cent respectively last month compared to the same period in 2019.
That’s different from what’s happening in the residential property market.
Budget-conscious homebuyers hoping for an opportunity to climb onto the property ladder have mostly been disappointed so far. While Canada’s federal housing agency has warned home prices could fall by up to 18 per cent in the next 12 months, for now the market is seeing a dearth of both buyers and sellers, which is keeping prices to pre-pandemic levels, according to analysts.
In the rental market, however, “supply is outpacing demand,” says CIBC economist Benjamin Tal.
In part, this reflects a shortage of tenants, says Paul Danison of Rentals.ca, which tracks the asking price of vacated rentals posted on its site. For one, people understandably don’t want to move right now, he says.
The health emergency also means fewer immigrants and international students, an important source of rental demand especially in Toronto and Vancouver, Danison said.
Border restrictions have also cut down the number of international seasonal workers looking for temporary accommodation, he adds.
Meanwhile, students and recent graduates are likely hunkering down at home with their parents as university campuses remain shut, he notes.
On the other hand, the supply of available rental units is rising.
With short-term rentals sitting empty, many landlords are now looking to fill their units with longer-term rentals, Danison says, adding that his company has seen an “uptick” in such listings.
In addition, newly completed rental units are coming onto the market, Tal says.
The result is downward pressure on rents.
While many large landlords aren’t budging on their asking rents, “smaller landlords appear to be more willing to lower their asking rent to attract the prospective tenants that are looking for apartments,” the Rentals.ca report reads.
The rent declines have been particularly steep in the oil-rich provinces, where local economies have been struggling with low energy prices in addition to the pandemic. Average rents in Calgary, Edmonton and Regina have seen double-digit annual declines, while in Saskatoon they’re down by a staggering 28 per cent, according to Rentals.ca.
In some cities, April rents were still significantly higher than they were during the same month in 2019, the report notes. Average rents, for example, were up a whopping 35 per cent in Montreal, 30 per cent in Hamilton, Ont., and 23 per cent in London, Ont. But even in those red-hot markets, rents held steady or declined between March and April, the data shows.
News that rents are going down may be music to the ears of cash-strapped tenants. But how long will the trend last?
Danison expects rents will continue to decline over the next few months, with more newly built rentals units expected to come onto the market by the end of the year, especially in Toronto and Vancouver.
Rental demand, meanwhile, could prove “volatile,” with uncertainty surrounding how many tenants will go back to their jobs and their pre-crisis incomes, Tal says.
So far, the economic downturn has been especially hard on lower-wage workers, who are more likely to be employed in sectors such as retail and the food and hospitality industry, labour market data has shown. And lower-income Canadians are more likely to be renters, studies have shown.
In March and April, only about 10 per cent of tenants have been unable to pay rent, according to a recent CIBC analysis co-authored by Tal.
That relatively low default rate likely reflects the impact of federal and provincial emergency income support programs, the study notes.
An abrupt wind-up of those programs would be “a major issue” for the rental market, Tal says, although he adds it’s very likely Ottawa will extend and only gradually phase out the programs.
Over the longer term, Canada’s largest cities are likely to go back to not having enough homes available for rent.
The short-term rental market will bounce back as soon as travel resumes, Danison predicts.
And social distancing and other disruptions caused by COVID-19 will also slow down the construction of buildings that weren’t already close to hitting the market when the pandemic hit, according to both Danison and Tal.
Beyond the next two to three years, the key issue will be, once again, lack of supply, Tal predicts.
The pandemic, he says, has given a tight rental market “a break.” But, he adds, “I don’t think it’s a long-lasting break.”