Young adults have to live somewhere. And when they outgrow their parents’ house and join the workforce, the choices are typically to rent or buy.
But for many first-time buyers, the choices narrowed last July. That’s when Ottawa reduced the maximum allowable amortization and gross debt service ratio on insured mortgages. This immediately made it harder for younger buyers to qualify.
Because 80% of first-timers need mortgage insurance (and therefore have to play by insurer’s rules), that put many home ownership dreams on the back burner. In fact, the Canadian Association of Mortgage Professionals (CAAMP) estimated last fall that almost 17% of high-ratio borrowers would no longer qualify due to the last few rounds of rule changes.
As a result, tens of thousands of would-be purchasers have been (or will be) forced to rent, or stay renting. And with that jump in rental demand has come an expected byproduct: higher rents.
Nowhere has this been more evident than in Canada’s biggest rental market, Toronto. Condo vacancies there have now dropped to a skimpy 1%, according to CIBC.
Demand from shut-out buyers has, in part, rocketed Toronto condo rents 10% higher in just 24 months. That’s according to data from Urbanation, which pegs Toronto’s average rent at a record $1,856, or $170 per month higher than at this time in 2011.
“Demand for renting condos has heated up with less first-time buyers,” said Urbanation SVP Shaun Hildebrand in a news release. “Rental transactions have exceeded resale volumes in the condo market since mid-2012, when the latest round of mortgage rule changes came into effect.”
“For the first time in a while, rents are rising faster than prices,” he added.
Regardless of one’s position on the Finance Department’s policy-induced housing slowdown, the rental market side effects are clear. Until the market rebalances (i.e., rental supply increases, home prices drop, and/or incomes rise, etc.), renters in big markets will feel some pain. That pain will come from rules intended for home buyers.
Rob McLister, CMT
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