Rent prices dropped 5% but that doesn’t mean Toronto is more affordable

A recent report found that GTA condo rents increased 4.5 per cent year-over-year in the fourth quarter of 2023 — but that’s apparently a good thing. The increase is an improvement compared to the previous year, where the annual increase was 16.2 per cent in the fourth quarter of 2022. It might be a sign that Toronto’s rental market is in trouble when an almost 5 per cent increase in already ridiculously unaffordable rent prices is a positive!

But the report by Urbanation pointed to some other signs that the rental market might be ever-so-slightly cooling. Condo rents declined 5.7 per cent from the third quarter to the fourth quarter in 2023 — and while rents often decrease between the last quarters of the year, the quarterly decline was the largest recorded by Urbanation since tracking the data in 2010. The only exception was the fourth quarter of 2020 during COVID. The purpose-built rental market reported similar numbers: a 3.5 per cent quarter-over-quarter decline and a 4.3 per cent year over year increase. 

The quarterly decrease in rents is likely related to a reduction in affordability following a 10% surge in rents that occurred during the preceding two-quarter period, which brought the average rent up to a record high $4.21 [per square foot] in Q3-2023,” the report noted. That rate decreased to $3.97 per square foot in Q4. 

Supply was likely also a factor in the Q4 decrease — the number of newly completed and registered condos surged 26 per cent annually to 7,408 units, a 10 per cent year-over-year increase in condos listed for rent. Purpose-built rental supply also increased, with quarterly completions reaching a 30-year high of 1,863 units. The vacancy rate among purpose-built rentals also moved up to a nine-quarter high of 2.5 per cent in Q4, up from 1.5 per cent in the fourth quarter of 2022.

The provincial and federal announcements of the removal of HST for new rental housing construction also bolstered the numbers: purpose-built rental construction starts rose to a 10-quarter high of 2,147 units, and total GTA rental construction starts hit 5,085 units in 2023, up 132 per cent from 2022. 

With increasing supply creating conditions for a more balanced market, 2023 still marked a year of extreme unaffordability in the GTA. Condos renting for under $2,250 per month dropped 75 per cent in 2023 compared to 2022, and condo units renting for below $2,000 saw a 91 per cent plunge in lease activity in 2023. 

So what’s to come for 2024? Urbanation president Shaun Hildebrand noted that, even with recent increases in rental supply, much more progress is necessary to see true benefits for the rental market. “The recent moderation in the rental market is likely a temporary response to overheated conditions that emerged in the past two years. The fundamentals still indicate an undersupplied market will remain.”

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