Greater Toronto’s Great Supply Shortage may be coming to an end, but the narrative is alive and well. Data from developer consulting firm Urbanation shows new purpose-built rental vacancy rates across the Greater Toronto-Hamilton Area (GTHA) have climbed significantly as of Q1 2024. The share of available units is now much higher than pre-2019 rates, but price relief is nowhere in sight. Prices remain sticky, having barely budged from record highs.
Greater Toronto Rental Vacancies Are Much Higher Than Pre-2019
Inventories for newly-built (2003 or later) apartment rentals in the GTHA region have climbed significantly. The first quarter of 2024 saw the average vacancy rate in rent-stabilized apartments climb 0.1 points to 2.6%, roughly 30% higher than the rate a year ago. In contrast, this ratio was below 1 point at the start of 2019.
Source: Urbanation.
Non-rent controlled purpose-built buildings saw an even higher surge of vacancies. They averaged 3.5% in Q1 2024, the highest rate since 2019. Prior to 2019, Urbanation says the average vacancy rate for these types of units was 1.7%—less than half the current rate.
Greater Toronto Rental Vacancies Are Up, But Rents Barely Budged
All of this supply must be helping prices come down, right? Not exactly, only a minimal impact has been seen. The average rent for purpose-built buildings climbed 2% to $4.14 per square foot (psf), and they’re 4.5% higher than last year. They estimate the average post-2003 apartment to be 723 sqft, putting their average rent at $2,933/month. By the current definition of affordable, that would place the average rental within the income of those that make $108k/year or more.
Source: Urbanation
Despite rapidly rising vacancies, rents have only made a minor adjustment relative to peak. Both purpose-built rentals and condo apartments have seen rent fall roughly 5% from peak. Significantly more inventory than pre-pandemic apparently isn’t the only factor at play.
There are various factors that make rents sticky, ranging from input costs to narrative. Since demand applies to building materials and land as well, increased building tends to drive higher input costs for rentals. New builds that incurred this surge in costs are less flexible in what they can charge. Since rents are competitive, that helps to influence the rate.
Narrative also plays a significant role. In a similar fashion to investors attempting to wait out higher rates before selling their investment property, some landlords will attempt to wait out vacancies. Instead of cutting prices, they’ll take a short-term loss in hopes of finding a tenant that pays more. The math is a little more difficult to make work in a higher rate environment, which brings us back to investors hoping to wait out elevated rates.
