Rental Market Update: What the Markets Look Like One Year Into the Pandemic
March 30, 2021
A year into the pandemic in Canada, it seems all anyone can talk about is buying property before prices rise even higher and interest rates go back up. For anyone considering jumping on the bandwagon and purchasing an income property, it could be a savvy move if you’re in a financial position to weather potential storms while the world figures out how to get back to normal.
It's no secret that the rental markets have been heavily impacted by the pandemic. Since it began, we’ve heard about rent freezes and eviction moratoriums, as well as tenants wanting to leave tighter living arrangements in search of more space. For those hoping to diversify their income with a rental property, the news hasn’t always been encouraging.
But the headlines and the roar of the crowd don’t paint the full picture. There are a lot of factors to consider before purchasing an income property, including the average rent in the area where you plan to buy, the average home price (if you’re planning to buy and rent out a house or condo), the vacancy rate and, especially now, the percentage of rented units where tenants have fallen behind in payments.
So, what do the rental markets look like a year into the COVID-19 outbreak? We’ve distilled the findings from the Canadian Mortgage and Housing Corporation (CMHC’s) Rental Market Report1 from late January to bring you an overview of national trends, plus highlights from six of Canada’s ten largest centres.
Rental Demand has Weakened
Across the country, demand for rental housing has fallen from pre-pandemic levels. At the time of the CMHC survey (conducted each October), the national vacancy rate grew to 3.2%, up from 2.2% in 2019, but up only 0.3% from the previous five-year average.2 And while not all census metropolitan areas (CMAs) surveyed reported increased numbers of empty units, most of the country’s largest centres saw slackening demand.
According to CMHC, COVID-19 is largely the reason. Its research shows that the demographics most likely to rent have been disproportionately affected by attempts to curb the spread of the virus. Among them are newly arrived immigrants and non-permanent residents, whose inflow to the country has been cut off by travel restrictions; post-secondary students from within Canada and abroad, who aren’t as likely to rent given the shift to online learning; and people aged 15-24, who are more likely to work in service industries such as hospitality and tourism, where shutdowns and heavy job losses have had crippling financial effects.
Of course, among permanent residents, the economic hardships have led to increased demand for units in the lower price ranges. But, because asking rents for vacant units and new rental stock tend to be higher as landlords attempt to recoup lost income, those units are being absorbed more slowly, pushing overall vacancy rates higher.
Government Measures are Helping to Balance Numbers
While Canada’s national vacancy rate is up, it’s not tripping any red alerts; after all, a healthy vacancy rate is considered to be around 3%. But a bigger impact may show itself in the long term. CMHC’s report suggests that the number of unfilled rentals might have been higher if it weren’t for new government measures protecting tenants from rent increases and evictions during parts of 2020 and 20213 (in Ontario, the current rent freeze is set to expire at the end of this year4).
Combined with high prices in the real estate market blocking the transition into homeownership for some renters, these protective measures are also cited for leaving vacancy rates unchanged in certain CMAs, despite the flow of new renters being largely dammed up.
Average Rents Have Crept Higher
The national average rent for a benchmark two-bedroom apartment rose during the pandemic, edging up 3.6% from 2019 to $1,165. Though rent freezes in some provinces paused upward price momentum on rented units, rates for vacant units have increased above provincial guidelines in many CMAs, despite dwindling demand.
According to CMHC, local market intelligence from stakeholders shows that instead of cutting prices to attract tenants, landlords may be using “incentives such as lower deposit fees, free months of rent, free utilities/parking, and move-in cash bonuses.” Still, CMHC notes that finding affordable housing continues to challenge many Canadians as the price gap between rented and vacant units widens5.
What 2021 Could Bring
The strength in rental rates is a comfort to many owners of investment properties, as is the rollout of COVID-19 vaccinations. If all goes well in global efforts to get the pandemic under control, a few years’ time could see industries important to the Canadian rental markets looking more like they did prior to 2020, with students back in classrooms, immigration flowing, and employment rates back on track. Yes, it’s a vague prediction, and we’re certainly hoping for improvements before winter of this year, but with pandemic headlines changing every day, all we can do is wait and see.
In the meantime, anyone thinking of buying an income property should be cautious of being swept up in the frenzy of a hot real estate market. Instead, be methodical in your approach: consider the current state of the market where you’d like to buy, factor in the costs and your financial flexibility, and try to be realistic about all things. Investing in real estate now could be a boon in the long term if you’re in a position to withstand medium-term uncertainty.
Highlights From Six of Canada’s Top 10 CMAs
Vacancy Rate: 3.4%
Average Rent*: $1,635
Arrears Rate: 10.7%
Average Home Price: $1,045,488 6
Insights: With ongoing new rental constructions and significant shares of the city’s population consisting of immigrants, students, and people who work in the food service industries, the vacancy rate reached a 14-year high, while the arrears rate was the highest in the country.
Vacancy Rate: 3.9%
Average Rent*: $1,517
Arrears Rate: 3.2%
Average Home Price: $637,1177
Insights: Though the vacancy rate rose in more centrally located areas due to reduced demand from students and young professionals, the relative stability in public administration employment has supported the rental industry. Rent payment arrears in the Ottawa CMA are among the lowest in Canada.
Vacancy Rate: 3.5%
Average Rent*: $1,291
Arrears Rate: 6%
Average Home Price: $848,7198
Insights: The overall vacancy rate was statistically unchanged as supply and demand were similar to last year. More existing tenants stayed in their units instead of transitioning to homeownership due to prohibitively high home prices.
Vacancy Rate: 7.2%
Average Rent*: $1,272
Arrears Rate: 8%
Average Home Price: $377,9319
Insights: The vacancy rate rose to its highest level since 1997. Amidst weakening demand, many rental constructions were completed in 2020, while new units (two years old or less) had an average price 31% higher than the rest of the rental universe.
Vacancy Rate: 6.6%
Average Rent*: $1,323
Arrears Rate: 7.7%
Average Home Price: $485,87010
Insights: The combination of COVID-19 effects and shocks to the oil market dampened employment conditions, which had a negative effect on demand. Supply also increased as many new rental constructions were completed in 2020.
Vacancy Rate: 3.8%
Average Rent*: $1,262
Arrears Rate: 7.8%
Average Detached Home Price: $360,19411
Insights: The vacancy rate increased for the first time since 2015 as many new rental constructions continued at a strong pace in 2020.
1 CMHC: Rental Market Report: Canada and Selected Markets. January 2021
2 CMHC: Canada – Vacancy Rates by Bedroom Type by Provinces, 2015-19
3 CMHC: COVID-19 – Eviction Bans and Suspensions to Support Renters
4 Ontario.ca: Renting in Ontario – Your rights
5 CMHC: Housing Observer – 2020 Rental Market Report
6 The February 2021 average price for all home types in the Greater Toronto Area, according to the most recent market report by the Toronto Regional Real Estate Board.
7 The February 2021 average price for all home types in the Ottawa region, according to the most recent market report by the Ottawa Real Estate Board.
8 The February 2021 average price for all home types in the Hamilton-Burlington region, according to the most recent market report by the REALTORS® Association of Hamilton-Burlington.
9 The February 2021 average price for all home types, according to the most recent market report by the REALTORS® Association of Edmonton.
10 The February 2021 average price for all home types in the city of Calgary, according to the most recent market report by the Calgary Real Estate Board. The board does not provide a cumulative average price for the Calgary CMA.
11 The February 2021 average price for a detached home, according to the most recent market report by the Winnipeg Real Estate Board.