Did You Get a Rent Increase in 2022?
Rents in Toronto on the rise. Again.
If you know me, you know I do a lot of rentals. I actually enjoy them. A lot of agents won't touch a rental deal - apparently it's "too much work". But I'll never say no to a rental (especially a referral) because a huge part of my business is working my butt off to make renter clients happy and then have them reach out to me again in a year or two when they either need to rent again, or buy. That's my business model and it's worked out pretty well for me so far ;)
Over the past few weeks, I've gotten the same emails, phone calls, or texts from previous renter clients that go a little something like this:
Previous renter client: "Adil, my landlord is raising my rent. What can I do?"
Me: "How much is the increase? And what are you paying now?"
Previous renter client: "I'm paying $1950/mo. And they're raising it by $250/mo."
Me: "Yeah, that's about right. If you recall when we found the place, I mentioned it wasn't under rent control and that we absolutely knew the rent would go up the following year, but to enjoy the low rent while you had it."
Previous renter client: "Yeah, I know. I was just hoping they wouldn't raise it. Can we find something similar for what I'm currently paying now?"
Sometimes I can be pretty blunt. But that's why people work with me.
It's probably worth doing a quick rental primer for anyone who is new to renting in Ontario:
1 - The Ontario government sets the maximum allowable rent increase for the following year around August of each year. It's based on CPI for the previous 12 months and can be anywhere from 0% to 2.5%. (Side note: it's interesting how the maximum allowable rent increase in any given year is set at 2.5% when CPI is basically three times that right now. But I digress).
2 - For 2022, that maximum allowable increase was set at 1.2%. For 2020 and 2021, it was 0%. For 2023, it's 2.5% (the max permitted).
3 - However, the government rent increase guideline only applies to buildings that were first occupied on or before November 15th, 2018. So if any unit in your building was occupied on or before Nov 15, 2018, the whole building is under rent control and the max rent increase falls under the provincial guideline. If the first unit in a building was occupied for the first time after Nov 15, 2018, then there is no rent control and your landlord can raise the rent as much as they like.
4 - Your rent can only increase once every 12 months.
5 - Landlords must give at least 90 days' notice of any rent increase.
That's pretty much all you need to know about rent increases in Ontario. There's always confusion around that November 15th, 2018 date and during the Covid "rent discount" times of 2020 and 2021, a lot of my renter clients would actively seek out buildings under rent control because we knew they were getting a great deal and the thought of their rent increasing by several hundred dollars the following year was very unappealing. You'd think that would have drastically increased the demand for buildings under rent control but there's simply never enough supply in the rental market overall to see a huge shift in demand that way. But it was definitely a recurring point of discussion with a lot of my renter clients in 2020 and 2021.
I've been thinking a lot about the reason for the sudden jump in rents in 2022. Last year around this time, rents downtown spiked, basically overnight. As soon as Covid lockdowns eased, we saw a push around returning to the office, restaurants and bars started reopening, and Universities planned for reopening in the Fall. It created a huge wave of people coming back downtown seemingly all at once resulting in rents spiking around 10% in just a few months into the summer of 2021.
It's happening again this year but for different reasons.
Yes, people are starting to go back to the office more regularly. But that's nothing new.
Yes, downtown is back to "normal". Restaurants, bars, clubs, entertainment, shopping...everything is back. But that's nothing new either.
And yes, immigration is up after a Covid-induced freeze. But again, that's not an overnight phenomenon.
So what changed? Well, to overly simply things - Interest rates went up. Way up.
The cost of buying a house or condo has gone way up. I'm not talking about the price of the actual property itself. I'm talking about the actual monthly cost of the mortgage. And at some point, owning property gets out of reach for a lot of buyers (which is what the Bank of Canada is actually trying to achieve by increasing interest rates, thereby reducing the demand for housing to moderate prices and inflation) and people have to live somewhere. So there's a whole contingent of buyers out there that are either priced out qualifying for a mortgage needed to buy real estate in Toronto due to higher interest rates, or they're choosing to wait while the market sorts itself out (you probably know how I feel about trying to time the market but if you financially can't afford to buy, renting is your only option).
Here's the funny-but-not-so-funny situation we're in: A big part of the reason for aggressive interest rate hikes this year from the Bank of Canada is to bring down housing prices. The nuttiness of week-over-week resale price increases in early 2022 was simply not sustainable and while the market itself would have likely come to the same conclusion and a slowdown would have naturally occurred, the Bank of Canada said "enough is enough" and starting pushing up interest rates to take steam out of the market. Of course, housing isn't the only thing they're focusing on. Inflation is out of control and causing the price of everything to go way up, so reducing demand by raising interest rates is one of the only levers available to try and solve that. But interest rates are a blunt tool that can only be used to slow down the demand for everything all at once, and this just so happens to include housing.
So what's so funny-but-not-so-funny about that? I mean, real estate prices are falling so isn't that what the Bank of Canada wanted? Well, check this out. Yes, real estate prices have fallen, but in Toronto it still costs more to own the same house or condo today than it did 4 months ago when interest rates were lower but prices were higher. Why? The monthly carrying costs have increased faster than the prices have fallen so you were actually better off paying more for a house or condo in February with a lower mortgage rate than you are buying today at a lower price but with a higher interest rate. So raising interest rates to lower the price of housing didn't actually reduce the cost of home ownership. As with everything, there are examples that will refute this but overall, that's what I'm seeing. Prices haven't dropped enough to make up for the higher carrying costs of higher interest rates.
And what about rents? Well, rents are way up because the demand for rentals has also gone through the roof. Which means that the cost of renting a house or condo is now much more expensive than it was just a few months ago, and way more expensive than it was a year ago, simply due to the sudden influx of new renters who have been pushed out of the resale market and need a place to live.
There's also a huge contingent of landlords out there who have variable rate mortgages (I would argue that the majority probably do), and with rising rates comes higher carrying costs for those landlords. And landlords are not just going to absorb these additional costs if they don't have to. And many simply can't. So if the market can bear it, rents will keep increasing to ease some (but not all) of the additional cost burden on landlords as well. So nobody wins (except the banks).
Rents in Toronto are back to (or very close to) their all time highs. And I see no reason for them to stop rising anytime soon. Which makes me wonder...If you give it enough time, maybe buying will start to look more attractive again (hint, hint ;)
So did raising interest rates actually bring down the true cost of housing in Toronto? Nope.
Will your rent go up in 2022? Yup.
The cost of everything is going up and rent is no different.
Have you checked out my previous blog posts?
Your Toronto condo lover,
iPro Realty Ltd, Brokerage
Direct: 647-223-1679 (call/text)