Over the past few months, the Canadian housing market has undergone significant changes.
Primarily influenced by the Bank of Canada’s decisions to raise interest rates, sales as well as home prices have been declining across the country. While some parts of the market have slowed down, though, others have heated up.
Throughout Canada, rent prices have experienced quite a large increase and the trend is unlikely to disappear soon. Here’s why rents are predicted to skyrocket this year, and how you can make use of this opportunity to your benefit.
Rents have grown in all parts of the country
The sharply rising rental prices can be felt throughout Canada. This shows in reports too.
The average cost to rent an apartment in Canada increased by 11.1 per cent from August 2021 to August 2022, according to the national rent report from Rentals.ca.
When assessing the reasons for these changes, it’s hard to put the finger on just one thing. Rents have grown at such a dramatic rate because of a number of factors.
Here are a couple of examples.
The biggest influence on the growing rent prices, of course, is inflation. Nearly everything on the market has become more expensive, and rents seem to follow the trend.
To better understand how inflation has impacted the state of the market, you must consider the demand and supply.
In order to combat inflation, the Bank of Canada had to increase interest rates, which consequently increased mortgage rates.
When a mortgage is less affordable, it becomes more challenging for people to purchase a property. If fewer people are buying homes, it means more of them are becoming tenants.
This, of course, puts added pressure on the rental market. Due to great demand (also increased by a surge in immigration), the prices inevitably grow.
Demand for luxury
Despite the high inflation, the need for luxury doesn’t disappear. People are still willing to pay more to enjoy luxurious apartments and houses. If they need perfection, they’ll find a way to have it.
Since single-family homes are still expensive, many individuals opt to rent a property instead, which furthers the strain on the rental market.
Over the past few years, Canada has experienced a significant surge in immigrants. In efforts to spur financial growth, the government has brought in workers from all around the globe.
The only problem is the lack of housing. There are not enough homes to accommodate all of these people (or even people who are already living here).
When there’s a lack of homes, it only makes sense that rates for available properties rise.
Trying to find a solution, we now see efforts to develop more homes, but overcoming the shortage will take years.
Not enough construction
The market never stops. As we already mentioned, new homes are being built, but that’s not enough to satisfy the growing demand, especially in the country’s urban areas.
Statistics show that tenants take up over 4.5 million houses in Canada, and the need for more remains. Even if rent prices go up, the availability rate drops.
This means building new homes is essential.
However, the development industry has experienced its troubles too. Due to the pandemic and shortages in labour, many projects were delayed.
Now, the higher construction and manufacturing costs make it challenging to fulfill the existing plans.
How to make the most of the situation
While the rising prices can seem scary, they provide an opportunity, too. If you have the means, now would be an excellent time to invest in rental properties.
According to the Global Property Guide, you can earn a gross rental return of around three to five per cent by renting out a property.
As we already discussed, we're unlikely to see a reduction in demand. In fact, the need for housing will most likely increase, which means you’re guaranteed to make money from your investment.
However, before deciding, keep in mind owning residential real estate requires effort. It’s an active investment, which means you’ll need to have a hands-on approach.
Of course, there is a solution. If you don’t have the time to be an active landlord, you can always use the services of a property manager.
When searching for a rental property, you should look for a place that’s low maintenance and can still be sold for a reasonable price (even in this market).
The rapid escalation in rents is experienced just about everywhere in Canada. Perhaps the most striking example is Atlantic Canada, which has seen rents rise 32.2 per cent (October 2022 data compared to 2021, in the same rentals.ca report).
Due to a lack of balance in supply and demand, the prices could grow even more. But there’s no good without the bad.
If you’ve been waiting on the sidelines to join Canada’s rental market, this is your golden chance! Investing in rental properties will be a smart decision you won’t likely regret.
Richard Crenian is the Founder and President of ReDev Properties. Ltd, a private real estate asset management company with its head office in Toronto. ReDev Properties is engaged in the development, acquisition, ownership and management of retail and mixed-use income properties predominantly located in Western Canada and Ontario. To learn more about Richard please visit www.richardcrenian.ca