What's Wrong with the Toronto Condo Market? The Rents are too Low

18 July 2012

While it is true that sales are slightly lower in 2012 than in 2011 and that condo prices have levelled off since January; this is not a signal that the condo market is about to come to an end. The key point to make is that people still want to live downtown and the numbers will only grow over time. So the long term prospects remain excellent. That means people who want to live downtown will be either buyers and owners, or they will be tenants and renters. The problem is not that prices are too high – it is that rents are too low!! When we look back at the condo market of 2008, resale condo prices were $400/sf and pre-construction prices were $450. Today resale prices are $500/sf and pre-construction prices are $650. That’s a 25% increase on the resale side and a 44% increase on the pre-construction side. On the other hand, rental rates in 2008 were $1400-1500/month for a one bedroom and $1850- 2200 for a two bedroom unit. Today one bedroom units rent for $1550-1700 and two bedrooms from $2100- 2500. These 2012 prices are after rent increases of almost a $100/month this year. And these increases are still only about 10-12% higher than in 2008. If rent increases were to match the condo price increases over the last four years, then today’s rents would be: $1900- 2000/month for a one bedroom and $2400-2800/month for a two bedroom. Rents at these levels would encourage more people who want to live downtown to buy. And investors would also come back into the market.