Rents could exceed $7.5K in Vancouver, $5.6K in Toronto without massive spike in building: Study

Average monthly rent could reach $7,500 in Vancouver and $5,600 in Toronto by 2032 if current trends in construction and population growth continue, a study by Concordia University and development company Equiton projects.

The research, by Erkan Yönder, an associate professor at Concordia’s John Molson School of Business, used machine learning to model growth in rents using housing and census data and immigration and population projections. The model suggests “rents will continue to grow rapidly” if both the addition of new supply and population growth remain at status quo levels, indicating the need for a massive increase in building.

It shows average rents in Toronto hitting $4,100 by 2027, up from $3,250 in March 2023, and reaching $5,600 by 2032. Average rents in Vancouver are projected to reach $5,200 by 2027 and $7,750 by 2032.

The research is intended to show how data can be used to address Canada’s housing crisis by identifying specific neighbourhoods where demand and prices could grow the most.

It also serves as a call to action, pointing out just how much more construction is needed overall. “We need to build more and more,” Yönder told Yahoo Finance Canada in an interview, ”like six times at least” the current pace of new development.

“I think there is no government who could take this burden on its own,” Yönder said. “So you really need the capital markets” in the form of REITs, developers and investors, he says.

Low vacancy disrupting supply/demand dynamics

The extent of Canada’s housing crisis has been well documented, with shelter inflation remaining a concern at the Bank of Canada even as many other indicators have returned to acceptable levels. A recent report from the Canadian Centre for Policy Alternatives notes that the average rent is not affordable for minimum wage earners in nearly every urban Canadian neighbourhood.

Vacancy rates are currently so low that “the traditional relationship between economic factors is disrupted,” the Concordia study says, with demand so high that rents are likely to keep rising even when more supply is initially added. The model shows rents starting to drop only when annual completions reach about 11 to 12 per cent of existing housing stock in a given area. The report notes that annual completions in the Toronto area were 1.1 per cent in 2023.

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“In other words, annual supply increases must reach 10 times the current levels (compounded over time) to meet the excess demand present in the market,” in Toronto, the report says.

Average rents in Montreal are projected to rise from $2,100 (in March 2023) to $3,325 by 2027 and $4,325 by 2032. In Calgary, where average rent was $1,900 in March 2023, the projections show it reaching $2,200 by 2027 and $2,600 by 2032.

Although the projected figures are hundreds or thousands of dollars more than current average rents, recent history shows that the potential growth (for example, increases of 26 per cent in Toronto and 50 per cent in Vancouver by 2027) is highly possible. Average rents in Canada increased by 30.8 per cent between April 2021 and June of this year, according to Urbanation and Rentals.ca data. In Toronto, rents went up 34.6 per cent during that period, and 40.8 per cent in Vancouver.

Though those average city rents are stark, Yönder says the solutions need to be specific to each neighbourhood, “because some places are heating up and some places are not heating up that much.” He argues for zoning rules and regulations tailored to specific areas that projections suggest will see rising demand.

“Our findings highlight the importance of developing location-based policies and the urgency of easing supply restrictions. It is increasingly clear that achieving a healthy supply/demand relationship will depend heavily on the private real estate sector, more specifically those capable of large-scale development.”

John MacFarlane is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jmacf.

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