Canada’s housing market experienced a cooldown in 2023 after reaching peak levels during the pandemic. Despite significant housing supply constraints, the rapid increase in interest rates has driven up borrowing costs, contributing to record levels of unaffordability.
The last 11 months have been a significant adjustment for housing market participants, as most regions in Canada transitioned from a buyer’s market to a seller’s market. The increase in housing prices during the pandemic and record levels of population growth have also negatively impacted the rental market. As such, rent prices across Canada are increasing at record levels. Nathan Levinson, Founder and President of Royal York Property Management, elaborates on the underlying factors and their subsequent effects.
“Housing affordability is at an all-time low across Canada due to high borrowing costs, and first-time homebuyers are delaying real estate transactions,” he says. “In this environment, potential home buyers opt to rent for longer due to higher mortgage rates. This drives up rent prices across the entire market, especially for affordable housing.”
Rent prices in Canada have increased by $175 in the past six months, reaching a new high of an average of $2,178 in October across the country. This increase is driven by landlords passing the cost of owning their properties to tenants amid higher interest rates and strong population growth in Alberta, Quebec, and Nova Scotia, which raises average market rents.
Tenants feel the negative impacts, with evictions and rental defaults up amid high demand and record-low affordable housing options. Depending on rent-control guidelines, New entrants may face the most challenges. For example, in Ontario, Canada’s largest province, any units that came to market after November 2018 are exempt from rent control. This creates an incentive for tenants to avoid moving unless necessary. Consequently, young Canadians and newcomers to Canada are particularly struggling with the rapid increase in rent prices due to the limited number of units on the market that are under rent control.
In this housing and rental market, professional tenant placement services, such as those offered by Royal York Property Management, are increasingly valuable in helping tenants find market-priced properties that meet high-quality standards. Despite this, renters must be prepared to make trade-offs regarding location, size, or amenities to secure housing within their price range.
As interest rate cuts are unlikely in the near term and more mortgages come up for renewal, the housing market will continue to face serious challenges. This will likely lead to higher rent prices as landlords pass some of their costs to tenants to increase the yield from their properties and try to mitigate a reduction in property values. Rent increases will likely continue until the market can no longer sustain them, and tenant dissatisfaction and rent strikes may become more frequent. Professional property management services like Royal York Property Management offer landlords a hands-off approach and offload the responsibility of dealing with tenant disputes.
While high interest rates and inflation continue to affect the real estate industry, financing new housing projects will be challenging. This climate could negatively impact both landlords and renters. Landlords might need help expanding their portfolios due to increased competition and higher rental property prices, making them less profitable. The high-interest rates and inflation will exacerbate existing issues for renters – fewer housing options and less affordable housing.
However, there are reasons to be cautiously optimistic about 2024. The slowdown in new developments means investors can shift their strategies towards asset optimization, digitalization, and niche markets. Asset optimization and digitalization may reduce operational costs and make properties more appealing to a broader range of tenants.
Investing in niche markets, such as senior living facilities or student accommodations, can be a strategic move. However, these investments require careful consideration of specific practical and regulatory requirements. They present an opportunity to diversify a portfolio.
Policy changes may also improve the market and affordability. For instance, the federal government’s decision to remove the goods and services tax on housing projects explicitly built for rental purposes could be a game-changer. This tax relief lowers overall construction costs, making investment in these properties more appealing and helping to address the supply shortage. It also allows landlords to offer their units at more competitive prices, benefiting investors and those needing housing.
As we head into 2024, investment opportunities in multifamily residential housing remain attractive. With the promise of tax relief providing some balance against capital scarcity and high demand, multifamily properties might still be among the safest bets. Landlords aiming to maintain high occupancy rates should consider professional services that offer tenant placement services, as should tenants seeking housing within a reasonable timeframe.
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Company Name: Royal York Property Management
Contact Person: Nathan Levinson
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City: Toronto
State: Ontario
Country: Canada
Website: https://royalyorkpropertymanagement.ca/