Rent prices 'going through the roof' as inflation soars
A soaring inflation rate is forcing Canadians to contend with a climbing cost of living, as the prices of groceries and gas are on a steady incline. But for those who rent their homes, a rise in inflation is also likely to send rent prices shooting up over the months to come, experts say.
Moshe Lander, an economics professor at Concordia University in Montreal, said Canadians can expect to see the rate of inflation increase in the near future, as well as a rise in rent prices.
“Rent is one of those things that, because it's essential, it's usually going to go up,” Lander told CTVNews.ca in a telephone interview on Wednesday. “It's perfectly reasonable that if you are a renter, you should be expecting that there's a big rent increase coming your way in the next six to 12 months if your lease is resetting.
“I have a feeling that we haven't seen the worst of it yet.”
Renters are not the only ones feeling the pinch of rising inflation rates – so are landlords, Lander said. As a result, they are likely to turn to their tenants in search of a way to recover those extra costs, and other expenses such as renovations, by raising the price of rent, he said.
“All of us are experiencing inflation – landlords are not immune to that,” said Lander. “Where I might go to [my] employer and say, ‘You need to give me a bigger raise to keep up with [inflation], landlords are … going to the tenants and saying, ‘I'm increasing your rent.’”
In June of last year, the annual rate of inflation came to 3.1 per cent, a decrease from the rate recorded just one month prior. However, since then, Canada’s inflation rate has consistently increased from month to month before hitting a 31-year high of 6.8 per cent in April of this year.
Average rent prices in Canada have also been climbing for several months before hitting a three-year peak last month, according to data compiled by Rentals.ca. In its latest rent report, the average price of rent for Canadian properties was $1,888 per month in May 2022. Month-over-month, this is an increase of 3.7 per cent, the largest bump since May 2019. Properties include single-detached and semi-detached houses, townhouses, and apartments.
“Rents were already rising in a lot of the major markets in Canada,” Paul Danison, content director of Rentals.ca, told CTVNews.ca on Wednesday in a telephone interview. “But now you add rising interest rates [and] the out-of-control inflation going on, and rents right now are just going through the roof.”
According to Danison, there’s “no question” the rising rate of inflation is playing a key role in the increase in average rent prices across the country. Major markets in particular are seeing a drastic growth in prices year-over-year. In Vancouver, as of this month, the average price to rent a one-bedroom unit is $2,377 per month, a 19.9 per cent increase year-over-year. Toronto also saw rent prices skyrocket between 2021 and 2022 – the average rent price of a one-bedroom unit in the city is $2,133 per month, a 15.7 per cent increase compared to the year before. Halifax residents saw a considerable amount of growth in the average price of rent as well, with a one-bedroom unit costing $1,669 per month, a 13.4 per cent rise compared to the same time last year.
A few other, smaller markets are also seeing big increases, Danison said, as residents capable of working from home seem to be straying further from urban hubs. In Burnaby, B.C., the average price of rent is now $2,012 per month for a one-bedroom unit, a 24.1 per cent increase year-over-year. Renters in Kitchener, Ont. are seeing similar levels of growth, with the average monthly price of a one-bedroom unit now $1,839, a 22.4 per cent increase year-over-year.
Putting further strain on those in the rental market are rising interest rates, said John Pasalis, president of Realosophy Realty, a Toronto-based real estate brokerage. Recent interest rate hikes set by the Bank of Canada are contributing to a slowdown in the resale housing market, resulting in fewer home sales, he said. Many first-time homebuyers are now opting to stay in the rental market instead of purchasing a new home.
“Interest rates are making it very hard for new buyers to enter the market,” Pasalis told CTVNews.ca in a telephone interview on Thursday. “Many of those people are going to be moving to the rental market which is going to push rent prices up, unfortunately.”
“It's been a very challenging market for renters right now because there's just so much competition.”
Considering each of these factors, Danison said he expects rent prices in Canada to continue to rise at a similar rate through the fall season.
“When you see inflation rates like this, and you see interest rates going up, and you see such a lack of supply and demand growing, it's hard not to see rents continuing to go up,” Danison said. “I would guess that the monthly rate is going to jump again at a pretty significant number.”
CAN RENTERS EXPECT PRICES TO DROP LATER THIS YEAR?
Despite what is likely to be a rise in inflation rates in the short-term, Lander said he expects the rate to eventually level off and decrease by the end of the year. This is due to the rise in interest rates Canadians have been seeing over the least few months. While Canada’s central bank has said the goal of raising the interest rate is to cool inflation, it can take months before the effect of these hikes starts to materialize, Lander said.
“If the first interest rate increase was in February, I'd be looking towards August saying, ‘Alright, am I starting to see signs that that rate increase, which was only 25 basis points, is starting to have an effect?’” said Lander. “The interest rate hikes that are coming in the middle of this year should really start to take an effect towards the end of the year, and that's when I would expect that inflation is going to start to come back down towards its original level.”
However, a downward trend in inflation does not necessarily mean that rent prices will drop as well, Lander said. A more likely outcome would be to see rent prices increasing at a slower rate compared to how quickly they’ve been rising over the last few months, he said.
“They're going to continue to go up … Rent is always going up, it’s very rare that rent goes down,” Lander said. “It's just the speed at which your rent goes up won't be as fast as it's resetting now.”
Ideally, Canadians will see the rental market turn around in 2023, said Danison.
“The growth will have to slow at some point,” he said. “But I can't see rents going down before the end of the year.”
WHAT OPTIONS DO RENTERS HAVE?
In the medium to long-term, a key factor to consider when determining how quickly rent prices will increase is the amount of supply on the rental market, Lander said. If demand continues to outweigh supply, as it does now, the lack of housing available to renters will drive rent prices higher, he said.
The solution lies in municipalities setting bylaws that encourage homebuilding and remove some of the red tape that exists around zoning restrictions, he said, rather than expecting the regional or national governments to intervene, he said.
“Almost all housing issues are municipal and that’s partly why the federal and provincial governments are having such a hard time dealing with these types of issues,” said Lander. “I think that the average renter is looking in the wrong spot for the solution.”
Aside from that, Pasalis said he encourages those looking to enter the rental market to be mindful of existing rent control guidelines. Each province in Canada has its own set of policies designed to protect tenants by limiting the frequency of rent increases, as well as the amounts by which prices can go up.
In British Columbia, for example, landlords must give their tenants at least three months’ notice of any increase in rent. A rise in prices can only take place once a year, and is based on the current inflation rate. Other provinces have similar guidelines. In Ontario, landlords cannot increase rent prices until 12 months after the tenancy began, or 12 months after the most recent rent increase. A rise in price is also calculated using the province’s consumer price index.
“Every province is going to have their own rents and rent control guidelines, and some are going to be more strict than others,” Pasalis said.
Danison said he advises renters to renew their existing leases whenever possible, instead of signing into new agreements with other landlords.
“When you have to move, you could be talking hundreds of more dollars a month to find a place similar to what you're living in right now,” he said.
Danison’s advice also includes researching potential new homes as early as possible, even months before a lease is set to expire. He also points to a number of perks being offered to renters, such as free rent for one month, free TV and internet service for one year, as well as free parking.
“Talk to your friends, talk to leasing agents [and] let people know that you're looking for a place,” he said. “There are deals to be had if you get creative.”