In a region notorious for its high living costs, the first quarter of the year brought some relief for renters in the market for a condo in the Greater Toronto Hamilton Area (GTHA). According to new data from Urbanation Inc., condo rents in the GTHA slipped 7.4% in Q1-2024 to an average of $2,732 ($3.89 per sf).

This follows a record high of $4.20 psf ($2,929 for 698 sf) in Q3-2023 and marks the largest six-month decrease recorded during the past 15 years of data tracking outside of the pandemic period in late 2020/early 2021. Despite this decline, average condo rents in the GTHA increased 1.6% year-over-year in Q1-2024 to $3.89 psf ($2,732 for 702 sf). Outside of the rent declines experienced during COVID-19, this represented the slowest annual pace of rent growth in nine years and a substantial deceleration compared to the 13.3% annual increase recorded a year ago in Q1-2023.

Prospective renters have investors to thank. While fingers have long pointed to investors for causing high housing prices, the reality is that they’re adding much-needed rental stock to the region.

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The deceleration in rent prices comes as condo completions – those launched before interest rates and construction costs skyrocketed – reached a record high. This influx of supply from newly completed condos made a significant impact on the GTHA rental market. According to Urbanation, a total of 23,095 new condos were registered in the region over the past four quarters, a 21% increase over the same period ending Q1-2023 (19,028) and marking the third highest four-quarter total ever recorded.

That’s surely good news – even if fleeting, but more on that later – given the relentless dialogue about an under-supplied housing market needing new homes ASAP. A record-high 12,132 new condo units began occupancy in Q1 alone, adding further ‘shadow’ rental supply to the market.

Buildings registered in the past four quarters represented a record 24% share of all condos listed for rent in Q1-2024. Overall, the 37% year-over-year increase in condo rental listings more than doubled the 15% increase in leases signed during Q1-2024. This pushed active condo rental listings at quarter-end up to 5,078 units — a 55% quarter-over-quarter increase and more than double the level from Q1-2023 (2,516).

Rental construction starts over past 12 months were up 174% from 2022 lows. For purpose-built rental buildings completed since 2003, rents increased 2.0% quarter-over-quarter and 4.5% year-over-year to an average of $4.14 psf ($2,933 for 723 sf), according to Urbanation. The continued growth in rents for purpose-built rentals came as new supply slowed. After reaching a multi-decade high of 5,779 units for the year ending 2023, purpose-built rental completions fell to a six-quarter low of 783 units in Q1.

“While the market remains expensive with rents 15% higher than two years ago, renters waiting for some reprieve in the market have found it thanks to a temporary supply infusion from condo investors,” said Shaun Hildebrand, President of Urbanation. “This isn’t expected to last long, and rents should continue rising as construction falls short of demand.”

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According to Urbanation, the 2.6% vacancy rate for purpose-built rentals in Q1-2024 represented a slight increase from Q4-2023 (2.5%) and a modest increase compared to a year ago in Q1-2023 (2.0%), but is still representative of an undersupplied market. Vacancy rates were highest in non-rent controlled buildings completed since 2019, at an average of 3.5%, compared to pre-2019 rent-controlled buildings averaging vacancy of only 1.7%.

The Urbanation report points to the government’s removal of HST on new purpose-built rentals in November 2023 as a catalyst in improving construction activity in the region. Over the last four quarters, a total of 5,976 purpose-built rental units started construction, a 174% increase off the low of 2,182 starts in the four-quarter period ending Q3-2022. The total inventory of purpose-built rentals under construction in the GTHA reached a multi-decade high of 22,064 units in Q1-2024.

It seems that the progress made on the supply side, however, won’t last. The latest annual total for starts remained below the recent high of 7,540 starts recorded in 2021, and starts were down 21% year-over-year in Q1-2024 to 1,329 units. According to the latest Housing Market Outlook released by the Canadian Mortgage and Housing Corporation (CMHC), Canada’s housing starts are expected to decline in 2024. With construction paused on many new builds – purpose-built rentals or not – rents in the region are expected to rise again. So, if you’re in the market for a rental in the GTHA, the time to act is now.