Monday, October 1, 2012

Tune is Changing in Toronto: Gen Y should Rent

In 1981 62.1% of households owned by 2001 65.8% by 2006 68.4% did so. Since then it has most likely risen. (ref). New blood is essential to keeping that rate from falling. Why Gen Y should tough it out in the rental market
Renting is the obvious alternative for someone who is unready for the financial blood-sucking that home ownership entails.
Tell us how you really feel.
Renting isn’t a quick and easy alternative to buying, though. Canada Mortgage and Housing Corp.’s latest report on the rental market says the national average vacancy rate for apartments was 2.3 per cent in April, which compares to 2.5 per cent a year earlier and a long-term average of 3.2 per cent. Regina, Winnipeg and Montreal are among the cities with smaller vacancy rates than the national average, but Toronto stands out on the low side at 1.5 per cent in April. The city’s vacancy rate for condos is even lower at 1 per cent.
I personally know of Chinese condo owners who have given up on having renters. Hard to imagine with 58,000 condos coming in Toronto that the vacancy numbers are relevant except for house rentals.
CMHC measures rental costs in terms of two-bedroom apartments. Toronto’s average was $1,164 per month last spring, second to Vancouver’s $1,210. You could carry a $250,000 mortgage at today’s five-year rates for those rents, not that there’s much of anything in this price zone in either city.
As tough as the rental market may be, it’s still a better option for Gen Y than buying prematurely. Renting, at least, is a finite expense each month. Housing is infinite – there are fixed costs, plus endless discretionary expenses. Buying is not the solution to difficulties in finding a place to rent, at least not without further price declines. Instead, find a roommate and pool your resources to cut rental costs.
Tough love. Although, with tightened lending rules, this may be irrelevant advice anyway.


jesse said...

CMHC's reported vacancy rate is for purpose built rentals mostly, they do not include private units and houses unless more than 3 units. This market segment is different from the private label stuff, the property managers in purpose built have their own business model that involves attempting full occupancy, providing timely service (well one hopes anyways), and keeping the units in a stable and functional condition. Not always true but there perhaps is a reason why they can maintain low vacancy rates and increase rents at a fair clip each month.

I've been tracking rents in Vancouver for a while, there is a definite discrepancy between CMHC reported rents and the CPI reported owned accommodation used to determine the inflation rate. I don't know why the marked difference but I can think of a few reasons, not least landlords being loath to markedly increase tenant rents because they aren't up for being full-time property managers.

The anecdote you share about owners being loath to rent out their suites indicates to me too many grade 3s are chasing the soccer ball around the pitch and everyone is getting their shins bruised. This reeks amateur to me, no better a sign than this that the market's overbought.

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