What Makes Rents Go Down? You Really Don’t Want to Know.

Ontario is now, once again, gripped by stories of skyrocketing apartment rents. Much like our fascination (or horror, depending if you are an owner or buyer) with rising house prices, every ten years or so Ontarians and Torontonians express outrage at rent increases.

The outcome is predictable. Accusations fly about greedy landlords and price gouging. Activists demand more social housing. Politicians float knee-jerk solutions which are more horrific than the problem.

Few people likely remember Ontario’s first foray into rent control in 1975, which was quickly followed by apartment shortages, long waiting lists, buildings falling into disrepair and low-rent apartments in Forest Hill hoarded by wealthy professionals.

We’ll probably see this all happen again, because that is what usually happens. But, why are rents going up?  Are landlords greedy?  Are there not enough apartments? Are maintenance costs increasing?

The best answer is to look at it another way completely. What makes rents go down?  Yes, that’s right. Sometimes rents decrease. Like in Alberta right now.

In the province of Alberta, average 2-bedroom rents decreased 7.5% year-over-year. In some Alberta towns, rents went down 16.4%¹. And why? The answer is simple. Their economy is in near shambles.

Alberta’s apartment vacancy rent went up from 5.6% to 8.1% year over year¹. That means one of every twelve apartments is empty. And landlords are reducing rents to fill vacant units. It doesn’t matter if landlords are greedy or not, or how many apartments are available, or what the government’s housing policy is. If the economy weakens, rents go down.

Rents in Toronto, and Ontario, are going up. Vacancy rates are low. Why?  Probably because of a strong economy, more employment and rising wages. Rents aren’t the problem. They are a symptom of economic health.

The quick take-away here? Ontario’s strong economy won’t last forever. And neither will our rising rents and house prices. Someday we may be just like Alberta. And apartment rents will go down. But we won’t be happy about it. Don’t believe that?  Just ask anyone in Alberta right now.

Mike Chopowick – April 4, 2017

  1. CMHC Rental Market Report – Alberta Highlights – December 2016

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