According to rentals.ca’s latest national rental report, the average cost of renting an apartment in Canada increased by 11.1% from August 2021 to August 2022.
If you live in an apartment then you have most likely felt the effects of the dramatic increase in rent prices in Canada.
Today I’m going to share some of the key factors contributing to increased rental prices in Canada, along with some of the things Canadians are doing to cope with the current market.
WHY HOUSE RENTAL PRICES ARE RISING: KEY FACTORS
Canadian renters paid an average of $1,959 per month in August 2022, according to rentals.ca. This is a rise from the recent post-pandemic low of $1,676 in April 2021. A rise of this magnitude is surprising, to say the least.
According to rentals.ca’s National Rentals Report, the three cities that have seen the highest annual increases in one-bedroom rental prices are:
- London, Ont. (36.9% increase)
- Calgary, Alta. (29.8% increase)
- Vancouver, BC (up 18.8%)
Toronto ranks fourth with an average rent increase of 17.1% compared to August 2021.
According to StatCan’s latest national income report, the average after-tax income for Canadians is $66,800. At this rate, low- to middle-income renters are definitely feeling the strain of the market.
So why are rental prices skyrocketing in Canada? Let’s take a quick look at some of the most important factors.
With the latest annual inflation rates (expected to be 7.0% in August 2022), Canadian wallets are starting to feel the strain.
It’s no secret that inflation has caused Canadians a lot of grief. Almost everything has become more expensive. Grocery, clothing, building materials, automobiles, gasoline and more have become less affordable for the average Canadian. Unfortunately, increased rents seem to be the order of the day.
Increased real estate value
The rental costs usually correlate with the value of the rented property. More expensive buildings tend to have higher monthly rents.
According to Wowa’s current housing market report, both commercial and residential real estate have increased in value compared to the previous year. Despite the recent correction the market experienced in September, property values are still high. This could potentially mean that homeowners are passing on their higher mortgage interest rates to their tenants.
Higher demand for rental apartments
The COVID-19 pandemic has created a lot of confusion in the market. Many Canadians have lost their jobs, had to downsize, or are currently unsure of what the future holds. As a result, there have been fewer real estate transactions (people buying houses).
Based on Wowa’s report, the total number of real estate transactions in August 2022 was 38,310, compared to August 2021, in which 50,876 real estate transactions took place.
Based on this data, it’s likely that many Canadians are procrastinating on home buying. Instead, they opt for rent. This could mean increased demand for condominiums and a reduced supply of apartments. Every time housing demand increases and supply decreases, rental costs will increase.
HOW CANADIANS CAN PREPARE FOR HIGH RENTALS
Now that you have a better idea of why rents are rising, let’s take a quick look at some of the reactions from Canadians and what you can do to make paying rent easier
1. Personal budgeting and cost reduction
Creating a budget is crucial if you want to stay on top of your personal finances. With the cost of everything rising, your finances are likely to be a little tighter than usual. Unexpected expenses can easily affect your ability to pay rent on time.
I recommend sitting down and creating a simple budget sheet that details your monthly income, expenses, utility bills, and rent payments. This ensures you don’t overspend and have enough to pay the rent.
2. Take a part-time job
Taking on a side job is a great way to increase your income by converting your free time into paid time. As an independent contractor, you can work as little (or as much) as you like, choose your own hours, and make upwards of $20 an hour or more.
3. Conclusion of longer leases
Most apartments offer a discount to renters who agree to sign long-term leases. Signing an 18- to 24-month lease can save you 5% or more on your monthly rent compared to a 12-month lease.
4. Living with roommates
Living with roommates isn’t always easy, but it definitely makes things more affordable. Renting a larger 2 or 3 bedroom apartment and splitting the rent among several roommates is one way to cut your monthly expenses and stay afloat despite rising rents.
WILL RENTS CONTINUE TO RISE?
According to Bloomberg, the Canadian housing market is expected to fall by 25% by the end of 2023. This could result in lower (or at least more stable) rental rates.
At this point, it’s difficult to say for sure.
For now, I encourage you to do your best to manage your personal finances and spend your money wisely.
Christopher Liew is a CFA charterholder and former financial advisor. He writes personal finance tips for thousands of Canadian readers on his Wealth Awesome website.
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