The pandemic has effectively lowered the cost of rent for students living in the city, but will this trend last?
Renting in Toronto has always been expensive — today is no exception — but for students looking to rent during the pandemic, it has become slightly more affordable.
Rental housing market shifts related to COVID-19 have lowered the cost of rent for students. Average rents for bachelor, one-bedroom, two-bedroom and three-bedroom condominiums in Toronto have decreased between nine and 15 per cent compared to the same time last year, according to the most recent available Toronto Regional Real Estate Board rental market report.
Average rents for purpose-built rental apartments — the largest component of the city’s rental housing market — have also decreased slightly, according to John Pasalis, president of Realosophy, a data-driven Toronto-based real estate brokerage.
However, this long-awaited drop is happening at a time when the pandemic has people considering a move out of the city in search of more space. Amid another wave of lockdowns, it’s worth taking a deeper look at where we’re at and how we got here, and evaluating whether these rent declines will endure long-term.
The Ryersonian spoke to three real estate experts about how the coronavirus has impacted Toronto’s student rental housing market and what the larger shifts in supply and demand triggered by the pandemic might mean for Ryerson renters post-COVID-19.
The state of Toronto’s rental housing market
COVID-19 has triggered a significant increase in rental housing supply and a steep drop in demand, which has resulted in a slight decrease in the cost of rent for students living in Toronto condos and purpose-built rental apartments — excluding some who remain locked into leases signed pre-pandemic or during its early days. Condos have seen a larger drop than purpose-built rentals, which are traditionally cheaper.
Experts attribute this shift to three key public health-related trends: new travel restrictions, the rise of remote work, and the transition to online learning.
Right now, people are travelling into the city much less than they used to and many renters have opted to leave campus, or the city, altogether. Some remaining students who need housing have been pushed off-campus, as universities decrease occupancy rates in residences in order to ensure a healthy amount of space for those still allowed to stay.
While there is a lack of up-to-date data on purpose-built rental rates and vacancies in the city, Pasalis said he has seen “an increase in vacancy and rents drop a bit.” However, rents are still dropping faster for condos.
Purpose-built rental apartments make up the bulk of Toronto’s overall rental market, according to Murtaza Haider, a professor of data science and real estate management at Ryerson and the research director of the Urban Analytics Institute. They’re also a good option for students as even pre-pandemic, the cost to rent one is traditionally much lower than the cost of rent for condos, as they are generally considered inferior to condos in terms of quality of space.
While there is a lack of up-to-date data on purpose-built rental rates and vacancies in the city, Pasalis said he has seen “an increase in vacancy and rents drop a bit.” However, rents are still dropping faster for condos.
“What we’ve seen is a big increase in the availability of (condo) units, as more units have been put on the market,” said Diana Petramala, a senior economist at Ryerson’s Centre for Urban Research and Land Development.
In turn, this increase in supply has lowered condo rental rates.
“The biggest thing is that it’s led to more choice. And that’s actually helping to bring down rental rates, slightly — they’re still expensive, still quite high, but they’re coming down,” Petramala said.
The cost of renting a condo in the city’s downtown core has decreased significantly amid COVID-19, according to a recent Realosophy report. In the old City of Toronto, average condo rent has decreased 16 per cent compared to last year, the report says, “returning to prices last seen in early 2017.”
In the old City of Toronto, average condo rent has decreased 16 per cent compared to last year, “returning to prices last seen in early 2017,” according to a recent Realosophy report.
The report suggests this decrease is due to a massive rise in the amount of condos listed for lease during the first three quarters of this year, an additional 13,458 compared to 2019.
“It appears that the main driver of new rental listings supply is not from a ‘new’ source of supply such as units previously being rented out as Airbnbs or… newly completed condo buildings being rented out by investors or owners, but existing supply being vacated,” found the report.
The report attributed this steep decline in demand for condo rentals to the pandemic.
“What has happened is we’ve seen this big exodus of condominium rentals in the downtown core,” said Pasalis.
“If you’ve got a job downtown and you’re renting a 500-square-foot condo, and you’re no longer walking to work and you don’t need to be in the office and all the restaurants are closed, you’ve got to be thinking, ‘Why am I spending $2,000 a month on rent?’”
Between job losses and the rise of remote work and school, he said that a lot of people, including students, are moving back home to save money.
The post-pandemic outlook: a return to normal, or lower rental costs?
“I think, long-term, we’re going to get back to normal,” said Pasalis. “I don’t think this is a permanent trend. But the question is, what’s short? And what’s long-term?”
He said most people are hopeful that university classes will be back in-person by September 2021. If they aren’t, Pasalis anticipates that next year will be another sluggish one for the city’s rental market, which could benefit students who remain in Toronto.
Pasalis advises Ryerson students who plan to rent in the city to consider taking advantage of the slight drop in price and increased supply of purpose-built rental units, which, unlike condos, are typically somewhat rent-controlled and tend to be more affordable.
“It’s a good opportunity to lock in at a place where your rent’s not going to be pushed up significantly,” he said.
Although the pandemic’s long-term effects on the city’s rental market remain unclear, one expert thinks it could lead to more permanent lower rental costs for Toronto students.
Ryerson real estate management professor Murtaza Haider expects the demand for rental housing in Toronto to decrease long-term in light of the mass shift to remote work initiated by the pandemic.
“In the post-pandemic world, living next to your work will not have the same kind of appeal as it did before, which means that all that rental stock that is built around downtown Toronto will be available to students — should they choose to return — at an affordable rent,” said Haider, the Ryerson real estate professor.
Haider expects the demand for rental housing in Toronto to decrease long-term in light of the mass shift to remote work initiated by the pandemic, which could benefit students by reducing their competition, and therefore, rental costs.
“Before the pandemic, students were competing for the same apartment or the same condominium with someone who had a job, and students were continuously being outbid for those spaces,” he said. “Now, those who have jobs are not as interested in downtown core condominium space.”
Provincial priorities, more stagnant prices could mean increased housing supply and larger, more moderate options
Ontario has made residential construction part of the province’s COVID-19 recovery plan.
“We haven’t seen a pause in building occurring at all, but we’ve seen a decline in demand. So I actually think that COVID-19 is going to mean more supply for housing than we’ve traditionally seen,” said Petramala, the Ryerson economist.
When prices are rising rapidly, developers tend to focus on high-rise housing. But when prices are growing at a more moderate pace, they often pursue more moderate housing developments.
Petramala said that the pre-COVID-19 development pipeline was full of 30- to-50 storey high-rise buildings. Post-pandemic, she expects to see some more low- and mid-rise housing options being built.
She also forecasts a shift away from bachelors and one-bedroom apartments towards bigger apartments with more bedrooms as millennials get older.
“If you know your biggest source of demand is younger households who are maybe more price-constrained, more bedrooms means that more people can (room) together.”
With regard to the construction of new student rental housing, Haider predicts that over the next five years universities and developers will steer clear of building any new stock given the uncertainty surrounding what the eventual return to school will look like:
“It’s too risky to build student rental housing when (we don’t know) if students will ever return.”
Online learning could change everything
Given the social component of a post-secondary education, Haider expects that demand for rental housing downtown will increase somewhat once students are allowed to return to in-person classes. But he also anticipates the total demand for rental units in Toronto among students will decrease significantly compared to pre-pandemic levels given the growth of online learning
“In the long run, I don’t see students coming back in such large numbers,” said Haider.
Universities outside of Toronto have a much different environment in terms of community, Haider said, while Toronto’s university students are more in the open market competing for space.
“What you lose in terms of not renting near (a Toronto) university is not a sense of community, it’s just a sense of proximity,” said Ryerson real estate management professor Murtaza Haider. “If that proximity is not required because of online teaching, why would you pay for it?”
The competitive landscape for schools has also changed, Haider said. If students can eventually get a degree from a top university based anywhere in the world from the comfort of their own home and save on the cost of living in the city, he expects the demand for schools will change drastically.
“What you lose in terms of not renting near (a Toronto) university is not a sense of community, it’s just a sense of proximity,” said Ryerson real estate management professor Murtaza Haider. “If that proximity is not required because of online teaching, why would you pay for it?”
Long-term demand expected to remain consistent, but a “more balanced market” could mean rental costs for students might increase less quickly over time
Petramala doesn’t anticipate the trends associated with the pandemic will have a significant impact on the demand for rental housing in Toronto long-term.
“What I think is going to happen is demand is going to remain quite healthy, especially once we come out of COVID,” she said.
As a result, Petramala doesn’t expect rental costs to decrease for students living in Toronto anytime soon. However, she does anticipate “a more balanced” rental housing market in Toronto going forward, which could lead to the cost of rent increasing at a slower rate.
“For a really long time, you saw a very tight rental market,” said Petramala, with the cost of rent rising five to 10 per cent per year for the last five years.
In the future, she thinks these trends will help restrain the growth of rental costs somewhat.
“From a long-term perspective, we’re going to be facing more balanced market conditions and rents are going to probably remain relatively expensive at where they are, but they’re going to grow less quickly over time.”
