Mortgage stress tests aren’t just affecting would-be homebuyers in Canada. Renters, even those with no intention of buying any time soon, are facing increasing rents in Toronto as a result of the federal policy, a popular real estate analyst suggests.
“It’s been unbelievable [rent] growth… essentially since they put in the new B-20 rules, right, the new stress test which has reduced credit availability in the marketplace and forced people to rent for longer,” Ben Myers, founder of Bullpen Consulting, a firm that advises developers and land owners, tells Livabl.
At the onset of last year, the federal government expanded stress testing to apply to uninsured mortgages. This means that a mortgage applicant looking to borrow from a big bank has to qualify at a higher rate than they are applying for — even if they can cobble together the 20-percent downpayment needed to avoid insuring a loan from many financial institutions.
While the impacts on homebuying aspirations are obvious, a knock-on effect has been that renters in Toronto have been feeling the pinch: would-be homebuyers rent for longer, putting pressure on the city’s already drum-tight vacancy rate.
“People still need to live somewhere,” says Myers. “It’s not, ‘OK, I live with my parents or I buy a home’ — there’s something in the middle there, and so it’s going to have an impact. They’re not buying — as you can see there’s been a huge decline in the number of transactions in the housing market — so where is that demand going? Well, it’s been going to the rental market.”
That’s one of the main reasons Myers is forecasting rents to increase this year by 11 percent in the old city of Toronto and 10 percent in neighbouring Mississauga, a one-time suburb that has grown into a city of its own.
According to a monthly report that Myers recently penned for rentals.ca, the average rent in November for a one-bedroom apartment in Toronto was $2,144, up 1 percent from the previous month and roughly in line with the rate of growth projected for this year.
On a per-square-foot basis, Myers has seen rents in some buildings increase by an eye-popping 20 percent.
Population gains, rent controls, strong job growth and red-tape around the construction of new units are among the other factors driving parabolic rent increases in Ontario’s capital, Myers suggests. “We’re essentially falling victim to our own success,” he explains.
“People want to come here, major corporations are expanding their offices and adding jobs downtown, and we’re just not offsetting that with enough supply.”