The average cost of renting an apartment in Canada has increased by 11.1% from August 2021 to August 2022, according to the latest national rent report from Rentals.ca.
If you live in an apartment, you have more than likely felt the effects of the dramatic increase in rental rates in Canada.
Today, I’m going to share some of the key factors contributing to rising rental prices in Canada, as well as some of the things Canadians are doing to cope with today’s market.
WHY APARTMENT RENTAL RATES ARE RISING: KEY FACTORS
In August 2022, Canadian renters paid an average of $1,959 per month, according to Rentals.ca. This is up from the recent post-pandemic low of $1,676 in April 2021. An increase of this magnitude is surprising to say the least.
According to that same Rentals.ca national rent report, the three cities that have seen the largest annual price increases for one-bedroom rentals 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 median after-tax income of Canadians is $66,800. At this rate, low to middle income renters are definitely feeling the pressure of the market.
So why are rental prices in Canada skyrocketing? Let’s take a look at some of the major contributing factors.
Inflation
With recent annual inflation rates (expected to be 7.0% in August 2022), Canadians’ wallets are starting to feel the pressure.
It is no secret that inflation has caused a great deal of grief to Canadians. Almost everything has become more expensive. Groceries, clothing, building materials, automobiles, gas and more have become less affordable for the average Canadian. Unfortunately, the increase in rental prices seems to be up to par.
Increase in real estate value
The cost of rent is generally correlated to the value of the rented property. More expensive buildings usually have a higher monthly rent.
According to Wowa’s latest housing market report, both commercial and residential property values have increased compared to last year. Despite the recent market correction in September, real estate values are still high. This could potentially mean apartment owners passing on their higher mortgage interest costs to their tenants.
Increase in demand for apartment rentals
The COVID-19 pandemic has caused a lot of confusion in the market. Many Canadians have lost their jobs, been forced to downsize, or are currently unsure of what the future holds. As a result, there were 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, which recorded 50,876 real estate transactions.
Based on this data, many Canadians are likely to put off buying a home. Instead, they choose to rent. This could mean an increased demand for apartments and a reduced supply of apartments. Each time the demand for apartments increases and the supply decreases, the cost of rent will increase.
HOW CANADIANS CAN PREPARE FOR HIGH RENTAL RATES
Now that you have a better idea of why rent is rising, let’s take a quick look at some of the ways Canadians are reacting and what you can do to make paying rent easier.
1. Personal budgeting and cost cutting
Creating a budget is crucial if you want to stay in control of your personal finances. With the cost of everything rising, your finances will likely be a little tighter than usual. Unforeseen expenses could easily affect your ability to pay your rent on time.
I recommend that you sit down and create a simple budget sheet, detailing your monthly income, expenses, utility bills, and rent payment. This will ensure that you don’t overspend and have enough to pay the rent.
2. Take a side gig
Taking a side gig is a great way to increase your income by turning your free time into paid time. As an independent contractor, you’ll be able to work as little (or as much) as you want, choose your own hours, and earn up to $20 an hour or more.
3. Sign longer leases
Most apartments offer a price reduction to tenants 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 certainly makes things more affordable. Renting a larger 2 or 3 bedroom apartment and splitting the rent with multiple roommates is one way to reduce your monthly expenses and stay afloat, despite rising rental rates.
WILL THE RENT CONTINUE TO INCREASE?
According to Bloomberg, the Canadian housing market is expected to fall 25% by the end of 2023. This could lead to lower (or at least more stable) rental rates.
At this point, it’s hard to say for sure.
For now, I encourage you to do your best to stay in control of your personal finances and spend your money wisely.