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The whole story behind soaring rents and what it means to the Bank of Canada
Rent inflation accelerated to 7.4 per cent in November, one of the biggest contributors to the consumer price index. PHOTO BY TONY CALDWELL/POSTMEDIA
Another reason for the central bank to keep interest rates higher.
Author of the article:Pamela Heaven / Posthaste
Immigration and a housing shortage have frequently been cited to explain the soaring costs of rents in this country, but is that the whole story?
Rent inflation accelerated to 7.4 per cent in November, one of the biggest contributors to the consumer price index.
Yet data from Rentals.ca show that rent growth for new tenancies has actually slowed, says a report this week from Capital Economics. Increases slowed toward zero in Toronto and to the mid-single-digits in Vancouver, both cities that attract a larger share of immigrants.
And what about rent control?
In Ontario, Quebec and British Columbia annual rent hikes for existing tenants are capped at 2.5 per cent or less. Ontario’s rent controls have some limits and there are none in Alberta, but Capital estimates that 85 per cent of tenants nationwide are covered by rent controls.
“If we assume existing tenants without rent control see increases in line with the growth rate for new tenancies, then the average rent increase for tenants that remained in their units in 2023 should have been only a little more than 3 per cent, far less than CPI rent inflation,” said Stephen Brown, Capital’s deputy chief North America economist.
The missing element is the size of rent hikes when a tenant moves out and is replaced by a new one, says Brown. When this happens landlords will often raise the rent considerably to catch up with the market, especially if the unit was subject to rent control.
Capital uses this example. Based on Rentals.ca data, a two-bedroom rent-controlled unit in Toronto would have rented at $1,700 a month by late 2020. By 2023 that tenant would be paying $1,770 under rent control increases of 2 per cent a year. However, if they moved out, the landlord could charge the new tenant the current market rent of $2,140, a 20 per cent increase.