New renters paying an extra $500 a month in Toronto, Vancouver: CMHC

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A yawning gap in average rent between newly rented and already occupied units is adding to concerns about housing scarcity in the country, according to a report from the Canada Mortgage and Housing Corp.

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The June 22 report show that rents paid on two-bedroom units rented over the past year in the major metropolitan areas of Toronto and Vancouver are on average about $500 above the rents for units occupied for more than a year.

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“Given the population projections (according to which Canada’s major cities will see sustained population growth), the gap is all the more compelling,” the CMHC report said.

The report found that the rental gap is particularly prominent in cities where vacancy rates are already low and rent increases are regulated by guidelines. Rent restrictions mean property owners often must wait for turnover periods to adjust rents to align with current market prices and offset expenses such as repairs and renovations. Toronto, Vancouver and Montreal — where the gap is closer to $250 — all have rent guidelines.

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In Calgary and Edmonton, where rental increases are not subject to regulatory guidelines, the average rent gap is considerably narrower, at $50. This finding suggests that a more flexible rental market allows for a relatively smaller discrepancy between rental prices, as property owners have greater freedom to adjust rents based on prevailing market conditions.

The average price of newly rented units is one of two new indicators the CMHC is using to understand housing scarcity. The other tracks the share of a market’s unit that individuals in the lowest income quintile (20 per cent) can afford.

“Apart from Quebec City and Montreal, the market share that is affordable for low-income households is less than five per cent in major centres, one per cent in Vancouver and almost none in Ontario cities,” the report said.

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“In the short term, market forces could be expected to restore some balance between supply and demand … But we must ask ourselves whether these forces alone are sufficient at present. If the lack of interest of investors for the rental sector (currently observed) continues, the shortage of rental housing is likely to increase further.”

Last year, CMHC concluded that the country would need to build 3.5 million additional new housing units by 2030 to improve affordability. Canada is averaging only currently 200,000 to 300,000 new units per year.

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