The Real Estate section is sponsored by:

The New Rental Frontier

Condo owners who can’t sell their units are morphing into landlords to ride out the storm. The good news? The rental market is hopping By Bert Archer

Lining up new digs: 2007’s upwardly mobile buyers have
become 2009’s happy tenants
Image credit: Amedeo de Palma

People have been predicting the collapse of the condo market since well before the crash. Toronto couldn’t possibly sustain its rank as the biggest condo city in North America, the thinking went. With thousands of units coming on the market every year—11,500 in 2008 alone—surely there would be a glut. It wasn’t pure paranoia. We’d been here before, when the speculation-crazed ’80s gave way to the sober ’90s. According to Jane Renwick of Urbanation, which analyzes the condo market, average per-square-foot prices for new condos dropped 40 per cent between 1989 and 1993.

But every recession has its silver lining, and these days condo owners who are willing to become landlords are making a good buck renting out their properties. Historically, when sales drop, rents shoot up. In 1989, the Toronto average was $584 a month. When the market started its rebound, it was $743. Wallace MacDonald, a retired salesman, has been in the condo game since 1980 and now owns 80 units. January and February were big months for him. Eight condos he’d bought back around 2005, pre-construction, were becoming available at once. Instead of attempting to flip them, he advertised them on the renter mecca viewit.ca and found tenants for all within 10 days. “It’s easier to rent now,” he says, “and for good money.”

The numbers bear him out. This past October, average rents for purpose-built apartments topped $1,000 for the first time in the city’s history (rents for condos skew even higher). And vacancy rates, which have been falling steadily since 2004, were down to 2.1 per cent, the lowest October since 2001. Glut? What glut? There’s a healthy symbiosis between wannabe landlords and reasonably flush tenants that could be of mutual benefit while weathering the storm. Condos tend to take up the middle range of the rental market, occupied largely by young professionals with a yen for downtown living. The very people, in other words, who before the market went sour would have been buying those condos. Now, worried about equity erosion, 2007’s buyers have become 2009’s mid-range renters.

Evan Thomas, a 31-year-old lawyer at a big Bay Street firm, just decided to rent in a tower on Wellington. “I’ve been talking to my colleagues,” he says. “These are people a couple of years out of law school, employed, making pretty good money, and no one wants to buy a condo, then lose 20 per cent of its value in two years.”

For the better part of the boom, the fever to buy was like a pandemic. Renting was something we did until we could afford to buy—or (as was often the case) until we bought something we couldn’t afford. Now it’s not only a viable alternative to buying; it’s where the smart money seems to be going. This may be the beginning of the end of the homeowner imperative.

Originally published May 2009

3 Comments

Comment on this story

I am not arguing the numbers, statistics or the point of this article but I would like to comment on Evan Thomas' comment regarding losing 20% of a condo's value in 2 years. Real Estate should be a long term investment. Real Estate is cyclical and those who have purchased in the last 3 years or so purchased at an all time high. This will happen again you simply need to think longer term. Those fortunate people who bought and sold within this 10 year all time high were lucky or smart or both, and their timing was impeccable! Kudos to them. Does anyone have a crystal ball? I would like to borrow it. Would you not agree that if you have a secure job and are prepared to buy a property that now that it is 5% cheaper over last year that now or soon would be a decent time? Ride the next wave? You can't live in your rrsp. People's largset asset in their lives are their homes. Maybe I am bias, I'm a realtor, mind you, I'm a 31 year old realtor in her second condo with equity growing, versus paying a landlord's retirement fund! No regrets! You'll never get that money back, despite market conditions. Low interest rates alone could save you thousands, do the math! Take the plunge. The real problem I deal with daily is there are buyers ready to buy and nothing good on the market! Best of Luck!
April 23, 2009 | by JHudson

You have got to be kidding, right? Go out and pay $250,000 to $400,000 for a condo and get back $1300 a month rent. Monthly maintenance costs range from $300-500 so you are only getting maybe $800-1000 monthly rental income before other expenses (like tenants not paying you rent).

All this for an asset that is going to drop in value over the next two years, and then flatline for the next five years.

There are over 30,000 condos in Toronto alone under construction and many were bought by speculators that never planned to complete the deal - they were going to flip them to you for a higher price. These condos are going to flood the market in the next year so sit back and watch the prices drop like a stone.

Like so much in the media these days, this article appears to have been written to support the earnings of the real estate industry and does not reflect current market conditions.

This is what is driving young people away from the media we were used to sourcing for our news. Far too much of the incumbent media have become real estate industry shills and now they are paying the price.
April 27, 2009 | by Slice

One other thing - mortgage rates will be much higher in five years when you renew.

Do the math and see of you can afford a 5 to 6% mortgage rate.

If not, think very carefully about your cash flow.
April 27, 2009 | by Slice

Comment on this story

Neither Bert Archer nor Toronto Life necessarily agree with the comments posted here. Editors will not correct spelling or grammar. Toronto Life reserves the right to edit or delete comments entirely. Read our full policy

Some articles on this site require that you have a Torontolife.com account in order to comment, and this is one of them. If you do not have an account, you can register now.