Toronto rental apartment market Photo: James Bombales

Toronto and Vancouver are Canada’s most expensive rental markets, but they’re also the two major cities that have seen the largest declines in monthly rent since the pandemic began impacting the market in March.

In a note published this week by Capital Economics, firm economist Stephen Brown pointed out that both cities have seen declines in the median rent for two-bedroom apartments in the 10 percent range.

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Rent price declines of this magnitude haven’t hit other major Canadian cities. Calgary and Montreal have seen declines well under five percent, while Ottawa has remained stable.

Brown chalked this divergence up to a few factors that revolve around unemployment and the pandemic’s effect on immigration.

Increases in unemployment in Toronto and Vancouver since February have been larger than other major Canadian cities. For example, while the current levels of unemployment in Toronto and Calgary are similar, the unemployment rate was substantially higher in the latter before the pandemic began. This means Toronto’s percentage increase in unemployment since February was much higher than the increase seen in Calgary over the same period.

Brown wrote that lower wage earners have been adversely affected by job losses since the beginning of the pandemic. Because this group is more likely to be renting, the impact has been felt most acutely in the rental apartment market.

Like unemployment, declining immigration is also disproportionately affecting Toronto and Vancouver. The two cities are major immigrant hubs and because newcomers tend to rent their homes when they arrive, the rental markets are feeling the impact more immediately.

But, importantly, Brown said that rental markets in some parts of the country may see an increase in activity in the near future, especially on the investment side.

“Canada is not just Toronto and Vancouver! Despite weakness in those apartment markets, apartments remain an attractive investment prospect for many people elsewhere in the country, where rental yields are higher, and rents and therefore property values are far less reliant on immigration,” wrote Brown.

“In a recent survey, 25 percent of homeowners told CIBC that the slump in mortgage rates have prompted them to look for an investment property, and many may eventually choose to buy an apartment,” he added.

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