E76: Behind the Numbers - Looking Back on Rental Trends of 2023

In this episode, we take a look back at 2023 and the rental trends reported by Rentsync and Rentals.ca. The Canadian housing market seems to be setting and breaking records each day, but does the good outweigh the bad? To help us make sense of Rentals.ca and Urbanations's report, we are joined by three of its influential contributors; the Product Manager of Data Services at Rentsync, David Aizikov, the CEO of Rentsync, Max Steinman, and the President of Urbanation, Shaun Hildebrand. The trio is here to walk us through their findings, which include the steady of flow new rental trends that have played out throughout the year, supply and demand numbers, the undeniable national crisis relating to the cost of living, and the possible impact that reduced housing may have once it enters the market from 2024 onwards. We also learn about the hidden opportunities of affordability, the fears that most prospective homeowners share, the communal relief that rent and housing is top-of-mind for mainstream media and policy-makers, and what renters and landlords can expect from the market in 2024 and beyond. 

Key Points From This Episode:

• Introducing three key compilers of Rentals.ca and Urbanations's annual rental report, David Aizikov, Max Steinman, and Shaun Hildebrand.
• Assessing the consistency of new rental trends that we've witnessed throughout the year.
• Supply and demand numbers, and the factors that affect them.
• The cost-of-living crisis. 
• Exploring the possible impact of reduced housing's addition to the supply in 2024. 
• Whether the softening of demand and levelling of rents is closer than we may realize. 
• Community upliftment and other opportunities of affordability.
• The fears of a prospective homeowner.
• What it means for housing and rent to be at the top of policy-making agendas. 
• How landlords and renters ended up understanding the other's perspective.
• What renters and landlords can expect from the market in 2024 and beyond. 

Listen to the episode wherever you get your podcasts, Apple, Google Podcasts, or Spotify.

[0:00:47] GL: Welcome to another episode of Sync or Swim, the podcast where we navigate the currents of the rental housing industry. I'm your host, Giacomo Ladas. Today, we're going to take a retrospective look back at 2023, where we tried to understand and rationalize the rental trends that we saw across Canada. Now, Rentals.ca and Urbanation's national report is the leading source for consumers, policymakers, renters, and landlords to really understand rental trends across the country.

We have some really good guests today who are instrumental in putting that report together. So joining me today, we have David Aizikov, Product Manager of Data Services at Rentsync. Max Steinman, the CEO at Rentsync and Shaun Hildebrand, President at Urbanation. Gentlemen, thank you all for joining the show today.

[0:01:28] DA: It's a pleasure.

[0:01:29] GL: Of course. Of course. Let's look at the big topics. Over the past year, Canada consistently, we saw that it hit new records for the average cost of rent quite consistently. But recently, there seems to be some slowdown and even some decreases in some of Canada's largest cities, like Toronto and Vancouver. Maybe to start things off, we'll kind of start with the overall rental trends of the increases that we saw consistently. Maybe we start, were any of you guys surprised by the consistency of the new rental trends that we hit this year, where every month, it seemed like we were hitting a new record pretty consistently from the spring and summer?

[0:02:03] SH: Yeah. I can say, from my perspective, we began with exceptionally strong rent growth in the double digits. Now, part of that was some growth that was coming off of some decreases that were occurring during COVID. At least, part of the increase can be attributed to a recovery. But as we kind of progressed through 2023, we were seeing strong double-digit growth on already record highs from a year ago. So it wasn't just recovery, this was real double-digit growth that was happening.

It was surprising to see that growth sustained pretty much throughout the year. We began the year with annual growth just above 10%, end of the year, or we're ending the year with annual growth just under 10%. I think when you look at 2023 as a whole, you'll find that the average asking rents was up by about 9%. That's coming off of growth in 2022. That averaged 11%. By all accounts, a better than expected year for rent growth. We were projecting some moderation, particularly towards the second half of this year. As you know, the market started to normalize to a degree, but it remained remarkably strong pretty much throughout the entirety of 2023. We're beginning 2024 on, I think, a pretty strong note as well.

But as you mentioned, there are some signs that some slowdown is beginning to occur, particularly in the most expensive big cities in Toronto and Vancouver.

[0:03:32] DA: Interestingly, we expected this year to have pretty strong maintain rent growth. We saw what happened last year, and we saw that the demand for housing really wasn't slowing down. We knew that in 2023, we had record immigration as of recent history, recent memory. And 2023, all it really did was it just exaggerated the trends that we saw the previous year. We came in, as Shaun was saying expecting more moderate rent increases. It's not typical that you see month over month in rent increases, annual rent increases that are, you know, six plus percent last year certainly was outside of the norm. But obviously, that was a year of recovery. 2021, we saw rents that were in decline. We saw right up until July 2021, year over year, rent declines.

Then after that, it just continued to go to grow. Shaun said just before we started recording that in 2022, it was astronomical, we saw a near vertical growth. We didn't see that as really being sustainable. But ultimately, with continued strong integration, with continued net provincial migration, which again, just throw another wrench in the works. We saw pretty strong, continued growth. Interestingly, we actually had to define peaks and annualized growth this year, and then around March, June. Then again, another one in around September, just over 10%.

[0:04:50] SH: I think the few things that really kind of surprised to the upside this year looking back on kind of the factors that drove rent inflation higher than expected, it was certainly a massive surge in non-permanent residents. I don't think anybody was expecting the numbers that we received this year in terms of foreign students and temporary workers that were coming into the country, almost all of which rent. So they're going directly into the rental market. As we all know, we have a supply constrained rental market. This has an immediate impact on rents.

I'd say as well, the economy held up better than expected. I think as we kind of entered 2023, there was a general expectation that the economy was going to slow down, perhaps a recession. With higher levels of unemployment, generally, you start to see some softening in the rental market, but that didn't occur. And as well, I think most people thought that with the big jump in interest rates, we would begin to see some deflation in housing prices. We saw that too to an extent, but housing prices have largely held up better than expected this year.

There wasn't much reprieve for first time buyers to enter into the market. In fact, it just continues to get more and more expensive if you factor in mortgage interest costs. So I think all of those sorts of things put more demand into the rental market than we originally expected. Interestingly, this happened at the same time as rental housing completions in Canada have reached multi-decade highs. It just kind of shows you that despite the fact that we're building more rentals today than we've built since the 1970s, 1960s, the record levels of population growth that we're experiencing are showing us that supply at these levels is still insufficient to satisfy growth in demand. 

[0:06:33] MS: That last point is an excellent one, and that, if we see any interruption in those completions, which is a possibility because many of the – call it, early pandemic construction projects, they experienced a lot of delays. Those would be some of the projects we see perhaps coming to state of completion in the next year or two. If we experienced that dip, it may actually create another surge or period of a surge, because we'll just be falling further behind from a supply standpoint.

[0:07:09] SH: Yes. I completely agree on that point, I think the markets still sees more supply entering through 2024. Just if you look at the number of units that are under construction as rentals and condos for that matter, understanding that a lot of condos end up as rentals. We'll see a pretty, pretty good number of deliveries over 2024 and into 2025, as well. But to your point, Max, given what's happened to rental construction starts more recently, particularly in big cities like Toronto, and Vancouver. As we look a few years down the road, those completion numbers are going to start to drop off a cliff, not just from purpose-built rental construction, which was seeing meaningful progress prior to the increase in interest rates.

Since that time, we've seen a big drop in rental construction. But as well, secondary supply that comes from condo investors, urbanization tracks, pre-sale condos in the GTA. We're seeing sales levels in 2023 that are going to be at their lowest in 15 years. If that supply isn't pre-selling, it's not going to start construction next year, and then it's not going to be delivered a few years from now. The disruption on the supply front is going to be very significant. It might not show up next year, it might not show up the year after. But certainly, in a few years, we know that we're going to be dealing with an even stronger supply shortage if we don't see things turn around very quickly.

[0:08:31] DA: One of the elephants in the room that we haven't really touched on yet, which has been a pretty large driving factor behind the growing cost of rent really is just the cost-of-living crisis, the housing affordability crisis, the growing cost of every good in this country. Alongside with that, we have the growing cost of rent. And of course, raising interest rates to have an impact on that. But because we're seeing so many people simply just being priced out of the housing market, unfortunately, even though we did expect a little bit of tempering in the rental market, given the fact that interest rates are going up, and we expected a little bit of cooling. Because we're actually seeing so many more people now being driven into the rental market as their only viable opportunity of housing in this country. Again, we're seeing more and more demanding posts.

Shaun, do you have any opinions or ideas and, you know, the impact that we might have or the results that we might see later in 2024, when these reduced housing starts now – start to really show in new supply coming to market, combined with the fact that not only are we – more people coming into this market, a lot of those people who actually need to rent. But we have people that would have otherwise graduated up to homeownership and are now just relegated. They're stuck in place. Their only option now is just to continue renting.

[0:09:45] SH: That's one of the bigger shifts that we've seen in recent years. It's that the homeownership rate is declining, as you mentioned. Most of the housing demand that's being formed in Canada is actually on the rental side. The problem is that, most of the housing that we build is still on the ownership side. Rental construction is about 14% of total housing completions in the country. It's even less some of the big cities like Toronto, but the demand is very strongly on the rental side.

Now, to be fair, these rental percentages have risen from where they were 10 years ago. We've seen very meaningful progress on the rental construction front. I think that's important to point out. The government has put forward some encouraging new policies to try to raise rental construction. Obviously, back in 2018, the removal of right control for new builds had a very positive effect. More recently, the removal of HST for new builds in Ontario, we've heard from a number of developers that plan on now pulling the trigger on some new rental projects that were kind of in limbo, because of high costs. These are all very positive factors.

Obviously, the federal government is investing a ton of money into helping to finance new rental construction. So that will go a long way. But, I think the economics are still quite fragile. Rental costs of construction have increased by some estimates, by upwards of 50% in the last few years. Now, rents are rising, but certainly, they haven't increased to the same extent as costs.

A lot of the construction that's stalling out, unfortunately, is happening in some of the more affordable markets, like the 905 regions of the GTA, for instance, has seen rental construction dropped to a more than two year low. These are parts of the market where we need to see more supply, because they enter in at a lower price point. The average rent in the GTA is around $3,000 a month. If you look at Vancouver, it's well over $3,000 a month. When you're building new rental supply – and some of these centers come in at a price level that a lot of the population can't simply afford. Seeing more rental construction happening in less expensive markets was a positive trend. Unfortunately, the economics are just much more fragile on those markets that we're seeing construction pullback.

We'll see, I think the slowdown in rental construction isn't necessarily going to have an impact on rents this year or next year, because those completions won't happen for a couple of years, a few years, just because it's taking longer and longer for projects to reach occupancy. But certainly, the demand story seems to be quite positive as we move into 2024. There's an expectation that we'll see some interest rate reductions, but not a lot, they'll still stay pretty elevated. Population growth should remain pretty close to what it's been. Canada has the fastest growing population in the G7, one of the top 20 fastest growing countries in the world. In fact, right now, I think that's probably going to continue for the foreseeable future. There may be some policies that come in that try to put some caps on foreign students and things like that.

But certainly, the federal government has very aggressive immigration plans for the next several years, and that will feed into high levels of population growth. There's not going to be much of a change in housing affordability, particularly on ownership housing. In that regard, you'll see a greater proportion of the population continue to rent. Same story we've been seeing for a number of years, where there's just not enough supply to satisfy that demand.

[0:13:13] MS: It's something that I'm particularly curious in tracking over the next few quarters, is how does demand actually respond to the continuing shortfall in supply, and also just the – as a result as well, the increased prices. Because something's got to give, you can't go through the top right corner of the graph forever and ever. The thing that can respond faster than, obviously, building enough housing, which is a potentially, a multi decade initiative, is the demand side of the equation. 

At what point is there less desire to immigrate to Canada or to come as a foreign student when the affordability is just such a difficult challenge? I think it's possible. I only say possible because it will require a lot more data over the next several quarters to start to firm this up both from the immigration numbers, the application numbers. But I think it's possible that in some of the major city centers, there is going to be some softening of demand in favor of other secondary markets. If you take Toronto as an example, if you're a foreign student, and you're thinking U of T, or you're thinking McMaster and Hamilton, and the difference in rent is potentially $1,000 or $1,500 a month. That could very much become a factor in your decision making, which could lead to a leveling off in rents or maybe just not as aggressive price growth as we've seen over the last couple of years. 

That's something I'm definitely interested in looking at, and diving deeper into this year. I think that's going to be a really telling story. Something's got to give like it can't keep going.

[BREAK]

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[CONVERSATION CONTINUES]

[0:15:31] GL: Yes. Max, let's go off the point a little bit. Something's got to give, softening demand. I was really surprised in the last report, I'm sure you guys probably were to putting it together. But we're just starting to see some slowdowns and decreases in rental costs in Canada's largest cities, like Toronto. Usually, that whole thing when Toronto kind of leads the rest of Canada off when trends happen there. When you were talking about the softening of demand, and leveling off rents, do you see that it's already started now? Is that what you're assuming that these price decreases are? Or is it just seasonal trends that we're seeing right now?

[0:16:05] MS: Well, I don't think it's seasonal, because we're looking at a year over year number. There is a possibility that you have kind of artificial surges year over year, and probably, it's better to look now over a quarter to see if that normalizes the number a little bit more. But I do think there's a real possibility that the highest rent rate markets, which are Toronto and Vancouver are kind of hitting a point. Just a point where it just doesn't make as much sense to go move there. There's probably a multitude of factors. Like young adult, typically, you would have moved out of your house with your parents, maybe you're just not right now. 

If you're a foreign student, and you're thinking about where to come and study in Canada, maybe you're just picking a different market. If you're a baby boomer, and on the older side of the cohort, which the baby boom population now – I think the eldest baby boomers are like 77 years old. It's not the largest part of the cohort, but it's still a consideration. Are these folks who – they do have a higher homeownership rate, but are people moving back in with their kids. In a lot of cultures, that's very normal. There's just – you reach a point where rents are so expensive, that people start making sort of alternative decisions. I wonder if we've reached that point. No crystal ball, though. There's no way to know for sure. I think we need to see a trend out of that a little bit further.

[0:17:39] SH: Yes. Just to add to that, I think we did see rents rise exceptionally quickly, during the late spring and into the summer months, which coincided with the surge and foreign students that typically come into Canada's big cities during that period of time to secure rental accommodations ahead of the fall term. That surge was much bigger than normal. Units were staying on the market for a very short period of time. A lot of them were going and bidding wars. It was probably the part of the market with the shortest amount of supply that I've ever seen, just based on how much demand was coming in at that particular period of time.

Rents rose extremely quickly in a very short period of – probably we're over extended. After the summer season, it's not unusual to see rents decline later in the fall and through the winter. To Max's point, the decline that we're seeing now over the last few months is probably more than just seasonal. It does feel like rents have come off more than they typically do at this period of time. But I think some of that is just giving a bit back to the market from that exceptional run up that happened during the summer. But as well, I completely agree with rents as high as they are in Canada's big cities, you start to see renters do some substituting.

So they're moving into less expensive markets, whether that be in some of the surrounding cities of Toronto and Vancouver, for example, or moving out west to markets like Calgary and Edmonton, which are the fastest appreciating rental markets in the country. It used to be the case that people would move out to Calgary, or Edmonton, or even out east at certain periods of the economic cycle for jobs, because they had more job opportunities. But low unemployment is pretty prevalent across the country. You can find a job pretty much anywhere in Canada. People are moving because of housing affordability. They can't find a home that's affordable for them in Toronto, and they're saying, "I'm going to pack up and move out there, where I can save half of my rent on moving out to some of these other cities.”

And it's unfortunate. If you look at some of the rental costs in Toronto, it used to be able to afford or used to be able to rent a studio for $1,400 or $1,500 a month. One bedroom was $1,900 a month not that long ago. Now, a studio can run you $2,500 a month. A one bedroom can get you close to $3,000 a month, a two bedroom is getting close to $4,000 a month. So even with people doubling up, and getting roommates, and doing other things like that to try to save on costs, it's still very difficult. Whereas, if you moved out to Calgary, you're saving 50%, and you're probably earning an income. That's the same, maybe even higher than what you would get in Toronto. The proposition is quite attractive.

It's something that I think the market is going to continue to deal with in 2024. I don't necessarily think that rents will decline in Toronto next year. They're showing some marginal year over year declines, depending on what measures you look at. They're either up by a little bit, flat or maybe down by a little bit. But I think structurally, the market is so under supplied and demand is strong enough to continue to support rent prices where they are. But going back to that earlier point about just seeing some deflation from rents getting pretty vertical during the summer period is not totally surprising, I would say.

[0:21:12] MS: It doesn't even need to be Calgary. It could be more local of a change as well, because we still are seeing the year-over-year trend on a lot of the GTA secondary markets, showing like some really crazy results. Oakville typically not a market that you would escape to go find something more affordable, but still up like 16% Mississauga on a one bedroom, and Mississauga on a one bedroom, 7.5%. North York, 8.5%. So it's still really strong rent growth year over year, just outside of the city. 

So people, yes, they might be picking up and moving out west, but they also might just be picking up and moving five kilometers north sort of thing. But I think that's an excellent point that Shaun brings up. The question though is, there's a sort of population redistribution that fills in the gaps, and equalizes rents perhaps across the country, and sort of pulls them in closer together. What happens after that? I don't think we're hitting a point where you can't find markets in Canada that have major universities that have a pretty great city atmosphere, and great amenities. We still have a few cities out there, where it's a very high standard of life for somebody new coming to the country.

But once those gaps sort of get plugged by these new trends, and we don't keep up on the supply side, okay, then what? Will we actually just start to see Canada not be able to hit its numbers from an immigration target standpoint? Or we see foreign students just start to taper off because that's just the natural flow of demand. They have other choices, other countries to potentially go consider that provide an equal or close to equal education, but a much higher standard of living while studying. I feel like we're in that phase where people are finding those unique opportunities. The cities like Ottawa is still relatively affordable, and has several great universities. If you're a foreign student, you could go consider. There's an example. But even that gap is closing up quickly. People in Ottawa don't feel it's at affordable anymore, right?

[0:23:26] DA: Touching on that whole idea of communities that are being uplifted as people move to them, they see opportunities of affordability. They see lower cost of living. 2023 really was very much the year of out migration of redistribution. We saw secondary markets really pick up the slack. 2022, we saw a lot of renters returned to primary markets. We saw renters come back to these large urban centers after post-COVID. 2023, we saw a lot of people just experienced price frustration. They realized, you know what, it's just not worth it. I could potentially work hybrid. There's no reason for me to live in the city and pay 45% of my income potentially for rent. I'm better off moving further afield. That's unfortunately created more problems.

We're seeing communities that were traditionally more affordable. Look at Barrie, 10 years ago, you would have never thought that Barrie, one-bed rents would be anywhere near $2,000. Now, look at where we are. The average one I read is right up there. We're seeing one bed condo rentals in Innisfil, just south of Barrie, priced at $2,100. Again, 10 years ago, completely out of the question, I wouldn't have even thought it was possible. But unfortunately, that's the way that it is as myself toward – towards the lower end or the younger end of the millennial spectrum. A lot of my friends have moved up to Innisfil, Barrie. Unfortunately, Newmarket is a little too expensive, so everyone's going right past that. That's it. Those are the closest opportunities for them to purchase a home.

Even now, home prices there are accelerating, even warehouse. Other communities are seeing a slowdown. These opportunities were – you see a more affordability, people are still flocking to them. On a national scale, yes, there are still regions in the country where you see lower cost of living, more affordable rents. But unfortunately, those typically come with, you know, more adverse weather conditions.

In the prairies, rent still affordable, more affordable, at least than it is in Ontario. If you move up to the Ring of Fire, sure, probably still more affordable up there. But there's not as much opportunity, certainly, not as much of a demand for people to move up there. But that's really just looking at like the renter side. This year has really been interesting, because I realize this is a bit of a departure. But we're seeing affordability, and this cost-of-living crunch hit, not just renters, but homeowners as well. 

Shaun alluded to the fact that we're seeing alternative opportunities really rising, you see people doubling up, you see people moving in. There have been many stories of people renting off, living rooms are sectioning off areas in their apartments. But we're also seeing homeowners really adapt to this opportunity or this situation. We're seeing these sublet listings where – and homeowners are just realizing that they can't afford their mortgage anymore, and they're putting up spare bedrooms for rent. It's not just one bedroom, or maybe a basement apartment. I'm talking about two or three bedrooms in a home all being rented out individually.

This is specifically being done in those larger urban markets, and some of the outlying suburban communities that are right up against the boundary of the city. Most commonly, we're seeing this in Toronto, and Vancouver, we're seeing in Montreal, something really interesting wherein, these really large, older apartments are now being subdivided. They're being rented out as rooming houses or full rooming houses. People are just trying to make ends meet, whether it's taking advantage of the opportunity or just trying to meet some sort of minimum. They're trying to take whatever they have and putting it out there on the market. Whereas, a few years ago, really, this wasn't something that we saw. You saw duplexes, or triplexes, you might see a basement apartment. But now, you're seeing homeowner renting up all the available space in their home, just to cover the cost of their mortgage.

[0:27:08] GL: It's interesting too, because this isn't really something where renters and landlords are one side and homeowners are on the other side. It's really something that's affecting, seems like all of them pretty collectively. When you see, even on Rentals.ca, with an increase of people renting out a room, or basement, or sublet. On top of that, add that places like West, which are limiting people to have an Airbnb. We're seeing that supply not come into the market as well, because people are trying to fairly quickly offload these units that they can use anymore for Airbnb. You figure that that increase the supply would really make a big difference. But I mean, CMHC, what did they say? Three and a half million new homes seem to be here by 2030. I don't even know if that's a possibility. It's three, four times the rate of building that Canada's ever done before. I don't know how much more of adding Airbnbs at the market will help, but that will make a dent.

But it's just – the homeownership has a big part to play, because you, me, and David are pretty close the same age, and people our age, most of us are renters wanting to get into the ownership market. But we're worried about an impending recession, we're worried about the housing market crash, so we're just kind of staying put. Then, there's no turnover. When everything has been going up with groceries and gas, everything's going up for our day-to-day lives. Having rent be a consistent bill in your monthly expenses is an oddly comforting, comforting thing for people. However, there's no turnover, right? We're seeing this and I'd love to get into homeownership market. But, until we really started seeing an increase in supply, I don't think we're going to really see a dent in it for quite a while.

[0:28:38] SH: That's a good point. If you look at Ontario, obviously, most of the rental stock is rent controlled. So your rent is can only rise by the guideline amount each year. If it was built before November 2018, which provides some certainty, I suppose around rent increases, and security of tenure. But there's not a lot of movement within the market as a result, because there's nowhere really to move. Most of the time, you'd see people move up into newer buildings, for instance, or move into the ownership market. That's not happening, obviously, because of what's happened to interest rates and the fact that prices remain high.

But just as importantly, not that many new rentals being built in Toronto. We're still building a fraction of the number of rentals that we should be. So you're not seeing that filtering happening where tenants within the existing stock move up into the new stock, or people in some cases downsize from their home into the rental stock, a new rental stock. There's just not much movement, much turnover happening, and it compounds the supply issue, and creates a situation where rents will rise faster than they normally would. I found it interesting that in the latest CPI numbers, which are obviously Canada wide and do include a large proportion of the rental stock that is rent controlled. Rents were up 8%, which was basically the same as the asking rent that we reported through the Rentals.ca report. These numbers are becoming aligned, which was very interesting to see. 

There's certainly a lag between what we see in the Rentals.ca data versus how eventually it feeds into the CPI data. But no matter what way you look at it, rents are growing at one of the fastest rates in decades. How sustainable is that? It's a tough situation all around. If people aren't buying, obviously, they're renting, or they're moving back with their parents, or whatever they have to do. It's showing just how supply constrained the market is right now, and this population growth that we're experiencing. To say the least, we weren't prepared for it. It's encouraging to see that the discourse within all levels of government are now turning towards housing supply, and in particular, rental housing supply.

How can we align policy goals on immigration with the ability to actually construct new housing at a pace that can satisfy that demand. But the first time that I've ever seen, there's actually more discussion happening on that front, and it took lengthy meetings, and a number of academic studies, and calls from various economists to sort of highlight how undersupplied the housing market is. But in particular, that rental housing market sort of get to where we are right now. But I think we're finally starting to see some traction on the policy front to help encourage new rental housing, and hopefully get more supply into the system sooner rather than later.

[0:31:31] MS: I think that's one positive, because we've had a lot of these conversations through the last couple of years, and they tend to come off very pessimistic, because the outlook is not great in terms of balance in the market, and for, say, renters, and affordability, and for Canadians. But I definitely tend to agree with your last comment there, which is the last 12 months, the dominant topic in the media on domestic reporting and domestic issues, has been rent, and housing affordability. But actually, rent at the center of it. That's really unique. It's always like a number three or four issue. It really felt like a number one issue. Of course, with Rentals.ca Urbanation report, right at the center of that. 

Of course, like all the lobbyists groups and associations have been doing an amazing job, and their work is really starting to pay off. But also, just the media coverage, and the work that Shaun, and David, Giacomo is on television a couple times a week these days. That's helping. It's not hurting, and it just seems like all of a sudden, we are finally getting the attention of the federal government, which puts pressure down the chain. You see someone like Justin Trudeau, who's done a full 180 from housing is not federal responsibility, to appointing a new housing minister, Sean Fraser, who one may criticize that a lot of what he's doing is perhaps more PR driven. But there are some definite new creative solutions that have come into place, even in the last four months, five months, GST, HST. Just yesterday or two days ago, they announced a standardized housing template, which actually a lot of experts are saying will be helpful. Not necessarily the be all end all, but will be helpful. You've got the loan program expanding.

On a positive note, we've got the attention of Canadians, we got the attention of the government, governments. To me, that's what kind of is the one takeaway from 2023 that is positive, which is, okay. Let's see, will government intervention via policy, on the supply side as well. You're not hearing as much chattering about things like rent controls necessarily. But on the supply side, will government intervention play a much bigger part in the next couple years? Then back to my point on population, if the two things happen at the same time, if there's a bit of a response on the demand side, because the government intervention has been a bit too late. The two things could line up to really moderate rates. Also, could it? Might not, no crystal ball. But we are seeing softening in applications for new immigrants to Canada. There's some leading indicators, where maybe both those things kind of line up, and the future is not necessarily as tired as it may seem.

[0:34:43] GL: The one thing I've noticed too, especially throughout the years that, you would think with rent increase we're seeing, it's a real like renter versus landlord. But it really does feel like renters understand that it's not the landlord's sole responsibility to make rent affordable for all people across Canada. Their costs are also going up as well. Landlords understand the perspective of the renter as well. It really starts to feel like this is a really unified approach from both renters and landlords to really get a line. I know, David, you talked about this all the time about having alignment through the federal government, the provincial municipal. But also, we now really have that with renters and landlords realizing that no one person's responsibility to fix this. 

This has got to happen through true strategic alignment, coming from the federal government, to the provincial, to the municipal government. That's how we're going to get through this. It's not by a quick fix, or landlord saying, "Hey, we're going to reduce everyone's rent by 15%. We're sorry." That's not the way out of it. I don't think renters expect that either. That's why we do these reports, just to get attention of policymakers, just to get attention of the government officials to really see what people are paying. That's the important thing, right?

[0:35:49] MS: We did a renter survey this year as part of our political polling for the Toronto Mayoral race. In it, we asked a question to renters, which was on a scale of, disagree to somewhat agree, to strongly agree. Their sentiment on rent control. Renters' sentiment on rent control, and these were Toronto renters. It was surprising the result of that survey, and you would have expected for sure that Toronto renters would probably be 90% plus in favor of rent controls. But it wasn't that, I think it was hovering more around 50%. I don't know if you've got the numbers there, David, but it wasn't 90% to 100%. It shows that there is an understanding of the market dynamics by renters, perhaps just all this media coverage and attention that focuses more on supply is helping that. Anyways, I feel we have a responsibility, a collective responsibility as an industry to ensure that the right information gets out there, and that people understand the market, the market dynamics at play.

[0:36:57] GL: We saw that as well in Winnipeg, when they – for 2024, they were removing – they set a limit when COVID started, but rent increase can't go at all. Then, they said, 2024, we're going to increase rent by 3%. Just going through a reading, talking to people. Winnipeg renters get it, it's 3%, that's not a lot. I'm sure their costs have gone up way more than that. It's good to see. I think what's important is to take all this information and look at 2024. Based on your guys' insights or anything that you guys have really seen through 2022, 2023, what are we expecting for next year? Do you think that as we get into deeper into the winter months, maybe there's more decreases or a softening of rent increases? Do we still need a few more years to really correct the supply issue, just give some little foresight there for what renters and landlords can expect?

[0:37:46] DA: Well, on the demand side, we're seeing that renters or renter demand really is continuing to trend as seasonality would imply downwards. If that persists, we're likely to see that continuing on through the winter months, up until March, where it'll begin to trend upwards again, or March through June. If that's the case, then we're likely to continue to see little more flat slowing down, albeit with some of these markets that are continuing to show growth that is likely to persist. We are seeing that in a few markets that renters are exacerbated to an extent. They're submitting fewer leads per property, suggesting that although the people that are on market are still looking for units, they might be looking at fewer properties, potentially whether that is, because they're more price conscious, or because they're simply being more selective. People are being just a little bit more picky. That's likely to persist in terms of its effect on price, I'm sure Max and Shaun might have more to say. 

[0:38:44] SH: I think if you're a renter looking to get into the market, you should do it in the next few months. Particularly in markets like Toronto and Vancouver, you're seeing a very unique period where rents are softening. But the underlying structural story is not really changing. So you are seeing some temporary relief, but I do believe it's temporary. Factors that have been supporting demand are not going to change all that much next year. You'll continue to see strong population growth. It may not be as high as it has been in the last year or two. But certainly, it will continue to be strong. The ownership market is going to continue to be very difficult for first-time buyers to enter. Certainly, there should be some reductions in interest rates which may entice some people to move into the market, but prices will remain high for the most part, and mortgage carrying costs, and qualification rates are still going to remain quite high.

There isn't going to be any material improvement and ownership affordability next year, which shouldn't use support growth and rental demand. I think, generally, the economic consensus is for a soft landing in the economy. Now, we're seeing some edging up in the unemployment rate, income growth will start to moderate. It won't be as easy to find a job, perhaps, as it has been over the last couple of years, maybe that'll take a bit of steam off the demand. But I think that the overall story doesn't change a whole lot.

In that regard, I expect the current trend towards moderating annual rates of rent growth to continue into 2024. We're kind of beginning the year at, let's say, an 8% annual rate. I think we kind of end the year in sort of the mid to lower single digits. I don't see any markets posting a decline in rents next year. I think the story kind of remains the same where some of the more affordable markets, particularly those that West will continue to lead. And then expensive markets like Vancouver and Toronto, they're going to have to compete, a little bit tougher to attract demand given how high costs have become in these markets.

[0:40:46] MS: It's hard to argue with Shaun or David's perspective. It sounds about right, it sounds like what to expect. But the one thing in 2024 that I'm really going to be looking at, is it possible that the fundamentals will change? It's highly improbable if not impossible that the supply side fundamentals are going to change in the next year or two. It just won't happen. So I'm going to be looking for trends in this calendar year towards things like foreign student, demand, and immigration demand, and both on local levels, but also on the national level. To see, are we going to have some sort of reversal in the demand side fundamentals? Not saying it's going to happen, but it's something that is definitely piquing my interest, and also, I think, entire housing sector. Certainly, you're just seeing more – like the two big news stories right now is the housing side supply. Then, also, Mark Miller, the immigration minister, these are the two dominant issues on the table right now. Could something change there?

[0:41:58] SH: Back to this point on the supply side. If one thing is going to change, I think – well, perhaps is a continuation of what's already happening is in markets like Toronto, where most of the new supply is condo investors, like they've been selling their units through cashflow negative, pretty deep territory in a lot of cases. The units that are coming up for mortgage renewal are facing huge increases, and the units that are coming up for completion as new rentals are seeing mortgage costs, a condo fees taxes that are significantly higher than what achievable rents are.

So some of the trends that we're paying very closely to right now is a number of units that are being put up for sale by investors. They're up significantly this year, and it's created pretty soft resale market conditions. As that's happened, you're actually removing rental supply from the marketplace. So if there is some slowdown in demand on the population front, or because of a weaker economy, that also restricts supply. That's something we started to see pretty meaningfully over the last few months. It's a big jump in the number of investors that are looking to sell. Again, that removes rental stock, presuming that these units don't get bought by another investor, which is a good bet, given the current appetite for investing in the market right now.

[0:43:16] GL: Well, guys, I think that's a really good place to end it, looking into 2024 and what to expect. Once again, David Aizikov, Max Steinman from Rentsync, Rentals.ca, Shaun Hilderbrand President of Urbanation. May we have this conversation this time next year when we look back on 2024, I'm sure we'll have a lot to say once again. I mean, yes, thank you guys very much for your time. I know how busy we are this time of year. To our listeners, the December Rentals.ca report is live on our site for you guys to read and see the recent trends that we're seeing. Thank you all for listening. Make sure you subscribe, rate, and review to the podcast wherever you listen. Until next time.