A new study by Nestpick, a meta search engine which aggregates renting information on unfurnished and furnished apartments, released its Furnished Apartment Index for 2017, highlighting the cost of rent in 100 cities around the world.
The study looks at the asking price for single occupant one bedroom apartments equal to 39m2 (420 square feet) and family-listed three bedroom apartments equal to 74m2 (797 square feet). Both unfurnished and furnished apartments were assessed, and to allow international comparisons, Nestpick defined unfurnished apartments as “fully built apartments with all fittings completed as well as an installed kitchen with stove, oven and refrigerator.” For furnished apartments, Nestpick outlines furniture costs (in accordance to IKEA furniture pricing), as well as the number of months a renter would need, on average, in order to recoup these furniture costs. Only apartments available for long-term contracts (six months or more) were screened, and hotels, vacation and Airbnb rentals were excluded.
How Canada compares
Vancouver was the highest of the Canadian cities on the list, coming in at the 44th spot with the cost of a one bedroom furnished apartment running $822 USD (approx. $1,051 CAD) while an unfurnished one-bedroom was reported as costing $721 USD (approx. $922 CAD). In order to afford this, a single person’s median income would need to be $2,833 USD (approx. $3,624 CAD) and $2,488 USD (approx. $3,182 CAD), a month, respectively. For a family-occupied three bedroom apartment the average price is approximately $2,184 CAD (furnished) and $1,783 CAD (unfurnished), and the monthly median income required is approximately $7,535 CAD and approximately $6,151 CAD, respectively.
These numbers reflect the current price for rentals in the city, not the historical average for renters.
Other Canadian cities on the list include Toronto (No. 50), Calgary (No. 54), Ottawa (No. 66) and Montreal (No. 80). Nestpick’s study shows us that while rent is rising in Canada and remains to be expensive, especially in cities like Toronto and Vancouver, in comparison to the rest of the world, Canadians pay less to rent their apartments.
In order to be considered in the Nestpick ranking, a city needed to be a capital or a major economic hub in the country, have an active expat community, and have an IKEA store within driving range (the latter meaning Central and South American as well as African countries were excluded).
Why Canada ranks so low
Upon review of the ‘Furnished Apartment Index’, Jennifer Hunt, vice president of the Real Estate Investment Network (REIN), and Alex Avery, veteran real estate analyst formerly of CIBC World Markets, felt the findings fell in line with their own data.
“International real estate and rental markets in established, mature, populated areas with sound economics command higher rents,” says Hunt.
“These results don’t surprise me — Vancouver and Toronto are seen as extraordinarily expensive to most Canadians, but they aren’t even contenders for the most expensive in the world,” adds Avery, who is also the author of “The Wealthy Renter.” “Part of the reason Canadian cities look cheaper on this ranking is due to currency. A few years ago, when the Canadian dollar was higher, Vancouver and Toronto would have ranked higher. As the Canadian dollar dropped in U.S. dollar terms, these cities became less expensive, but only to foreigners. For Canadians, their rent stayed in line with their incomes.”
Hunt points to a country’s GDP, employment and population growth as “foundational economic key drivers” which push the “demand for rentals up, reduce vacancies and increase rents” which in turn impact housing prices. Hunt also explains that there is no “Canadian rental market” and analyzing right down to a neighbourhood helps better assess each province, region and city, allowing for more accurate comparisons.
When looking at Montreal’s spot on the list, identified as the cheapest major Canadian city for rent, Hunt suggests it may be because “unlike most other Canadian cities, Montreal has a well-established, long-term rental market with a planned supply of purpose-built rentals to offer renters” so the supply and demand is more balanced, making rent more affordable.
Avery sees Montreal as a unique market. “Renters account for nearly 50 per cent of households, compared to ~30 per cent in Toronto,” but he says because the city is “mainly situated on two large islands, creating significant land constraints” rent should be more expensive, which he expects will happen over the next decade.
In addition to the cities having diversified economic opportunity and jobs, Avery sees land constraints as the constant denominator when reviewing the Nestpick ranking; cities that have stringent land stipulations will account for higher rent pricing.
“San Francisco is a few peninsulas trapped between rivers, mountains, the ocean and national state parks. New York City is made of five boroughs, four of which are on islands and the fifth is a peninsula. Boston is a notoriously difficult city to build in due to zoning and policy restrictions. Hong Kong is a series of islands and a peninsula cut off by a border…Singapore, Seattle, Vancouver…all land constrained,” says Avery.
Avery also says the housing market (rent or own) is mainly driven by policy so if a housing market is expensive “it is a result of government policy.”
The future of renters in Canada
Hunt suggests that since both Toronto and Vancouver’s rental supply is limited, demand is on the rise, and with mortgage qualifications tightening, Canada will see a growing number of renters.
“In 2017 additional mortgage qualification rules have gone and will continue to go into effect,” she says, which will directly impact Canadians who wish to purchase property. “Based on median income, this stress test will reduce home-buyers and investors purchasing power by about 20 per cent.”
One key demographic is the millennials, who make up 27 per cent of the population, according to Hunt. They also make up approximately the same percentage as the baby boomers.
“As the next largest demographic cohort matures into the age of creating families of their own, the demand to house young families will increase. The demand for two or more bedrooms in less than the $500,000 range (to purchase) will increase, and given the lack of supply of this housing option in Canada’s largest and most expensive cities, people will migrate to more affordable areas or be required to rent,” says Hunt. The shift to more affordable condos and town homes is expected to continue.
“Renting has been disparaged for a long time in Canada, particularly in Toronto,” says Avery. “Rent controls have prevented investment in rental housing development and maintenance, leaving the inventory old and tired.” He wrote “The Wealthy Renter“ to make the case for “renting as a choice and a wise one” and says there is no “one-size-fits all” advice on housing.
“Learning more about housing and how it impacts your life in all sorts of interesting and unexpected ways is crucial to making the best housing decisions for you.”
The Canada Mortgage and Housing Corporation’s 2017 rental numbers will be released on November 28. To see last year’s reports, visit their website.
All figures in USD.