Yesterday I signed a deal with management at my apartment building. I agreed to stay for one year and they lowered my rent. They need to make deals like this since vacancy rates in Toronto have risen to the point where there is real choice for renters.
What a change from a few years ago! Vacancy rates were so low that newspapers were running articles talking about the intense competition to find an apartment. People were getting up early to see the available units before they got snapped up. It was a real ordeal and landlords had renters over a barrel. They were demanding deposit cheques just to apply for an apartment, without any guarantee that you'd get the place. They were getting picky about you, your job, what you look like, etc.
That's all over now. My new deal is 8% below the legal maximum for my unit.
It's tempting to say that the PC's elimination of inter-tenancy rent control is responsible for this change. The ability to charge more was supposed to make building apartments more profitable, ultimately leading to an increase in supply, vacancies, and competition. As much as this sounds like what has happened, it doesn't really match the facts.
First, consider my example. Yes, I'm now paying less than my legal rent. However, I moved into this suite just before rent control was changed. The legal rent for this unit is the same as it would have been if the law was never changed. If the going rate for apartments (i.e., what I'm paying now) is lower than it would have been in a rent controlled market (i.e., my maximum legal rent) then it would seem owning apartment buildings is no more profitable than it was before.
The easing of rent control has not spurred a construction of new apartment buildings. In fact, hardly any apartment buildings have been built at all.
What has changed everything, however, is the boom in condo construction. Low mortgage rates combined with the relatively-affordable condos have encouraged many to vacate their apartments and buy. At the same time, lower yields elsewhere have encouraged many investors to buy condos to rent out to others.
The resulting capacity jump has led some forecasters to suggest that there may be a 5% vacancy rate by late 2004. Sounds like a real renter's and a buyer's market!