Big city landlords have a cash flow problem

Rents in Canada’s big cities are through the roof, and somehow many landlords are still losing money on their rental properties. It’s just another day in our wild, wild housing market. 

Driving the news: report from CIBC and Urbanation found that most condo investors with a mortgage in the Greater Toronto Area were renting out their properties for less than they were paying to own them—in other words, they’re losing money every month. 

  • "We found that for the first time in 2022, less than half (48%) of leveraged condo investors were cashflow positive,” the report noted.
  • Typical ownership costs for newly completed condos, which make up a large majority of investment properties, exceeded average rents in the GTA by $223 per month in 2023.

Why it’s happening: Interest rates jumped, and while rents have increased sharply, mortgage payments have increased even faster.

  • The average rent for new GTA condos rose by $317 between 2020 and 2022, while monthly mortgage costs grew by around $650, according to the report.

Why it matters: Investors account for more than half of condo buyers in Canada’s two hottest housing markets, Toronto and Vancouver. As their business model falls apart, expect to see demand for new units start to fall. 

  • Without more purpose-built rental apartment buildings, that’s likely to reduce supply in the already tight rental market and drive up rents even further.

What’s next: Even more expensive units that were pre-sold in recent years will come on the market soon, so expect to see rents rise even further as investors try to stem the bleeding.