Buying a house or renting, which is cheaper in Toronto? What you need to know

It’s now officially “cheaper” to rent than to buy in Toronto — and the gap between the two hasn’t been this wide in years, experts say.

 

That’s the message from real estate agents who point to a cooling rental market as one of the factors that has driven the shift.

 

A new report from real estate research firm Urbanation this week, in fact, showed that the average rental price for a condo in the GTHA dropped to $2,612 a month last quarter and is now down 10 per cent from a record high of $2,925 set in the third quarter of 2023. Condo asking rents have also fallen for four consecutive quarters, according to the report.

 

“If you’re asking me, ‘What is the cheapest way for me to live in the City of Toronto?’ I would be lying to your face if I told you anything apart from renting,” said real estate agent Josh Lloyd.

 

“Renting is more cost effective than buying a property if the ownership of the property exceeds rent by 20 per cent or more,” added agent Michael Devanathan, who says even some investors are pulling back.

 

Experts say the dip in rent prices is driven by a surge in newly completed units, especially in downtown neighbourhoods where landlords are offering incentives like one or two months free rent to reduce vacancies.

 

Meanwhile, home prices have proven stickier. In March, the average selling price of a home across all property types in the GTA stood at $1,093,254, which was down just 2.5 per cent from the previous year.

At the same time, elevated borrowing costs and tighter mortgage stress tests are making it harder for first-time buyers to qualify for homes they want, Devanathan explains. It’s also a dilemma felt by landlords trying to break even.

 

“I’m seeing a lot of landlords, they’re offering incentives like one to two months free rent to reduce vacancies in the past year… we’ve never seen that before,” said Devanathan.

 

“Landlords would be negative each month,” Lloyd added. “The reality right now is rents are down, so cash flow is even smaller than it was before.”

Developers now shifting to ‘more and more purpose-built rentals’

The drop in rents comes as construction of new purpose-built rentals slows dramatically, with the first-quarter off to a slow start with 731 under construction, according to Urbanation.

 

The report notes that figure is down 60 per cent year-over-year and hitting a nine-quarter low in the 905 region.

 

However, Devanathan says he’s seeing a lot more of his clients make a real effort to shift that reality.

 

“I deal with a lot of developers and right now rather than building a condo, they’re trying to build a purpose built rental and I’m noticing that start to increase more a lot with my builder clients,” he said. “That way, they feel they can generate a steady income for a longer period of time rather than a quick build and sell approach.”

Which neighbourhoods have the best deal?

Devanathan explains that places like CityPlace, Liberty Village, and Fort York are “areas where rents have dropped and the supply is high,” adding that “you’re likely to have better bargaining power with the landlord.”

 

He says that more renters are carefully eyeing buildings completed before November 2018, when rent control regulations still applied.

 

“There’s more buildings (available) that are rent controlled. That’s where the quality inventory is.”

Lloyd agrees, though he cautions not to overthink it if you find a good fit in a building that is not rent controlled.

 

“If you see the quality of inventory you want and it’s not rent-controlled, I don’t think that should deter you if it meets all your other criteria,” he said.

 

“There’s so much inventory right now. You could get away with a one-bedroom in a newer condo for $1,800 or $1,900.”

 

Still, Devanathan says some renters are holding off on buying in hopes that prices, or rates, will fall further.

 

“People want to rent because they want to wait to see if the prices will come down further and if the rates drop as well,” he said. “But you might never come to the bottom of the barrel. Sometimes by the time you realize it’s the bottom, it’s already too late.”

 

Lloyd adds that the decision to buy or rent now is less about status and more about financial clarity.

 

“I’m not saying renting is better than buying, and I’m not saying buying is better than renting,” he said. “What people need to do is really sit down with themselves and understand what they want out of life.”

 

With files from CP24’s Bryann Aguilar

 

 

 

 

 

This article was first reported by CTV News