Bidding wars to rent a house? In Ontario, tenants and agents say it’s a new reality
While the rental price of a condo in some major cities may have fallen during the pandemic, high selling prices in the housing market appear to be having a ripple effect on single-family rental homes in Ontario.
The situation has sparked bidding wars, some experts say, which could be part of the landscape for the foreseeable future.
“I’ve never seen it like this before,” said Sue Heddle, a real estate agent with nearly 15 years of experience in the cities of Mississauga, Oakville and Burlington in the Greater Toronto Area.
Heddle said she regularly sees tenants exceed a rental’s list price, as well as offer months of prepayments. One of his clients recently put up for sale a house that was renting $ 700 more per month than was advertised.
“Every ordinary place has a bidding war,” she said.
Realtors and other experts say the rental housing shortage has become particularly acute in parts of Ontario, which, like much of Canada, are struggling with housing affordability issues. And they fear the problem will worsen as new families are created or arrive through immigration.
Afshin Livar entered multiple bidding wars as he searched for a house to rent for his family of five last month in Richmond Hill, a suburb north of Toronto.
“I felt extremely devastated and desperate,” said Livar. “You could keep bidding and bidding and bidding, and coming back unsuccessfully. So that makes it extremely stressful.”
A delicate problem to follow
There is no comprehensive data source that tracks rental home prices, let alone statistics that follow auction wars.
But Dana Senagama, an economist at the Canada Mortgage and Housing Corporation (CMHC), says the rental housing bid wars are a byproduct of high house prices.
“Traditionally, whenever there is a very busy property market,” she said, “it almost duplicates itself in the rental market”.
CBC News interviewed a dozen real estate agents and tenants who described rental home bidding wars.
The point is, there just aren’t that many homes available for rent at the moment. According to CMHC data, just over 90 percent of single-family homes in Canada are owner-occupied, leaving less than 10% of vacant or potential housing.
CMHC data also shows average rents for all types of housing in Ontario cities of Ottawa, Toronto, Hamilton, London and Windsor increased from 4.7 to 8.4% in 2020 – even as vacancies increased in almost all of these cities. (Hamilton was the exception.)
The Canadian Real Estate Association (CREA), which operates Realtor.ca, says it does not track rental home data because it only represents a small portion of its listings.
Ralph Ciancio has been selling homes for over a decade in Markham and other areas northeast of Toronto.
In the past, he said, only very attractive rental homes had offers above the listed price. Now, bidding wars are common as people fight over the few listings in his area.
“The bidding war that is going on now comes from a position of necessity on behalf of tenants,” he said.
Ottawa-area agents and tenants interviewed by CBC News also described a desperate shortage of rental housing, with some facing bidding wars. The situation is also playing out in small towns in ontario.
WATCH | Why real estate in small towns is heating up like in big cities:
Renting a house as stressful as buying one
For his part, Livar was so worried about finding a rental home for his family that he said he was literally tearing his hair out.
He moved to Canada from Hong Kong in 2019 and still has a business there. His wife has a job here, but the family’s savings are depleted, he said.
Seizing a booming real estate market, his owner recently sold the five-bedroom Richmond Hill home where he, his wife and three children lived, for $ 3,500 per month.
While looking for new accommodation, Livar said he asked for a house for $ 3,800 a month. It went for $ 4,600.
After reviewing dozens of listings, changing real estate agents, and losing eight auction wars where he offered more than the listed rent, his ninth offer was accepted.
The family’s new rental is smaller, older, and, at $ 3,900 per month, costs $ 400 more than it had paid before. In addition to offering the extra money, Livar also paid four months of rent in advance to secure the deal.
The process it faced is similar to the common blind bidding process in real estate, although the practice has come under scrutiny for potentially fanning the flames of a already scorching market led by desperate buyers.
Livar said his experience made him wonder if some rental auction wars are made by landlords and agents because “they know the situation they’re playing with.”
Candice Sheedy, an entrepreneur and a single mother of three boys, also struggled to find a house to rent.
Sheedy was paying $ 3,000 a month for a three-bedroom house in Oakville, Ont., But felt forced to leave after a dispute with her landlord.
She says she applied for 20 units in a matter of months and lost more than a dozen auction wars, even offering an extra $ 400 a month and six months of advance rent. She says she has a good credit score, a stable income and savings.
“None of it made sense,” Sheedy said.
The combination of bidding wars and rejections was “extremely stressful, especially as you make it worse with the fact that this is a pandemic,” she said.
Sheedy just moved into a house she found in Kijiji without a bidding war, but it’s smaller, in a less desirable neighborhood, and still nearly $ 500 more per month than her previous rental.
The pandemic premium on space
Murtaza Haider, who teaches property management at Ryerson University in Toronto, says the pandemic has placed emphasis on space, which has deepened Canada’s housing affordability crisis.
For many, he says, public health measures related to COVID-19 have turned a home into more than a place to sleep and eat; our homes are now our offices, our schools, our gymnasiums and our churches.
He sees the rental-based auction wars as the result of the pandemic exposing the importance of the additional space that homes can offer to landlords and tenants.
“The value of the house – the intrinsic value – has increased,” Haider said
He said the other part of the problem is that Canada has “years of under-construction” when it comes to single, semi-detached and row homes – the ground-facing homes much sought after by many families.
CMHC statistics show that in Toronto, for example, 37.7 per cent of residential construction projects started in 1990 were houses.
In 2020, homes fell to just 15.2% of starts.
Over the same three-decade period, condominium and apartment starts rose from 51.3% to 72.7%.
Could Rental Home Auction Wars Get Worse?
Real estate agents and experts fear that house rents will continue to rise for the foreseeable future, potentially fueling more bidding wars.
As Senagama predicts, single-family homes will be those “very scarce commodities,” with increasingly higher prices.
Ciancio fears that as immigration resumes after the pandemic there will be “a huge increase in demand to buy and also … demand for rentals”, which will compound the problem.
Haider’s fear is that Millennials who will have children in the next decade will also lead to a high demand for houses, as they will not be “looking for one bedroom or studio apartments”.
Overall, Haider sees two solutions to the housing crisis: The government needs to create more affordable housing options, including down-to-the-ground homes, and it may need to subsidize rents as well.
“Rent geared to income is something the state and society must invest in to have a fair place for all,” he said.