Rent Gaps, Part I

      No Comments on Rent Gaps, Part I

In a previous post (dated August 4, 2021) I examined the contribution to rent revenues that 1B and 2B purpose-built rental units make and found that 0B and 1B units contribute a lower percentage to estimated total average rent revenues than their percentage of rental supply.

In this post I’m going to take a look at the “gap” between average 1B and 2B rents on a city-by-city basis for southern Ontario’s twenty largest cities, as reported by CMHC. (Note that Vaughan is not included because that city has a miniscule rental housing supply and therefore no reliable average rent data is available.) Rent gaps are calculated for 2010 and 2020 to allow a comparison over time.

The calculations in the table show that in 2010 the gap in average rents ranged from just over 10% to over 24%, while in 2020 the gap in average rents ranged from just over 6% to just over 22%. That represents a narrowing of the rent gap over the last decade, confirmed by the change in the percentage gap (the last column in the table).

What is going on here? The shrinking difference between the gap in average rents in 2010 and 2020 show that 1B and 2B rents are converging, at least when measured on an average (aggregate) rent basis. The reasons for this cannot be inferred from this data or the calculations, and in any case a more detailed study of rents in each city is required to confirm that this convergence is really taking place. However, if I had to speculate, my guess would be that over time square footages for 1B and 2B units are converging—probably due to shrinking square footages for 2B units—and consequently rents for 1B and 2B units have been gradually converging, leading to the trend seen in aggregate identified in the table.