Rent Gaps, Part II

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This post is a follow up to my previous post last week (dated September 22, 2021) which examined the “gap” in average rents between 1B and 2B units in southern Ontario’s twenty largest cities. In that post I found that the gap in average rents shrank from 2010 to 2020, implying a convergence in 1B and 2B rents, which I speculated is probably due to a convergence in 1B and 2B square footages.

In this post I take a closer look at the year-to-year change in the rent “gap” for southern Ontario’s six largest cities: Toronto, Ottawa, Mississauga, Brampton, Hamilton, and London. The chart below compares 1B average rents reported by CMHC for these cities as a percentage of 2B average rents for the years 2001 to 2020. In other words, this chart shows the ratio of 1B average rents to 2B average rents.

This chart is interesting because the six cities can be separated into three groups. London has since 2001 had the lowest ratio of 1B to 2B average rents, staying below 80% for the 2000s and reaching above 80% in the 2010s. Toronto, Hamilton, and Ottawa can be grouped together in the middle of the chart, although each has had different trends. The ratio of 1B average rents to 2B average rents in Toronto and Ottawa stayed fairly level for many years, increasing in Toronto and dropping in Ottawa over the last few years. Hamilton saw a bit more volatility in the early 2010s (data collection problems with CMHC?) before increasing significantly over the last three or four years—this means 1B average rents are catching up to 2B average rents, at least in aggregate. Brampton and Mississauga are grouped at the top of the chart and from around 2010 show similar trends, although in the previous decade Brampton showed quite a bit of volatility.

What takeaways does this chart offer? First of all, the gap between 1B and 2B average rents was the smallest in Brampton and Mississauga, and the largest in London. Second, the gap between 1B and 2B average rents appear to be staying roughly the same—although with year over year variations—in Ottawa and Brampton. Third, 1B and 2B average rents appear to be slowly converging in Toronto Mississauga, Hamilton, and London. Fourth, in Hamilton, 1B average rents have shown a significant convergence with 2B average rents over the past few years. And finally, the gap between 1B and 2B average rents varies quite a bit from city to city, with London ranging in the low “eighties” and Brampton and Mississauga ranging in the high “eighties”.

When all is said and done, 1B average rents are always going to be lower than 2B average rents, so even in cities where average rents are converging, 1B average rents will sooner or later stabilize in relationship to 2B average rents. The chart shows that such stability will not last, however.