The Effect Of Increasing Supply On Average Rents

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In my post last (last) week I talked about ‘trickle down’ supply issues and explained my reasons why I don’t think it results in increased affordability or increased access to affordable rents (some extreme situations excepted).

One of the assertions I made was that rents in older buildings will keep going up, no matter how many new buildings—i.e. high-rent rentals—are constructed. I was wondering if this shows up in data here in Ontario. The chart below compares the number of new purpose-built rental units added each year from 2000 to 2020 versus the average rent for new and old rental units (data from CMHC). New rental units are defined as those built in 2000 or later.

The chart suggests that as more and more new rentals (high-rent rentals) have been added to the city of Toronto’s purpose-built rental supply, the average rent for older rentals has clearly been rising, not slowing or flattening. Because of its ‘high level’ nature, CMHC data should always be used with caution (for instance, the number of rentals built in 2009 was definitely not negative). Having said that, it appears that rents have been increasing among both old and new rentals, despite a general increase in the number of new rentals being added to the city’s supply.