Relatively moderate rent increases, given the explosion in costs in the rental sector

MONTREAL, January 17, 2024 - Rent increases are expected to be higher than in the past but reflect - in part - the high inflation affecting landlords, who have not been granted attractive returns for years.

After an upward spiral in the cost of insurance, labor and building materials, the year 2023 was marked by a vertiginous rise in interest rates, plunging many landlords into turmoil. In the event of a dispute with a tenant, a landlord would obtain base rent increases of 4% from the Tribunal Administratif du Logement, whereas inflation is 4.5%. The rent increase could well exceed 6% if more pronounced increases in municipal taxes, insurance and renovation costs are taken into account.

 

Cost increases that result in losses

Excluding taxes and maintenance/renovation costs, the overall increase in base rents remains much lower than the increase in costs to property owners, who have been hit by staggering increases in recent years. In addition to the cost of materials and labor, rising mortgage rates have resulted in month-on-month losses for a significant proportion of dwellings. With most dwellings costing less than $1,000 a month in rent, Quebec's housing stock remains very affordable, while rents are significantly lower than in the rest of Canada. The proportion of renters paying less than $1,000 a month is 60% in Montreal, 64% in Quebec City and 79% in the rest of Quebec¹. Rising interest rates have brought turmoil to the rental real estate sector, where both small investors and large corporations have had a difficult year in 2023, with many running out of cash to maintain and renovate their real estate holdings.

It should be remembered that many small investors have been forced to sell over the past year, especially in the rental condo sector, as financial losses have become unbearable for owners. These sales resulted in a flurry of repossessions, removing thousands of condos and rental units from the market. The rate hike announced by the TAL for 2024 brings some hope, but will it be enough to reverse the situation of unprofitability?

According to Benoit Ste-Marie, General Manager of CORPIQ, "Rising interest rates are having a very serious impact on both new home constructions and home ownerships. The expected easing of interest rates in 2024 may help, but the gap between revenues and costs will remain difficult to close."

 

Information and interview requests :

Benoit Ste-Marie

CEO - Corporation des propriétaires immobiliers du Québec

514 748-1921

E-mail: olbell@corpiq.com  

 

1 - Léger survey conducted between March 1 and 18, 2023, commissioned by Vivre en Ville.