Metro Vancouver renters could take the hit as condo investments become less viable

As Metro Vancouver rents continue to skyrocket, some housing analysts say factors affecting a key component of the rental market are likely to make matters worse. 

Data from the Canadian Mortgage and Housing Corporation shows condos owned and rented out by private investors make up about 40 per cent of all market-rate apartment rentals in Metro Vancouver. 

But the combination of increased interest rates, real estate prices and maintenance costs is making condos a less appealing prospect for people looking for a good return on investment, according to some experts.

"For sure, people are less interested in buying condos to rent out than they would have been had interest rates stayed lower," said Tom Davidoff, an associate professor at UBC's Sauder School of Business. 

"Those capital gains and growth and rents are still there, but the high-interest rates are a big burden in terms of being able to make payments."

In the Greater Toronto Area, a recent report found that last year marked the first time that more than half of investors in newly-completed condos were losing money on their rental properties.

Even ever-increasing rental charges aren't enough to cover mortgages now that interest rates have risen, Davidoff says — and condo owners are bound by what the market will bear. 

According to the B.C. Real Estate Association, the average cost of a condo in Metro Vancouver is now $830,000.

Even with a 20 per cent down payment of $166,000 paid out over 25 years, a 4.99 per cent interest rate would result in monthly payments of $3,858. 

David Hutniak, CEO of Landlord B.C., says that payment doesn't include skyrocketing strata fees and other increasing maintenance costs. 

"Real estate investors who provide rental housing, whether in the primary or secondary market, are having to take a very hard look at the financial viability of their current investments, and an even harder look at new acquisitions/development," Hutniak said in an email. 

"I suspect more and more of them are saying there's no business case to do it. The risks are too high, and the returns are simply not there." 

Hutniak says legislation that limits rent increases in the province means a lot of current owners who bought a condo on a variable rate mortgage are struggling to keep up. 

Both Davidoff and Hutniak warn that a housing market with fewer investors, combined with higher interest rates, means a lot of new condo and rental apartment building projects are being put on pause until conditions are more favourable.