StatsCan released its latest inflation numbers this week and rent inflation came in at 5.2% year over year, once again one of the biggest contributors to overall inflation.
A lot of people are confused by this because market rents have actually been trending down in many cities over the past few months. So how can rents be falling, but rent inflation is still rising at over 5%?
Part of the explanation has to do with how StatsCan measures rent inflation.
They don’t look at asking rents or new lease prices. They collect data from a subset of the Labour Force Survey. That’s a sample of around 56,000 households and only about a quarter of those are renters. After removing ineligible cases, the usable sample for rent is only about 8,000 renters across the entire country.
But the bigger reason might be how StatsCan adjusts the data.
They aren’t simply averaging the rent increases reported by the survey responses. They run the numbers through a model that tries to estimate what the change in rent would be for a typical or representative unit in the country. To do that, they adjust for differences in things like the size of the unit, the age of the building, whether it was recently renovated, and other features.
The goal is to remove the effect of changes in the mix of units being sampled and isolate what they consider a pure price change. In theory that makes sense but in a volatile market, layering these adjustments on a relatively small sample can produce results that don’t necessarily match what’s happening in the real world.
This is why we can see market asking rents flattening or even declining while the official inflation data shows rents still rising.
John Pasalis is President of Realosophy Realty. A specialist in real estate data analysis, John’s research focuses on unlocking micro trends in the Greater Toronto Area real estate market. His research has been utilized by the Bank of Canada, the Canadian Mortgage and Housing Corporation (CMHC) and the International Monetary Fund (IMF).
Have questions about your own moves in the Toronto area as a buyer, seller, investor or renter? Book a no-obligation consult with John and his team at a Realosophy here: https://www.movesmartly.com/meetjohn
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