Not really. Rent is based on demand and landlords will take as much as the market will bear. It’s pretty much independent of mortgage rates.
Case in point, rent in Southwestern Ontario exploded in 2020 & 2021, when interest rates were low and have stayed pretty level since, even with the significant increase in rates.
Not really. In a system where demand is fairly inelastic (everyone needs somewhere to live and the only real flex is having roommates/living at home/homelessness or renting two apartments) and where the supply is currently extremely constrained, expenses are going to have next to no impact on rental prices.
For example, I was fortunately able to buy a townhouse two years ago (when interest rates were low) to live in. My mortgage is ~ $1,200/mo. Other units have been going on the rental market pretty consistently for ~$2,000/mo. Even with the increased interest rates, new landlord’s would still have a net positive of ~$500/mo between the rent they receive and their mortgage payments. There might be a loss of profit, but with profits already so high, it’s not going to affect rates on a macro scale.
Mostly no. The major drivers of price are supply and demand, not cost and demand. However, the “most profitable price” ( which is rarely the highest for those unfamiliar with economics ) does increase with the marginal cost. So the cost of production does play a role.
I’m not an economist so I could be wrong, but this is my thought process about it:
If a product becomes too expensive to produce for some companies, those companies will stop selling it.
Less companies selling the product = less offer
less offer = higher price.
Not really. Rent is based on demand and landlords will take as much as the market will bear. It’s pretty much independent of mortgage rates.
Case in point, rent in Southwestern Ontario exploded in 2020 & 2021, when interest rates were low and have stayed pretty level since, even with the significant increase in rates.
The price of everything is based on demand and offer. The price of production affects the offer.
Not really. In a system where demand is fairly inelastic (everyone needs somewhere to live and the only real flex is having roommates/living at home/homelessness or renting two apartments) and where the supply is currently extremely constrained, expenses are going to have next to no impact on rental prices.
For example, I was fortunately able to buy a townhouse two years ago (when interest rates were low) to live in. My mortgage is ~ $1,200/mo. Other units have been going on the rental market pretty consistently for ~$2,000/mo. Even with the increased interest rates, new landlord’s would still have a net positive of ~$500/mo between the rent they receive and their mortgage payments. There might be a loss of profit, but with profits already so high, it’s not going to affect rates on a macro scale.
the area where you live sounds like the exception, not the rule (and this is an article from last year): https://www.cbc.ca/news/business/rising-rent-housing-market-canada-1.6525075
Mostly no. The major drivers of price are supply and demand, not cost and demand. However, the “most profitable price” ( which is rarely the highest for those unfamiliar with economics ) does increase with the marginal cost. So the cost of production does play a role.
I’m not an economist so I could be wrong, but this is my thought process about it: If a product becomes too expensive to produce for some companies, those companies will stop selling it. Less companies selling the product = less offer less offer = higher price.