How Much Should I Earn to Afford Rent in Toronto?
According to rentals.ca, the average price for a one bedroom rental in Toronto is now $2,474 (Oct. 2022). Conversely, in 2020, the median income for an individual was $36,500 (Statistics Canada), raising a difficult question for many renters. How much should I be earning to afford renting in Toronto?
The 30% Rent to Income Rule
The age-old rule is that up to 30% of your income should be spent on rent or mortgage. Yet with the average price of a one bedroom being $2,474 and the median salary being $36,500--this simply isn't feasible for most individuals. In reality, most young individuals in Toronto find themselves spending nearly 50% or more of their income on rent each month (CIBC, 2022). Save for Vancouver, the average rent to income ratio in Toronto is the most skewed in the country.
In New York City, for example, most landlords outright refuse rentals to tenants who cannot maintain a 30% rent to income ratio. In Toronto, the 30% rule is not so strictly applied, but most landlords will still aim for an approximate 25%-35% rent-to-income ratio (OHRC). Even so, we know that in reality, the average rent to income ratio for younger Torontonians is closer to 50%--so how are young professionals even qualifying for rentals?
There's More to the Story
Income isn’t always the only indicator of one's ability to afford a rent. When you apply for a rental unit in Toronto, landlords will typically request some financial documents from you. This could be any combination of your credit score, pay stubs, employment letter (including salary), bank statements, and renting history.
Consider prospective Tenant A, a lawyer who earns $100,000/year, and is applying for a $2000/month unit. At first glance, their rent to income ratio would be 24%--a figure most landlords would find very acceptable. However, upon a further look into their financial documents, there are a few red flags. Their credit score is low, there's a history of late rental payments, and they have a highly significant debt-to-income ratio. After taxes, bills, and debt re-payments, Tenant B is actually only left with $2,500 of income each month for rent and all other life expenses. What was initially thought to be a 24% rent to income ratio realistically amounts to an alarming 80% figure.
Now, consider prospective Tenant B, a customer service representative applying for the same $2000/month unit, but only earning $50,000/year--a 48% rent to income ratio. This doesn't seem ideal at first, but their financial documents show a great credit score and rental history, sizeable savings or investment accounts, little to no debt, and they've even applied with a guarantor. While Tenant B may earn half as much as Tenant A, they are surprisingly more capable of paying their rental payments on-time each month.
Given a choice between the two, the landlord chooses Tenant A simply based on their job letter and pay stubs. Six months later, the tenant is behind on two months of rent with a host of NSF fees and consistent late-payments. Tenant B happily rented elsewhere, and their landlord has yet to receive a rental payment so much as a day late.
All Considered
While the above examples are extreme, they demonstrate that income shouldn’t be the only consideration when evaluating prospective tenants. For tenants who have a larger rent to income ratios, be sure to supply further documentation demonstrating your ability to pay rent. Additionally, tenants may consider a guarantor, roommate, or having their partner move in to shrink the ratio. After all, a landlord's tenant screening process should involve looking beyond a tenant's base income. In any event though, a proficient property manager will reliably take all factors into consideration when selecting the ideal tenant.