As rental costs continue to soar in Canada over the past year, private room or ‘room sharing’ have gained popularity. A growing number of people are living in shared accommodations as a way to cut down on expenses. Households of roommates are defined as two or more people living together who are not partners, children, parents or grandparents to each other. According to census data released by Statistics Canada, room sharing popularity is growing. In fact, more data shows an increase of 54 from 2001 to 2021! Let’s explore single room rentals from both the perspective of a renter and landlord, and how this new trend stacks up to the perceived benefits.
Double digit rent growth
Rent has re-accelerated as the Canadian rental market entered the spring. Asking rent for all available property listings increased 1.0% monthly and 10.8% annually, reaching an average of $2,004 in March. Here is a breakdown of the cost of various rentals currently in Ontario, according to Rentals.ca:
- Two-bedroom rentals increased the fastest on an annual basis, up 10.7%, to an average of $2,127.
- One-bedroom rentals also recorded double-digit annual rent growth, rising 10.1% to an average of $1,749.
- Three-bedroom units are up 6.8% year-over-year to an average of $2,402.
- Studio rentals increased 4.9% from a year ago to an average of $1,395.
The average rent for a one-bedroom apartment in Ontario increased by 16.9% YoY to $2,180 as of April 2023. While in comparison, nationally, the average rent was up 10.1% from a year ago to $1,729.
As a result, renting in Toronto is tough. More and more low- and middle-income earners are being forced out of Toronto and the GTA. Consequently, facing longer commutes and displacement from the communities they have long called home. Many have had to look at sharing the spaces they live in with strangers as a way to be able to stay close to work, school and family. There are a couple of rental options that have been gaining momentum of late: multi-tenant houses (room sharing) and single room rentals.
Multi-tenant (rooming) houses
A multi-tenant house, commonly known as a rooming house, is where four or more people rent rooms and share a kitchen and/or washroom. Multi-tenant houses are an important part of the affordable rental housing market. They provide single-room accommodation to diverse communities, including students, seniors, new immigrants and low/moderate income residents. However, on December 14, 2022, Toronto City Council adopted a new regulatory framework for multi-tenant (rooming) houses. This will permit multi-tenant houses all across Toronto. The new zoning and licencing by-laws will come into effect on March 31, 2024. Currently, multi-tenant homes are only permitted in certain areas within Toronto where zoning permits them. In some areas, owners must have a licence to operate multi-tenant houses. Other areas define them differently and may not be permitted.
For more information regarding rooming house rules, please click here.
Single room rentals coming into focus
Many Canadians that have chosen not to buy, but rather rent their accommodations, given the soaring real estate prices of the past few years. Unfortunately, they have not been able to find affordable rental properties, either. The average asking rent for single room rentals in Canada was $834 in March. In Ontario, monthly rent is averaging at $934 provincially, with a single room in Toronto averaging at $1,309.
Shared Living Community
With the creation of Airbnb, the landscape of renting is forever changed. The ability to rent vacation properties in the homes of others gave inspiration to the creation of a service that is attempting to do for roommate seekers what Airbnb does for vacation rentals. Sparrow is a rental site designed to help people looking for a home to share. The website has received $500,000 in funding from the federal government to help with Canada’s current housing shortage. According to the site’s creators, the idea for the service was born out of the pandemic. In their view, it created two parallel crises—housing affordability and loneliness. Their home-sharing platform and community is looking to reimagine how we use and share our housing space—enter room sharing.
The site boasts that it can help renters find homes and apartments at more budget-friendly prices. The average rent is about $750/month, depending on the home and location. The website also does credit and background checks, and tries to match people based on compatibility. Sparrow advertises their service as, “…opportunities to reduce housing costs, build social connections, and increase quality of life for Canadians.”
Renting out a room in your home
If you own a rental property, it makes sense to rent it out as a whole to one person or a single family. As a property owner, you may want to consider renting by the room instead. Whether you live in the home or if it’s simply an investment property, there are a lot of benefits to renting a single-family home or another unit to multiple tenants. Renting out single-family homes, condominiums, or apartments to a single tenant is the norm. However, you may be feeling as though you just aren’t making enough money. Many are considering renting by the room rather than renting out the property as a whole in order to boost their bottom line.
In Ontario, it is legal to rent out a room in your home. However, the income made from room sharing out of your home still needs to be reported as income. Rent that you receive should be reported for the year that you receive it, even if the rental period covers a different year.
The upside of room sharing
This type of living arrangement is popular with millennials because it allows them to have extra cash each month. Many are using their savings for other things, like paying down college debt, buying a new car, or even saving for a down payment on a home of their own. In many parts of the country, you can rent out most individual rooms for several hundred dollars a month. The average rent for a one-bedroom apartment in Ontario increased by 16.9% YoY to $2,180 for April 2023. Lining up a tenant the month after the old one moves out doesn’t always work out. The advantage of renting rooms is that while you have a vacancy in an apartment, the other rooms might still be filled, lowering the financial hit.
As a landlord of several single room units, you can receive more rental income. For example, your three-bedroom rental home that rents out to one family for an average of $2,402 can bring in $2,800 each month if rented to three different tenants instead. Renting by the room also helps make rental income more reliable for landlords because it minimizes the effects associated with having vacancies.
The downside to single room rentals
Renting individual rooms gives you access to multiple tenants, which means multiple rent checks. Although it can be a great financial strategy, renting by the room does come with a few complications:
- Despite the increase in rental revenue, you may want to consider the possibility of high tenant turnover. You may have to replace multiple tenants every three to six months.
- More tenants may lead to more calls about noise, damage, and other complaints.
- Additional work needed to manage several tenants—not to mention the potential for conflict and drama.
- It’s also important to keep in mind that renting to more people will ultimately mean dealing with more damages and possibly more evictions.
- Rental income is taxable.
- You may also need to consider additional expenses, including heating, electricity and water, which become more difficult to calculate usage with multiple tenants.
- Your renter refuses to leave.
Most home insurance policies don’t cover damage or loss caused by renters staying in the home. They need to protect themselves and their belongings with their own renters or tenants insurance policy. The Ontario’s Residential Tenancies Act doesn’t require tenant insurance. However, you do have the right to insist on seeing they are insured as one of the lease conditions.
Single room rentals may not be a new idea, but their popularity is becoming more prevalent. As many people struggle to make ends meet in these uncertain financial times, cutting back on monthly expenses is something that all of us are more conscious of. Whether you are choosing to look at renting a single room, or if you are looking to rent a room in your home as a side-hustle, there are important pros and cons you should consider before committing to a more communal lifestyle. Be sure to contact one of our isure brokers to discuss how renting out a room may affect your home insurance policy.