How to Calculate Near Market Rents in Ontario: A Practical Guide

What Are Near Market Rents?

Near market rents are rental rates set below market value but above deeply subsidized rent-geared-to-income (RGI) levels. They bridge the gap for moderate-income households who earn too much for traditional affordable housing but struggle with market-rate rents.

Typical near market rents range from 70-90% of average market rent (AMR) in your area, but the exact percentage depends on your program goals, target income levels, and financial sustainability requirements.

Step 1: Determine Your Local Average Market Rent (AMR)

Start by researching current market rents in your community:

• CMHC Rental Market Reports: Check the Canada Mortgage and Housing Corporation's quarterly reports for your municipality
• Local listings: Review current rental listings on platforms like Rentals.ca, Kijiji, and Facebook Marketplace
• Property management data: Consult with local property managers about actual rental rates
• Municipal data: Many cities publish rental market analyses

Pro tip: Use a 6-12 month average to smooth out seasonal fluctuations.

Step 2: Calculate Your Target Near Market Rate

The basic formula:

Example:

• Average market rent for 2-bedroom in Hamilton: $1,800/month
• Near market rate at 80%: $1,800 × 0.80 = $1,440/month
• Savings to tenant: $360/month or $4,320/year

Step 3: Consider Income-Based Affordability

Industry best practice suggests rent should not exceed 30% of gross household income. Work backwards from your target tenants' income levels:

Example:

• Target household income: $50,000/year ($4,167/month)
• Affordable rent at 30%: $4,167 × 0.30 = $1,250/month

If your calculated near market rent exceeds affordable rent for your target income, adjust your percentage factor downward.

Step 4: Factor in Operating Costs

Your near market rents must cover:

• Property maintenance and repairs
• Utilities (if included)
• Property taxes
• Insurance
• Management costs
• Reserve fund contributions
• Mortgage/financing costs (if applicable)

Sustainability check: Calculate your break-even rent and ensure your near market rate covers operating costs. If not, you'll need subsidy funding or a higher percentage factor.

Step 5: Set Income Eligibility Thresholds

Define who qualifies for your near market units:

• Minimum income: Typically 2.5-3× the monthly rent
• Maximum income: Often 80-120% of Area Median Income (AMI)

Example for $1,440/month rent:

• Minimum household income: $43,200/year (3× annual rent)
• Maximum household income: Set based on local AMI and program goals

Common Mistakes to Avoid

1. Setting rents too low: Threatens financial sustainability and limits units you can offer
2. Ignoring utility costs: If tenants pay utilities, factor this into affordability calculations
3. No annual review process: Market rents change - review and adjust annually
4. Unclear eligibility criteria: Document income thresholds, verification requirements, and review processes
5. Forgetting about rent increases: Plan for how you'll handle annual increases (tie to inflation? Cap at 2%?)

Annual Review and Adjustment

Review your near market rents annually using this checklist:

• ✅ Update AMR data from current market research
• ✅ Review operating cost changes
• ✅ Assess current tenant affordability
• ✅ Check local rent increase guidelines
• ✅ Ensure continued program sustainability
• ✅ Update tenant eligibility criteria if needed

Quick Reference: Rent Calculation Formula

Need Help Setting Your Near Market Rents?

Calculating sustainable near market rents requires balancing multiple factors - tenant affordability, market conditions, operating costs, and program goals. Getting it right from the start sets your program up for long-term success.

At AI Advantage Solutions, we help Ontario housing providers design and implement sustainable near market rental programs, including:

• Custom rent calculation models for your community
• Income eligibility criteria development
• Financial sustainability analysis
• Annual review processes and tools
• Tenant application and verification systems