Moishe Alexander and Canadian Funding Corporation Review CMHC Reports

Posted by Moshe Alexander

The average rental apartment vacancy rate in Canada’s 35 major centres increased to 2.8 per cent in October 2009 from 2.2 per cent in October 2008. The centres with the highest vacancy rates in 2009 were Windsor (13.0 per cent), Abbotsford (6.1 per cent), Peterborough (6.0 per cent), Calgary (5.3 per cent), and London (5.0 per cent). On the other hand, the major urban centres with the lowest vacancy rates were Regina (0.6 per cent), Québec (0.6 per cent), St. John’s (0.9 per cent), Winnipeg (1.1 per cent), Kingston (1.3 per cent), and Victoria (1.4 per cent).

Demand for rental housing in Canada decreased due to slower growth in youth employment and improved affordability of homeownership options. Rental construction and competition from the condominium market also added upward pressure on vacancy rates.

The highest average monthly rents for two-bedroom apartments in new and existing structures were in Vancouver ($1,169), Calgary ($1,099), Toronto ($1,096), and Ottawa ($1,028). The lowest average monthly rents for two-bedroom apartments in new and existing structures were in Saguenay ($518), Trois-Rivières ($520), and Sherbrooke ($553).

Year-over-year comparison of rents in new and existing structures can be slightly misleading because rents in newly-built structures tend to be higher than in existing buildings. However, by excluding new structures, we can get a better indication of actual rent increases paid by most tenants. The average rent for two-bedroom apartments in existing structures increased in all major centres. The largest rent increases in existing structures were recorded in Regina (10.2 per cent), Saskatoon (8.3 per cent),Victoria (5.0 per cent), and St. John’s (4.9 per cent). Overall, the average rent for two-bedroom apartments in existing structures across Canada’s 35 major centres increased by 2.3 per cent between October 2008 and October 2009.

CMHC’s October 2009 Rental Market Survey also covers condominium apartments offered for rent in Calgary, Edmonton, Montréal, Ottawa, Québec, Regina, Saskatoon, Toronto,Vancouver, and Victoria. In 2009, vacancy rates for rental condominium apartments were below two per cent in seven of the 10 centres surveyed. Rental condominium vacancy rates were the lowest in Toronto, Saskatoon, and Ottawa. However, Regina and Edmonton registered the highest vacancy rates for condominium apartments at 3.0 per cent and 3.1 per cent in 2009, respectively.

The survey showed that vacancy rates for rental condominium apartments in 2009 were lower than vacancy rates in the conventional rental market in Ottawa, Saskatoon,Vancouver, Toronto, Edmonton, and Calgary. The highest average monthly rents for two- bedroom condominium apartments were in Toronto ($1,487),Vancouver ($1,448), Calgary ($1,310), and Victoria ($1,223). All surveyed centres posted average monthly rents for two- bedroom condominium apartments that were higher than average monthly rents for two-bedroom private apartments in the conventional rental market in 2009.

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Posted by Moshe Alexander

The vacancy rate throughout the St. John’s CMA (census metropolitan area) remained low in 2009. In fact, there was little change in the vacancy rate, which largely reflects the impact of solid economic activity and positive employment growth within the region. Robust residential construction activity, combined with healthy MLS®1 sales and a strong supply of existing homes for sale, translated into continued house price growth, once again making the transition from renting to home ownership challenging for renter households. CMHC’s rental market survey conducted during the first two weeks of October included the enumeration of 3,601 privately initiated apartment units within the St. John’s CMA. The survey identified 31 vacancies within the rental stock, translating into a vacancy rate of 0.9 per cent. This compares to a similar 0.8 per cent vacancy rate recorded in 2008, with the rate below one per cent now for two consecutive years and holding steady at its lowest level since 1980. The vacancy rate was one per cent or lower in every zone within the St. John’s area this year. The biggest change was within Remainder of Metro Area (zone 3), with a rate of 0.3 per cent compared to 0.8 per cent in 2008. St. John’s East (zone 1) posted a vacancy rate of 0.9 per cent versus 1.0 per cent last year. In St. John’s West (zone 2), the vacancy rate was 1.0 per cent compared to 0.7 per cent in 2008. St. John’s City (zones 1-2) posted a vacancy rate of 0.9 per cent versus 0.8 per cent a year earlier. Throughout the St. John’s region, vacancies remained highest in bachelor units at 1.5 per cent and lowest in three bedroom units at 0.4 per cent. The recorded vacancy rate for one and two bedroom apartments was 0.8 per cent for both. Average rents increased across the region for all bedroom types in 2009. The following percentage changes in average rent are based on the fixed sample, which includes structures common to the survey for both years (2008/2009). Bachelor unit average rents increased the most of all bedroom types at 6.2 per cent; one bedroom average rents increased 5.7 per cent; two bedroom unit average rents were up 4.9 per cent; and three bedroom rents increased 5.4 per cent. Overall, the total average rent for all bedroom types combined, advanced 5.5 per cent.

Based on the 2009 survey, bachelor unit average rents were $541; one bedroom average rents were $592; two bedroom units posted average rents of $677; and three bedroom rents came in at $713. Overall, the total average rent for all bedroom types combined was $643. The increase in average rents is a reflection of the upward pressure very low vacancies have exerted on rents since 2008, as well as increasing energy costs and the increased costs associated with operating and maintaining apartment buildings. Once again, current rent levels prevented the construction of multi-unit rental projects in 2009, making the rent/return equation uneconomical for developers and real estate investment trusts (REITs). This has been the situation for more than 20 years within the local rental market. However, local rental market dynamics have been changing, with fewer private owners and increasing corporate ownership. The buoyant St. John’s economy and housing market has seen these corporate entities become increasingly interested in the local rental market. In fact, they have purchased many apartment buildings in recent years. The expectation is that these and other players will engage in new multi-unit apartment building construction activity in the coming years, once average rents reach a point where project development becomes feasible.

The local rental market is driven by a number of factors. These factors have remained fairly constant over time and involve both demand and supply influences. Key factors affecting the demand dynamics for rental accommodations over the short term include economic activity, employment, migration trends and the home ownership rate. The supply side of the local rental market is affected by additions to the rental stock via new construction or conversion of existing space into apartments. Apartment supply can also be reduced by conversion activity when existing rental units get converted to condos or hotels. On rare occasions, demolition of apartments for alternate site use or loss due to fire may also diminish the supply of rental units. While CMHC’s rental market survey historically covered structures containing three or more apartment units only, both demand and supply has always been affected by competition from the secondary rental market (newly surveyed since 2007). This market consists of single-detached units; semi-detached, row and duplex units; and other- primarily accessory suites. Statistics for secondary rented units exclude apartments in purpose built rental structures with three rental units or more, condo apartments, units in institutions, and any dwelling whose type could not be identified in the survey. The estimated number of households in secondary rented units within the St. John’s CMA is quite substantial at 12,896, with an average rent of $653 compared to $618 in 2008. Refer to tables 5.1 and 5.2 for additional details regarding secondary rental market survey results.

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Posted by Moshe Alexander

Results from Canada Mortgage and Housing Corporation’s recently completed Rental Market Survey* revealed a higher vacancy rate for the Moncton CMA in the fall of 2009. In October of this year, the number of vacant units in Greater Moncton stood at 375. In comparison, there were 234 vacant units recorded at the time of last year’s Rental Market Survey. Consequently, the vacancy rate in Greater Moncton was up from last year’s level of 2.4 per cent to 3.8 per cent in the fall of 2009. The vacancy rate for the popular two bedroom units was consistent with the change in the overall vacancy rate, climbing from last year’s rate of 2.6 per cent to 3.6 per cent. This was not unexpected as two bedroom units account for approximately two thirds of the rental universe in the Moncton CMA. The vacancy rate for one bedroom units reached four per cent in the fall of 2009. This marked a significant increase from the low 1.5 per cent vacancy rate recorded last October. A general desire on behalf of local renters for the increased living space provided by two bedroom units has effectively reduced demand for one bedroom units. Within the tri-community area, Dieppe City had the lowest vacancy rate at 2.2 per cent, followed by the Town of Riverview and Moncton City at 3.4 and 4.0 per cent, respectively. In the outlying areas of the Moncton CMA, the vacancy rate rebounded from last year’s low of 0.9 per cent, climbing to 3.1 per cent. * The survey, completed during the first two weeks of October, is limited to privately initiated structures comprised of at least three rental units that were available for rent or completed before June 30, 2009.

In 2009, economic development in Greater Moncton continued to follow the same positive trend that has defined the region over the past decade. Overall employment, as of the end of October, was on pace to exceed last year’s record setting level. As a result of the stronger job market, Greater Moncton has enjoyed the strongest in-migration of all regions in the province during the past ten years. Housing market conditions in the Moncton CMA, starting last year, have become increasingly favorable to potential home owners. In particular, mortgage rates have remained at historically low levels and new listings have retreated moderately from record levels set in 2008. As a result, home ownership has moved within reach for a larger number of people in Greater Moncton, including those who currently are renters, thus limiting demand for rental units. In the tri-community area, the rental market in the Town of Riverview remained the most stable during the past 12 months, with the local vacancy rate remaining unchanged at 3.4 per cent. Rental unit demand had been on the rise in Riverview in recent years. Despite higher than average apartment starts in both 2007 and 2008, the vacancy rate declined in both years. In 2009, a decline in rental unit demand was offset by reduced rental unit construction, leading to the local vacancy rate remaining unchanged.

In Moncton City, the vacancy rate was comparable to the overall rate for the CMA at 4.0 per cent. Population growth has remained positive in Moncton City proper as the region’s economy continues to support economic development and attract people to the area. However, in-migration in 2009 has slowed compared to last year’s above average pace. In addition, apartment starts in Moncton City in 2008 were higher than the average for the last five years. This resulted in a relatively large infusion of new units in 2009 as projects started last year were completed. As such, local supply was ahead of demand with Moncton City’s vacancy rate rising to 4.0 per cent from last year’s level of 2.4 per cent. The vacancy rates in each of Moncton City’s four separate zones also increased in 2009. The largest fluctuation occurred in East Moncton. Last year, this zone posted Moncton City’s lowest vacancy rate at 1.9 per cent. In the fall of 2009, the vacancy rate in East Moncton was the highest at 4.6 per cent. In contrast, North Moncton had the lowest vacancy rate at 2.7 per cent. Not only was it the lowest, it was also the least changed among Moncton City’s four different zones, climbing 0.6 percentage points from last year’s rate of 2.1 per cent. In Central and West Moncton, the vacancy rate in the fall of 2009 was up to 4.5 and 3.6 per cent, respectively.

In the City of Dieppe, the vacancy rate inched up to 2.2 per cent in the fall of 2009, a moderate increase from 1.8 per cent last year. In general terms, population growth in Dieppe has outpaced both Moncton and Riverview in recent years. As a result, residential development has flourished in Dieppe. During this time, the popularity of semi-detached homes has increased resulting in tremendous growth in the Moncton CMA, with a significant number of new units added in the City of Dieppe as well. With semi-detached homes, consumers can obtain a newly-built product with a mortgage payment comparable to the typical monthly rent for a newer two bedroom apartment, while allowing the owner to build equity in their new home. As such, semi-detached units in Dieppe, which have nearly matched last year’s record setting pace in 2009, continue to lure renters to homeownership. This year, apartment starts are expected to post the third annual decline in Dieppe. However, with fewer consumers seeking rental units, supply and demand have maintained a relative balance, resulting in a moderate 0.4 percentage point change in Dieppe’s vacancy rate.

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