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Moishe Alexander’s review of the St. Catharines – Niagara CMA Rental Market and CMHC Outlook Report

Comments: 0February 18th, 2009 by admin

February 3, 2009 — Moishe Alexander’s review on how the current world economy and Canadian economic turndown is affecting the St. Catharines – Niagara CMA Rental Market

Moishe Alexander’s Review

Niagara Falls, Ontario - Credit Flickr Creative Commons

Niagara Falls, Ontario - Credit Flickr Creative Commons

The apartment vacancy rate in the St. Catharines-Niagara Census Metropolitan Area (CMA) edged up to 4.3 per cent in 2008 from four percent in 2007. The vacancy rate reversed back to its 2006 level. Although the movement of renters into home ownership slowed, fewer youths entered the rental market leading to increase in vacancies. The vacancy rate will shift back to four per cent in 2009, as movement to home ownership slows.

Vacancy Rate Trends Up

The vacancy rate for private rental apartment buildings with three or more units in the St. Catharines- Niagara CMA (hereinafter Niagara) was above the national and provincial averages. According to the Fall 2008 Rental Market Survey conducted biannually by the Canada Mortgage and Housing Corporation (CMHC), the vacancy rate moved higher to 4.3 per cent in 2008 from four per cent last year and above the ten-year average level. Softer demand for rental apartments across almost all bedroom types contributed to the increase in the vacancy rate. Demographic and economic factors are the main drivers of rental demand. Niagara’s population has been declining since 2004 with the number of deaths exceeding and growing faster than the number of births. Moreover, the latest statistics show that there are nearly as many people leaving the region (mostly to other provinces) as there are moving into it (mostly international immigrants). This is in contrast to the positive contribution from migration to population growth the region had been experiencing in the decade prior to 2004.  Typically, international imigrants, who are the main driver of migration into the region in recent years, tend to rent a home when they first arrive. Later on, with better employment opportunities they decide to move into ownership. With fewer immigrants choosing Niagara as their new home, the demand for rental subsided. Overall, the negative population growth eased demand for rental accommodation in the region. A strong labour market supported the movement of renters into home ownership, however at a slower pace than in the past. According to the 2006 Census, the ownership rate in Niagara is 74.6 per cent, well above the national average rate of 68.4 per cent. Over the last 15 years, (i.e., the latest three census periods) the home ownership rate in the region gained more than three percentage points. Job growth during the January-September period of 2008 was 3.4 per cent from the same period last year. Job creation in service-producing sectors accounted for the major part of the employment growth. It is worth noting that employment grew strongly among young people aged 15-24, an age group which typically prefers renting. However, the employment growth has not translated into demand for rentals, as jobs were created only in part-time positions in the service sectors. On average, employment in the service industry doesn’t command as high a wage as a job in the goods-producing sector. Therefore, this didn’t lead to a push in demand for rental apartments. In general, there is a tendency for young people to stay longer in their parents’ home, since with a more competitive labour market they need to spend more time on education. There are other factors which affected the vacancy rate. While the number of purpose-built rental unit completions remained unchanged (67 units in the four quarters ending with the second quarter of both 2008 and 2007), the conversion of some units from rental to condominium caused the stock of rental accommodation to shrink by 0.7 per cent to 15,574. This reflects the fact that some property managers facing softer conditions in the rental market decided to convert their properties into ownership units. This helped limit the increase in the vacancy rate.

Vacancy Rates Increased for Apartments in Almost All Size Categories

Vacancy rates have gone up for all apartment types but 3-bedroom apartments. The vacancy rates for one- and two-bedroom apartments determined the direction of the overall vacancy rate since they account for almost 90 per cent of the total rental apartment universe. The vacancy rate for one-bedroom apartments (37 per cent of the universe) widened to 4.6 per cent from 3.9 per cent last year. Similarly, the vacancy rate for two-bedroom apartments (52 per cent of the universe) edged up to 4.1 per cent from 3.9 per cent.

Rents Increase Less Than Inflation

Despite weak demand for rental housing, average rents in Niagara continued to rise. The average rent for a two-bedroom apartment in the fixed sample, which focuses on the comparable units and excludes the impact of changes in the rental stock due to construction, demolition and conversions, increased 1.8 per cent between October 2007 and October 2008. This is slightly lower than the increase of 1.9 per cent a year earlier. Still, this increase was above the Residential Tenancies Act Guideline for 2008 of 1.4 per cent. The increase in rents was less than the year-overyear inflation rate of 2.6 per cent.

Weaker Demand for Some Services Drives Up Vacancies in Niagara Falls

Although the overall vacancy rate moved higher, the vacancy rates varied across the seven zones in which Niagara is divided for rental market survey purposes. The vacancy rates increased in three zones and decreased in the other four. The largest increase, from 2.5 per cent in 2007 to 5.9 per cent in 2008, occurred in the vacancy rate for the core of the City of Niagara Falls (Zone 3). This vacancy rate was the highest among the seven zones and was the same as the Zone 3 vacancy rate in 2006. This market is dependent on tourism and ancillary services and the decrease in the number of customers at gambling facilities led to a reduction of the workforce in the information, culture and recreation services industry. This in turn reduced rental demand and pulled the rate back to the high levels which are usual in this zone. An increase in the vacancy rate in Zone 2 (non-core area of the City of St.Catharines) from 2.7 per cent in 2007 to 4.7 per cent this year has also contributed to the overall increase in Niagara’s vacancy rate, as almost a third of the total rental stock is located here.

Vacancy Rates High in Older Buildings and for Low-Rent Apartments

Despite their lower rents, the vacancy rate was higher in relatively older buildings. Compared to the previous year, the vacancy rate has gone up in buildings constructed before 1974. Newer buildings, especially those built after 1990, benefited from a decline in the vacancy rate. Since around 41 per cent of the total rental stock was built between 1960 and 1974 period, the increase in the vacancy rate in buildings constructed during that period from 3.6 per cent last year to 4.8 per cent in 2008 lifted the overall average vacancy rate higher. Although the rents in larger buildings are relatively higher, renters prefer large buildings, as the availability of amenities makes them more attractive. The vacancy rate in buildings with over 100 apartments was the lowest at 2.4 per cent. About 20 per cent of apartments are in buildings with at least 100 units. The vacancy rates for higher-rent units (those between $800-899, and above $900) were relatively lower compared to less expensive units. Yet, the vacancy rate increased for expensive rental units (above $900) from 1.5 per cent in 2008 to 3.3 per cent. As this rent range competes with homes with modest prices, some renters opt for homeo wnership rather than paying a high rent.

Townhouse Vacancy Rate Higher Too

Rental townhouse (row) vacancy rates also increased, to 5.8 per cent in 2008 from 5.1 per cent a year ago. The same factors raising apartment vacancy rates were at play here. Further movement into home ownership eased the vacancy rate in townhouses. At 848 units, they account for only around 5 per cent of the rental stock.

Availability Up in Tandem with Vacancies

Rental availability rate provides a broader supply measure of what a landlord has available to market to prospective tenants than does the vacancy rate. The availability rate measures the combined incidence of vacant units, as well as units where the existing tenant has given notice to move but has not yet vacated the unit and the landlord has not yet found a replacement. Consistent with the vacancy rate, the availability rate in Niagara trended higher in 2008. According to CMHC’s Rental Market Survey, 6.8 per cent of rental apartments were considered available for renting in October 2008, up from 5.7 per cent last year.

Affordability Slightly Lower

The rental affordability indicator is a gauge of how affordable a rental market is for those households who rent within that market. A generally accepted rule of thumb for affordability is that a household should spend less than 30 per cent of its gross income on housing. The rental affordability indicator examines a three-year moving average of median income of renter households and compares it to the median rent for a two-bedroom apartment in the centre in which they live. More specifically, the level of income required for a household to rent a median priced two-bedroom apartment, using 30 per cent of its income, is calculated. The three-year moving average of median income of households in a centre is then divided by this required income. The resulting number is then multiplied by 100 to form the indicator. An indicator value of 100 indicates that 30 per cent of the median income of renter households is necessary to rent a two-bedroom apartment going at the median rental rate. A value above 100 indicates that less than 30 per cent of the median income is required to rent a two-bedroom apartment. Conversely, a value below 100 indicates that more than 30 per cent of the median income is re-quired to rent the same unit. In general, as the indicator increases, the market becomes more affordable; as the indicator declines, the market becomes less affordable. According to CMHC’s new rental affordability indicator, affordability in Niagara’s rental market weakened slightly in 2008. The cost of renting a median priced two-bedroom apartment increased by 2.2 per cent, while the median income of renter households improved by only 0.5 per cent. The rental affordability indicator in Niagara stands at 102 in 2008, down from 104 the previous year.

Rental Market Outlook

The private apartment vacancy rate in Niagara is expected to slightly tighten reto four per cent in 2009. The expected slowdown in the economy coupled with announced lay-offs will limit income growth, implying fewer people will move into home ownership. Demographic trends will continue to have an important impact on the rental market. The aging of the population suggests demand for rental will increase. Senior households are expected to continue to move back into rental as their children leave home, since this is more convenient as they will no longer be responsible for maintenance and they will obtain equity cash to supplement their old age income. Also, rental buildings are typically located closer to necessary amenities such as medical assistance and transportation. An expected rebound in the number of international migrants who will come to live in Niagara will also raise demand for rentals.

You can find the entire report in PDF format through the following link:

http://www.cmhc-schl.gc.ca/odpub/esub/64451/64451_2008_A01.pdf

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Posted in Alberta, British Columbia, CMHC, Housing Market, Manitoba, Newfoundland, Ontario, Quebec, Rental Market, Uncategorized

Moishe Alexander’s review of the St. Johns Rental Market and CMHC Outlook Report fall 2008

Comments: 0February 18th, 2009 by admin

February 8, 2009 – Moishe Alexander’s review on how the current world economy and Canadian economic turndown is affecting the St. Johns Rental Market

Moishe Alexander’s Review

Highlights

St. John’s, Newfoundland - Credit bribriTO, Flickr

St. John’s, Newfoundland - Credit bribriTO, Flickr

Moishe Alexander says St. John’s area vacancy rate was 0.8 per cent in 2008 versus 2.6 per cent in 2007. Increased economic activity and employment supported stronger demand in the St. John’s area rental market in 2008.  Average two bedroom rent was $630 across the three zones surveyed. St. John’s West (zone 2) posted the lowest vacancy rate in the region at 0.7 per cent.

St. John’s Area Vacancy Rate Lower in 2008

Moishe Alexander says the vacancy rate within the St. John’s census metropolitan area (CMA) was lower in 2008 and average rents increased across the board. This marks the second consecutive decline in the vacancy rate and largely reflects the impact of increased economic activity and strong employment throughout the region. Growth in residential construction activity, combined with record MLS® sales and a tight supply of existing homes for sale, translated into substantial price growth, 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 3,636 privately initiated apartment units within the St. John’s CMA. The survey identified only 30 vacancies within the rental stock, translating into a low vacancy rate of 0.8 per cent. This represents a decrease of 1.8 percentage points from the 2.6 per cent vacancy rate recorded in 2007 and marks the second time since 2003 in which the vacancy rate decreased. At 0.8 per cent, the vacancy rate reached its lowest level since 1980. The vacancy rate was 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 0.8 per cent compared to 6.1 per cent in 2007. St. John’s East (zone 1) posted a vacancy rate of 1.0 per cent versus 2.0 per cent last year. In St. John’s West (zone 2), the vacancy rate declined to 0.7 per cent from the 2.3 per cent recorded in 2007. St. John’s City (zones 1-2) posted a vacancy rate of 0.8 per cent compared to 2.1 per cent a year earlier. Throughout the St. John’s region, vacancies were highest in bachelor units at 1.4 per cent and lowest in three bedroom units at 0.4 per cent. The recorded vacancy rate for one and two bedroom apartments was 0.9 and 0.7 per cent, respectively.  Further analysis of the private rental stock indicated an interesting trend in that the larger the structure size, the lower the vacancy rate. In other words, it was more difficult to find rental accommodations in larger apartment buildings in 2008. Structures containing three to five units experienced the highest vacancy level at 2.0 per cent. Buildings with six to 19 units recorded a vacancy rate of 1.7 per cent. Those with 20 to 49 units came in at 0.7 per cent. Larger structures containing 50 to 99 units recorded a near zero vacancy rate of 0.2 per cent, while buildings containing more than 100 units experienced zero vacancies. Based on these results, expect to see the largest rent increases in 50 plus unit buildings in 2009. The following percentage change in average rent is based on the fixed sample, which includes structures common to the survey for both years (2007/2008). After mixed results last year, average monthly rents increased modestly for all bedroom types in 2008. Bachelor unit average rents were $487. Based on the fixed sample, bachelor rents increased 5.3 per cent. One bedroom average rents were $558. Based on the fixed sample, one bedroom rents went up 3.6 per cent. Two bedroom units posted average rents of $630. Based on the fixed sample, two bedroom rents posted a 3.8 per cent increase. Three bedroom rents came in at $691 during the October survey. Based on the fixed sample, three bedroom rents grew 4.4 per cent. Overall, the total average rent for all bedroom types combined advanced 4.0 per cent based on the fixed sample. The increase in private apartment average rents is a reflection of the upward pressure low vacancies are exerting on rents, as well as higher energy costs and landlords’ attempts to offset the increased costs associated with operating and maintaining their respective apartment buildings.

Once again, current rent levels restricted the construction of multiunit rental projects in 2008, making the rent/return equation uneconomical. This has been the case for more than 20 years now within the local rental market.  However, the dynamics are changing, with fewer private owners and increasing corporate ownership.  These corporate entities have a vested interest in the local rental market, having purchased many apartment buildings in recent years.  Accordingly, expect to see these and other players engage in new multi-unit construction activity once average rents reach project feasibility levels in the coming years.

The performance of the local rental market is driven by a number of factors. These factors have remained fairly consistent over time and involve both demand and supply influences. Key factors influencing rental demand over the short term include economic activity, employment, in-migration and the home ownership rate. The supply side of the local rental market is impacted by additions to the rental stock via new construction or conversion of existing vacant space into apartment units. On the other side of the equation, the supply of rental units can also be reduced by conversion activity when existing apartment units are converted to condominiums or hotels. On rare occasions, demolition of rental stock for alternate site use or loss due to fire, may also serve to reduce the supply of rental stock.

While CMHC’s rental market survey historically covered structures containing three or more apartment units only, both demand and supply for this stock has always been influenced by competition from the newly surveyed (since 2007) secondary rental market. This market consists of single-detached; semi-detached, row and duplex; and other-primarily accessory suites.  Statistics for secondary rented units exclude apartments in purpose built rental structures with three rental units or more, condominium 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 12,687 with an average rent of $618 compared to $592 in 2007. Refer to tables 5.1 and 5.2 for detailed secondary rental market survey results.

Rental Affordability Indicator

Moishe Alexander says according to CMHC’s rental affordability indicator, rental affordability in the St. John’s CMA rental market decreased in 2008, having improved the previous year. The cost of renting a median priced two-bedroom apartment increased five per cent, while the median income of renter households improved by approximately one per cent. The region’s rental affordability indicator stands at 83* for 2008. The following detailed analysis discusses the key factors that have influenced rental market performance throughout the St. John’s CMA during 2008.

Transition from Renter to Home Owner Slows

Moishe Alexander says with new home construction out-pacing 2007 levels and MLS® sales expected to set yet another record for 2008, local house values have increased considerably. As a result, the move from renting to home ownership among the large first-time buyer segment, as well as other renter households became more challenging in 2008. Between October 2007 and September 2008, MLS® unit sales were 18 per cent higher than the previous year’s rental market survey period. Also, the average MLS® house price increased 19 per cent over the same timeframe. The end result of these market dynamics has been a tighter supply of lower priced existing homes for sale to renters. With increased residential construction activity, higher priced newly built homes provide a second option, but in most cases they exceed the qualified price or financial comfort range for first-time buyers and other renter households. Furthermore, many newly built homes are executive two-stories, catering to the ever-growing move-up segment of the market characterised by local young growing families and in-migrant families. From a demographic perspective, the movement of the “echo” generation out of their parents’ homes or away from their rural NL communities, paired with in-migration to the St. John’s area for employment or education purposes, has also continued to increase the local supply of potential renters. Both of these factors drove the demand for rental accommodations accordingly in 2008, contributing to the lower vacancy rate and increased rents. On a final note, some renter households who are capable of owning their own home may not necessarily be willing or want to take on the extra costs and responsibility associated with home ownership.  Specifically, in terms of having a mortgage to pay, property taxes, insurance, maintenance and maintenance costs, and higher utility costs. The overall reduction in the home ownership rate is viewed as a key contributing factor to the tighter rental market conditions recorded in 2008.

Youth Under Age 25 Play a Key Role

Moishe Alexander says in some cases, renters tend to rent for extended periods of time. In other cases, renters may never make the jump to owning a home. However, for many households, renting is a temporary situation. They may be in a transition phase or attempting to save money or improve their personal incomes until such a time when managing the extra costs and responsibilities associated with owning a home is possible. In other words, these households are not only able, but also willing to purchase a home and take on all that is involved with home ownership. Historically, much of the lost rental demand arising from the movement to home ownership has been offset by the youth demographic (under age 25) absorbing the rental supply. In fact, approximately 80 per cent of younger households, classified as such by having a primary maintainer under age 25, tend to rent. Year after year, this cohort continues to represent a primary source of rental demand within the local rental market. As previously discussed, challenging first-time home buyer conditions in 2008 prevented many renter households from this age group into making the transition to home ownership. In fact, recent surveys by the Canadian Home Builders Association (CHBA) indicate that despite its size, the first time buyer segment was given the lowest priority by builders in terms of their target markets. So, it is likely that the current scenario will carry over into 2009, given that price growth is expected to continue. It is important to note that in recent years, St. John’s has not seen the normal level of youth filling vacant rental units left by those who have moved into home ownership. However, this trend appears to have been offset by fewer youth moving to home ownership to the extent that the vacancy rate still declined in 2008 across all bedroom types. This demographic fundamental is viewed as another reason behind the current rental market situation.

Brisk Economic Activity Affects Rental Market

Moishe Alexander says Brisk economic activity within the St. John’s area contributed to an increase in demand in the rental market in 2008, resulting in higher rents and lower vacancies. Offshore oil production and the Hebron project announcement in August 2007 continued to stimulate the local economy and provided support to the housing market. The Hebron formal agreement announcement in August of 2008 injected additional stimulus into the oil sector and this has continued to fuel optimism within the local rental market. Economic activity has been supported, until recently, by higher oil and mineral exports, as well as the addition of new energy development activity from White Rose and the planning phase for the Hebron project. However, a decline in offshore oil production compared to last year is expected to dampen GDP growth for 2008. In fact, during the January to August period of this year, oil production decreased 9.2 per cent over the same period in 2007. That being said, oil price remained historically high throughout the first half of 2008, generating much more revenue for the province than previously projected. Higher commodity prices over the past few years have resulted in increased mineral exploration activity in the interior region of Newfoundland, as well as Labrador. However, the recent correction in commodity prices may suggest more moderate growth over the near term. In addition to the increase in overall economic activity, oil and mineral development activity has added further support to the demand for rental accommodations this year, as many of the people involved in these projects are based in the St. John’s area. These economic fundamentals have contributed to the lower vacancy rate and higher rent level this year. The local labour market ha performed very well in recent years, thanks in large part to the increased economic activity and growth that has been experienced as a result of the oil sector. Last year represented a 26 year high for employment. Local employment peaked at historic highs once again during 2008, while unemployment remained low, both of which contributed to the lower vacancy rate and increased rents.  Tight labour market conditions continue to exert upward pressure on wages and salaries making it easier for renter households to meet rent payment obligations. Overall, personal incomes continue to grow, with additional growth expected this year. Retail sales were up nearly ten per cent last year and similar results are expected for 2008. In fact, during the January to June period of this year, retail sales increased 7.1 per cent over the same period in 2007. Some of this growth has been driven by the Alberta commuter, working in Alberta and coming back during their time off, injecting additional spending into the St John’s area economy. Again, these fundamentals have contributed to the overall tightening of the rental market in 2008.

Across the Board Decrease in Availability Rates

Moishe Alexander says that the results from this year’s Rental Market Survey indicate that availability rates decreased for all bedroom types over the past year. The overall availability rate was 1.5 per cent, down from 3.5 per cen in 2007. Availability rates ranged from a low of 1.1 per cent for three bedroom units, to a high of 2.0 per cent for bachelor units. One and two bedroom units posted availability rates of 1.6 per cent and 1.3 per cent, respectively. The availability rate includes actual vacant units as well as units for which the existing tenant has given notice, but a new tenant has not yet signed a lease. Availability rates give a slightly broader indication of trends in the supply of vacant rental stock over the short term.  The overall spread between the vacancy rate and the availability rate of 0.7 percentage points indicates that the movement to home ownership will likely continue, albeit at a slower pace. This is particularly the case for three bedroom units, where these tenants often tend to be families and may be in need of larger housing. While all types of renter households are buying homes, those households renting two or three bedroom apartments and typically paying the highest rents, shift to home ownership more frequently if they are able. This year’s decrease in both availability and vacancy rates, combined with fewer renters moving to home ownership, is expected to continue to affect the rental market in 2009.

Rental Market Outlook for 2009

Moishe Alexander says from 2004 to 2006, the St. John’s  CMA vacancy rate increased an average of one percentage point per year. Much of the increase was attributed to robust home buying activity and the corresponding movement of renter households to home ownership. However, 2007 and 2008’s sizeable decline in the vacancy rate is a clear indication that many renter households have decided to remain renters rather than buy a home. Although both the resale and new home markets are expected to remain strong next year, the impact of first-time buyers shifting out of rental will once again be less pronounced.  Accordingly, several factors will have an influence on a low vacancy rate in 2009. As home valuations continue to rise, the transition of renter households to home owner households will continue to slow. However, out-migration of the 18 to 24 year-old youth segment of the population will persist, reducing the potential pool of renters accordingly. Investment in rental housing will increase the supply only slightly next year. As a result, the vacancy rate forecast is 1.5 per cent for 2009. With the vacancy rate remaining very low, expect average two bedroom monthly rents to increase by 11 per cent next year to $700, as landlords attempt to recover the increased costs associated with operating and maintaining the rental stock, while lower vacancies and higher energy costs also exert upward pressure on rents. The commencement of major project construction activity and the possibility of unexpected economic events add risk to the forecast, which may have an effect on the expected vacancy rate and average rents for 2009.

You can find the entire report in PDF format through the following link:
http://www.cmhc-schl.gc.ca/odpub/esub/64455/64455_2008_A01.pdf

Tags: , , , , , , , , , , , , , , , , , , , , , , ,
Posted in Alberta, British Columbia, CMHC, Housing Market, Manitoba, Newfoundland, Ontario, Quebec, Rental Market, Uncategorized

Moishe Alexander’s review of the Quebec CMA Rental Market and CMHC Outlook Report fall 2008

Comments: 0February 18th, 2009 by admin

February 8, 2009 – Moishe Alexander’s review on how the current world economy and Canadian economic turndown is affecting the Quebec CMA Rental Market

Moishe Alexander’s Review

Highlights

Quebec City - Credit David Paul Ohmer, Flickr

Quebec City - Credit David Paul Ohmer, Flickr

Moishe Alexander says that the rental market tightened again this year in the Québec census metropolitan area (CMA). In fact, the vacancy rate fell from 1.2 per cent in October 2007 to 0.6 per cent in October 2008. Supply grew much less significantly as, this year, the area saw the addition of 467 units to the privately initiated rental housing stock, compared to 684 in 2007 and 771 in 2006. Zone 81 (Charny, Saint-Romuald, Saint-Jean-Chrysostome, etc.) still had the lowest vacancy rate, at 0.2 per cent.

Notice to readers

Starting this year, rental apartment structures serving senior clients exclusively will be excluded from the survey. For more information, see the Technical Notes section at the end of the report.

Rental market tightens in the Québec area

Moishe Alexander says that according to the results of the Rental Market Survey conducted by CMHC in October, the vacancy rate decreased in 2008, in the Québec census metropolitan area (CMA). From 1.2 per cent in 2007, the vacancy rate has now fallen to 0.6 per cent. In concrete terms, this means that, out of a stock of 70,740 rental housing units2, 433 apartments were vacant this past October. The limited rise in rental housing supply and a strong demand fuelled by the growth of the job market and the increase in net migration account for these results. Diverging trends were noted in Quebec’s six CMAs. While rental market conditions eased in the Sherbrooke and Trois-Rivières CMAs, the Gatineau, Montréal, Québec and Saguenay areas registered decreases in their respective vacancy rates. This fall, the Québec CMA had the lowest vacancy rate (0.6 per cent), followed by Saguenay (1.6 per cent), Trois- Rivières (1.7 per cent), Gatineau (1.9 per cent), Montréal (2.4 per cent) and Sherbrooke (2.8 per cent).

Strong demand

Moishe Alexander says that while the market had eased somewhat between 2002 and 2006, conditions have since been tending to tighten. The Québec area has been enjoying greater economic growth than the other CMAs, with a 3.1 per-cent increase in its gross domestic product in 2007. This is confirmed by the sustained job creation in 2007 (+9,100) and 20083 (+6,400). Investments in infrastructure and the activities for Québec City’s 400th anniversary effectively stimulated the labour market. In 2008, the non-residential construction has benefited from these conditions with strong gains in employment and hours worked across the area. During the first nine months of the year, 8,100 jobs were created in this sector: accommodation and food services; professional, scientific and technical services; finance, insurance and real estate; as well as transportation and communication. For the first nine months of the year, total employment growth reached 1.7 per cent in the CMA, and the increase extended to both full-time and part-time jobs. However, the rise in demand was not supported by the labour market situation for young people aged from 15 to 24 years, since the employment level was down for the first three quarters of 2008, compared to the same period in 2007. The greater demand was rather due to the increase in migration, fuelled by the good economic performance of the area. In fact, net migration in the CMA reached 4,170 people in 2006 and, even though the figures are not yet known, it is expected that the levels will again be high in 2007 and 2008. Newcomers from other regions across Quebec accounted for the greatest share (62 per cent). This strong migration to the CMA has been significantly boosting demand for rental housing.

Limited rise in rental housing supply

Moishe Alexander says the growth in supply weakened this year. In fact, the increase in the number of rental dwellings in privately initiated buildings reached 467 units in 2008, compared to 684 in 2007 and 771 in 2006.

Vacancy rates fall in most sectors of the CMA

Moishe Alexander says that vacancy rates fell in seven of the nine zones in the area. The rental market remained very tight on the South Shore (zones 8 and 9) and, even though conditions remained practically stable there in 2008, this sector still had the lowest vacancy rate in the CMA, at 0.2 per cent (zone 8). The vacancy rate in zone 9 (Lévis, Pintendre, Saint-Joseph-de- Lévis and Beaumont) eased very slightly in 2008, reaching 0.4 per cent, compared to 0.3 per cent in 2007. The greatest vacancy rate decrease was observed in zone 5 (Val-Bélair, Saint-Émile, Loretteville, etc.), where this rate fell from 1.7 per cent in 2007 to 0.4 per cent in 2008. The presence of the Valcartier military base and the development of Technopole Defence and Security has certainly accounted for the strong housing demand in this sector.

Vacancy rates on the decline in newer structures

Moishe Alexander says in the area, the sustained demand contributed to pushing down the vacancy rate for newer buildings. In 2007, structures built in 2000 or later had higher vacancy rates than older buildings, on account of their higher rents. This was no longer the case in 2008, as the vacancy rate for newer structures was 0.6 per cent. This year, structures built before 1960 had the highest vacancy rate, at 0.9 per cent. Overall, however, the vacancy rate was higher (1 per cent) for units renting for $1,000 or more per month. The strong demand for rental housing also led to a tighter market for smaller apartments, for which conditions are usually less tight. The vacancy rates for bachelor units and one-bedroom apartments fell in 2008, reaching 1.6 per cent and 0.9 per cent, respectively.

Estimated change in average rents

Moishe Alexander says in the CMA, the average rent for two-bedroom apartments rose by 2 per cent between the October 2007 and October 2008 surveys. The increase was below the rate of inflation observed over the same period for Quebec overall (2.3 per cent). It should be noted that CMHC now uses a measure (introduced in 2006) that estimates the change in rents charged in existing structures. This measure therefore excludes the impact of new structures and conversions added to the universe between surveys. In October 2008, the average rent for two-bedroom apartments reached $653 per month. The Québec CMA had the third highest average rent for units of this type, behind Gatineau ($677) and Montréal ($659). In the area, the highest average rent for two-bedroom apartments was observed in the Québec Haute-Ville sector, at $861 per month, while the Beauport sector had the lowest average rent for units of this type, at $587 per month for the period.

Availability rate

Moishe Alexander says the availability rate differs from the vacancy rate in that it includes not only the vacant units but also the units for which the existing tenant has given, or has received, notice to move, and for which a new tenant has not signed a lease. This rate reached 1.2 per cent in October 2008. The highest availability rates were recorded in the Québec Haute-Ville (1.9 per cent) and Basse- Ville (1.8 per cent) sectors and in the zone comprising Beauport, Sainte-Brigitte-de-Laval, Boischatel, L’Ange-Gardien, Château-Richer and L’Île-d’Orléans (1.8 per cent). The lowest availability rate was noted on the South Shore in the sector including Charny, Saint-Romuald and Saint-Jean-Chrysostome (0.2 per cent). These figures show that a small number of units would be vacated in the short term, which also reflects the lease cycle in Quebec, as most are signed for one year and renewed on July 1st.

Rental affordability indicator

Moishe Alexander says the rental affordability indicator is a gauge of how affordable a rental market is for those households which rent within that market. The new rental affordability indicator examines a three-year moving average of median income of renter households and compares it to the median rent for a two-bedroom apartment in the centre in which they live. More specifically, the level of income required for a household to rent a median priced two-bedroom apartment, using 30 per cent of its income4, is calculated. The three-year moving average of median income of households in a centre is then divided by this required income. The resulting number is then multiplied by 100 to form the indicator. An indicator value of 100 indicates that 30 per cent of the median income of renter households is necessary to rent a two-bedroom apartment going at the median rental rate. A value above 100 indicates that less than 30 per cent of the median income is required. In general, as the indicator increases, the market becomes more affordable; as the indicator declines, the market becomes less affordable. According to this indicator, the Québec CMA rental market became more affordable this year than in 2007. In fact, the indicator rose from 126 in 2007 to 135 in 2008. This means that the median income of renter households in the CMA was 35 per cent greater than the minimum required5 to pay the median rent. In 2008, the increase in the median income of renter households (+9 per cent) was greater than the rise in the median rent (+2 per cent).

Market to remain tight

Moishe Alexander says the last time the rental market was relatively less tight dates back to 1998, when the vacancy rate stood at 3.3 per cent. The beginning of the current decade was marked by rates reaching 0.3 per cent and 0.5 per cent. From 2002 to 2006, the market eased but, in 2007, the vacancy rate started another downward trend, reaching 0.6 per cent this past October. The situation will persist in 2009, as traditional rental housing construction has been idling, with volumes remaining well below the levels recorded in the last five years. In addition, the strong migration to the CMA has contributed to maintaining demand for dwellings of this type. Finally, despite favourable mortgage rates, there should be fewer renter households accessing homeownership, as a result of the economic slowdown and the less significant formation of young households in the area.

Secondary Rental Market Survey

Moishe Alexander says for the last two years, CMHC has expanded the Rental Market Survey to include information on rental condominium apartments in the following centres: Vancouver, Calgary, Edmonton, Toronto, Ottawa, Montréal and Québec. In the Québec CMA, the condominium apartment stock comprised 19,092 units in October 2008, compared to 18,526 units at the same time in 2007. The North Centre sector (zones 1 to 4) accounts for most (68 per cent) of these units. In the overall CMA, 8.4 per cent of the condominiums were rental dwellings (1,604 units) in October 2008, for a decrease from October 2007, when there were 1,701 rental condominiums, or 9.2 per cent of the condominium stock. This proportion was smaller on the South Shore, at 6.8 per cent in 2008, compared to 8.6 per cent a year earlier. The vacancy rate in the rental condominium segment followed the same trend as the rate on the traditional rental market. In fact, market conditions tightened, as the overall rental condominium vacancy rate fell to 1.3 per cent in October 2008, compared to 2.4 per cent in October 2007. The vacancy rates for rental condominiums differed from one sector to another in the area. In fact, the rates were 1.7 per cent in the North Centre and 0.6 per cent in the Northern Suburbs, while no rental condominium units were vacant on the South Shore. These results reflect the situation on the overall rental market in the area.

You can find the entire report in PDF format through the following link:
http://www.cmhc-schl.gc.ca/odpub/esub/64427/64427_2008_A01.pdf

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Posted in Alberta, British Columbia, CMHC, Housing Market, Manitoba, Newfoundland, Ontario, Quebec, Rental Market, Uncategorized

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