Moishe Alexander’s Review

Highlights

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