February 2, 2009 – Moishe Alexander’s review on how the current world economy and Canadian economic down turn is affecting the Hamilton and Brantford Ontario rental market
Brantford, Ontario - Credit tcp909, Flickr
The apartment vacancy rate fell to 3.2 per cent and 2.4 per cent in Hamilton and Brantford, respectively in October 2008 as compared to a year ago. Rents were up 1.3 per cent in Hamilton and 2.7 per cent in Brantford. More would-be buyers postponed their purchases and stayed in the rental market, exerting downward pressure on the vacancy rates. In 2009, the vacancy rate is expected to edge lower to 3.0 per cent and 2.2 percent in Hamilton and Brantford, respectively.
Rental Demand Varied Across Sub-Markets
The average apartment vacancy rate fell to 3.2 per cent this year in the Hamilton CMA but the vacancy rate varied by sub-market. The vacancy rates were higher in the Downtown, East, and Central parts of the former Hamilton City zones as well as Grimsby and Stoney Creek. Conversely, vacancy rates were lower in some of the more expensive markets including Ancaster, Dundas, Flamborough, Glanbrook, and Burlington, providing evidence that the higher quality apartments which are more common in these markets are in higher demand. Burlington’s vacancy rate remains the tightest in the Hamilton CMA at 1.4 per cent. In Brantford, the vacancy edged lower to 2.4 per cent for both apartments and townhouse rentals.
Fewer Full-Time, More Part-Time Jobs
Demand for rental accommodation typically comes from youth households and other households who are not planning to own a home or have not yet saved enough for a down payment. Thus, it is important to take a look at the employment market by specific age groups and types of employment. Given that there are a number of post-secondary institutions in Hamilton, it is reasonable to expect that some of these young students who rent would also hold a part time job to supplement their living expenses. This year, part-time jobs among youth aged 15 to 24 increased 2.4 per cent. At the same time, the labour force for this age group remained relatively unchanged from a year ago. This indicates that more youth are able to find a part time job and thus afford to be in the rental market. At the same time, full-time employment among this age group dropped four per cent, indicating that some young people may have lost their jobs or some were unable to obtain one this year following their post secondary education studies. Consequently, some of these people delayed entering the first time buyer stage and instead chose to stay in the rental market until economic conditions improve. Part-time employment among 25 to 44 year olds also increased this year, and this may be an indication that some of the younger people in this group may have had difficulty securing full-time employment. Younger and thus less experienced workers tend to be more susceptible to changes in the economy such as those that were experienced this year. Full-time employment for this group rose by less than two per cent, yet part-time employment picked up almost 15 per cent as compared to last year. Workers in this group likely picked up a part-time job in order to supplement their income while looking for a fulltime job. Thus, many of these individuals also delayed entering the ownership market and instead chose to continue renting. In Brantford, employment conditions differed from those in Hamilton. Both part-time and full-time employment among youth aged 15 to 24 fell this year, as well as part-time employment for people aged 25 to 44. Slower employment conditions in this city likely kept these people in the rental market. While full-time employment of people aged 25 to 44 increased by 13 per cent as compared to last year, cooler resale market conditions this year indicate that some of these individuals likely stayed in the rental market and put off their home purchases.
Lower Ownership Demand
MLS® sales fell this year from the record level set in 2007 in both Hamilton and Brantford. Greater economic uncertainty prompted many would-be first-time homebuyers to delay their home purchases and instead remain in the rental market this year. Also, according to CMHC’s Renovation and Home Purchase Survey, there were fewer first-time buyers in the market this year. Using the results from the Toronto respondents as a proxy for Hamilton, first-time buyers accounted for 40 per cent of respondents who intend to purchase a home this year, compared with 47 per cent in 2007. In addition, rising home prices last year may have deterred some renters from exiting the rental market where average rent increases are lower than the rate of inflation. This indicates that there were fewer renters looking to buy a home this year as compared to a year ago.
Echo Boomers at Rental Stage
Demographic trends are an important factor of housing demand. The results from the 2006 Census are an indicator of how the population has changed over time and what impact this has on housing demand. For example, larger proportions of a particular age group can determine what type of housing may be demanded and for how long. Currently in Hamilton, there are two specific demographic groups, which are having a greater impact on rental demand – young people and the elderly. Historically, these two groups of households tend to have a higher propensity to rent than other adult age groups, which have a higher propensity to own. The echo boomer generation – the children of baby boomers born in the mid-1980’s to mid-1990’s – have just started to enter the renter stage of the housing demand cycle. Typically, younger households consisting of students or those that have just started their career will tend to rent or stay at home in order to save money before entering into home ownership. This generation of young people is the largest wave of any age group that we have seen since the baby boomer cohort, and is expected to increase housing demand – for both rental and ownership – in the next five to ten years. Also, as people age and enter into retirement, some will choose to rent since many retirees will experience some decline in their disposable income. This ageing population will go through changes in household size with families splitting off and inevitably, some households will consist of one surviving spouse who may require only a small rental apartment. In Hamilton, 15 per cent of the population was above the age of 65 in 2006 and this group is expected to have had some influence on the lower vacancy rate this year.
Fewer Condo Completions in Hamilton
Total condominium apartment and townhouse completions between October 2007 and September 2008 (the period between last year’s and this year’s Rental Market Survey) were just 415 units – 75 per cent of the number of condominium units that were completed during the same period a year ago. Fewer condo completions means that there was less movement out of the rental market into condo ownership. Condominium completions provide a gauge of the movement of households out of the rental market since these less expensive units present renters with the opportunity to make an easier leap into the home ownership market.
Apartment Supply Decreases
Hamilton’s private apartment universe decreased this year to 42,390 units as compared to 42,506 units last year. There were 50 per cent fewer new rental units completed this year as compared to last year, which contributed to the lower number of units in the universe this year. In Brantford, there were no rental completions and the private apartment universe declined again this year to 4,704 units from 4,808 units in 2007. Fewer units in Brantford also added to the competition among existing rental units.
Drop in Townhouse Vacancy Rates
Rental demand for both apartment and townhouse rentals strengthened this year and the increased demand was most pronounced for two and three bedroom townhouse rentals in Hamilton. The vacancy rate for townhouses in Hamilton fell from 4.3 per cent in 2007 to 1.1 percent this year while the average rent for townhouses increased 3.6 per cent. Average rents for townhouses were generally higher and typically occupied by residents who may have been renting for some time and are preparing for home ownership. Despite higher average rents this year for townhouses, a clear drop in the vacancy rate of townhouse rentals supports the presumption that more would-be first time buyers chose to remain in the rental market where the average monthly rent is still below the average monthly mortgage principal and interest payments. The townhouse vacancy rate was lowest in Burlington at 0.8 per cent. In Brantford, the townhouse vacancy rate was the same as the apartment vacancy rate at 2.4 per cent. The vacancy rate for two bedroom units edged lower to 1.1 per cent while it the survey sample for both the 2007 and 2008 surveys. This measure eliminates the compositional impact of new structures coming on line in the rental market. The methodology section at the end of this report provides more detailed information on this measure. The average increase in rents for all apartments in Hamilton remained unchanged from a year ago at 1.3 per cent. By unit type, the percentage change of average rent was higher for bachelor, one bedroom and two bedroom units, as compared to last year and lower for three bedroom units at 1.4 per cent. The average rent for an apartment in Hamilton is $763 per month. In Brantford, the percentage change of average rent from the common sample was 2.7 per cent, higher than the change from the previous year at 2.1 per cent. The average rent for an apartment in Brantford is $728 per month.
Lower Rents and Higher Vacancy Rates in Central and Central East
The average rents for private apartments in the Hamilton CMA also varied across the various zones. Average rents for private apartments in the Central and Central East areas remain below the average for the Hamilton City zones. Lower rents in these areas as compared to other parts of the Hamilton CMA, combined with higher than average vacancy rates signifies that the rental units in these areas are less desirable moved higher to 2.9 per cent for three bedroom units. This is likely the result of the stronger increase in growth rate of the average rent for a three-bedroom townhouse unit as compared to the average three-bedroom apartment unit.
Availability Rate
Another measure of rental market supply is the availability rate. The availability rate is a slightly broader measure of what landlords have available to market to prospective tenants. The availability rate refers to the percentage of apartments that are either vacant or for which the existing tenant has given or received notice to move. The availability rate for private apartment rentals in both Hamilton and Brantford fell this year to 4.9 per cent and 2.8 per cent, respectively. In Hamilton, the availability rate fell in every sub-market except for Central East, where there was no change at 7.8 per cent – the highest availability rate in all of Hamilton. In accordance with the trend in the vacancy rate, there was less availability of rental supply in some of the more expensive markets of Burlington, Ancaster, Dundas, Flamborough and Glanbrook. Another correlation with the vacancy rate was the increase in the availability of three bedroom rentals this year as compared to last year.
Average Rent Increase Remains Lower Than Inflation Rate
The measure in the growth rate of rents is strictly based on a sample of structures which were common to than some of the other areas where the vacancy rates are lower yet average rents remain elevated. These areas consist of older rental units, which may be less attractive given the choices available in some more recently developed areas of Hamilton. The West End and Hamilton Mountain benefit from a steady stream of students from the post-secondary institutions in the area and thus average rents for three-bedroom units and larger tend to be higher to account for the shared rental costs. The vacancy rates in these areas are also lower than the average for the Hamilton CMA. Few rental properties and a low vacancy rate in the zone covering Ancaster, Dundas, Flamborough and Glanbrook suggest that there may be limited choices for renters looking to live in these areas. The higher rents charged in these areas and low availability rate indicates that these are desirable areas to rent. Burlington is a community that continues to attract many renters and homeowners alike because of its prime location with easy access to other parts of the Hamilton CMA as well as the Greater Toronto Area. Many of the rental units in Burlington are newer structures and there is a range of unit types for rent including executive condominium apartments and townhouses with views of the waterfront, to other freehold townhouses and single-detached homes. The average rent increase in Burlington for structures common to both the 2007 and 2008 survey was 2.1 per cent – the highest increase in the Hamilton CMA. 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 then 30per 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 required 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 the affordability indicator, affordability in Hamilton’s rental market increased as compared to last year. The cost of renting a median priced two-bedroom apartment climbed 1.9 per cent in 2008, while the median income of renter households grew at 3.6 per cent. The rental affordability indicator in Hamilton stands at 115, the highest affordability level seen yet in Hamilton
Rental Affordability Indicator
The rental affordability indicator is a gauge of how affordable a rental market is for those households, which 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 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 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 over the past 12 years. The increased affordability of renting in Hamilton likely attracted and retained many households in the rental market this year. The affordability indicator is not available for Brantford due to a lack of required data for that centre.
Rental Market Outlook
Apartment vacancy rates will decrease further in 2009 to 3.0 and 2.2 per cent in Hamilton and Brantford, respectively. The average two-bedroom apartment rent will rise by 1.5 per cent in Hamilton and 2.5 per cent in Brantford. Rental demand will grow as the echo boomer generation moves fully into their prime rental years. This cohort is expected to have an impact on rental demand over the next five to six years. Slower resale market conditions and greater economic uncertainty expected for 2009 in both Hamilton and Brantford means fewer first-time buyers will purchase a home next year and will instead choose to stay in the rental market. Although interested buyers will have more choice in the market in 2009 with listings up, many households will be less inclined to make big-ticket purchases. Also, the rental market provides greater financial flexibility for households concerned about their economic stability, especially since rental affordability is currently at its highest level in Hamilton. 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 Saskatoon (20.3 per cent), Regina (13.5 per cent), Edmonton (9.2 per cent), and Kelowna (8.4 per cent). Overall, the average rent for two-bedroom apartments in existing structures across Canada’s 34 major centres increased by 2.9 per cent between October 2007 and October 2008. CMHC’s October 2008 Rental Market Survey also covers condominium apartments offered for rent in Calgary, Edmonton, Montréal, Ottawa, Québec, Regina, Saskatoon, Toronto, Vancouver, and Victoria. In 2008, vacancy rates for rental condominium apartments were below one per cent in four of the 10 centres surveyed. Rental condominium vacancy rates were the lowest in Regina, Toronto, Ottawa, and Vancouver. However, Calgary and Edmonton registered the highest vacancy rates for condominium apartments at 4.0 per cent and 3.4 per cent in 2008, respectively. The survey showed that vacancy rates for rental condominium apartments in 2008 were lower than vacancy rates in the conventional rental market in Ottawa, Regina, Saskatoon, and Toronto. The highest average monthly rents for two-bedroom condominium apartments were in Toronto ($1,625), Vancouver ($1,507), and Calgary ($1,293). All surveyed centres posted average monthly rents for two-bedroom condominium apartments that were higher than average The average rental apartment vacancy rate in Canada’s 34 major centres1 decreased to 2.2 per cent in October 2008 from 2.6 per cent in October 2007. The centres with the highest vacancy rates in 2008 were Windsor (14.6 per cent), St. Catharines-Niagara (4.3 per cent), and Oshawa (4.2 percent). On the other hand, the major urban centres with the lowest vacancy rates were Kelowna (0.3 per cent), Victoria (0.5 per cent), Vancouver (0.5 per cent), and Regina (0.5 per cent). Demand for rental housing in Canada increased due to high migration levels, youth employment growth, and the large gap between the cost of homeownership and renting. Rental construction and competition from the condominium market were not enough to offset growing rental demand. The highest average monthly rents for two-bedroom apartments in new and existing structures were in Calgary ($1,148), Vancouver ($1,123), Toronto ($1,095), and Edmonton ($1,034), followed by Ottawa ($995), Kelowna ($967), and Victoria ($965). The lowest average monthly rents for two-bedroom apartments in new and existing structures were in Trois- Rivières ($505), Saguenay ($518), and Sherbrooke ($543). 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.
National Vacancy Rate Decreased in October 2008
The average rental apartment vacancy rate in Canada’s 34 major centres1 decreased to 2.2 per cent in October 2008 from 2.6 per cent in October 2007. The centres with the highest vacancy rates in 2008 were Windsor (14.6 per cent), St. Catharines-Niagara (4.3 per cent), and Oshawa (4.2 percent). On the other hand, the major urban centres with the lowest vacancy rates were Kelowna (0.3 per cent), Victoria (0.5 per cent), Vancouver (0.5per cent), and Regina (0.5 percent). Demand for rental housing in Canada increased due to high migration levels, youth employment growth, and the large gap between the cost of homeownership and renting. Rental construction and competition from the condominium market were not enough to offset growing rental demand. The highest average monthly rents for two-bedroom apartments in new and existing structures were in Calgary ($1,148), Vancouver ($1,123), Toronto ($1,095), and Edmonton ($1,034), followed by Ottawa ($995), Kelowna ($967), and Victoria ($965). The lowest average monthly rents for two-bedroom apartments in new and existing structures were in Trois-Rivières ($505), Saguenay ($518), and Sherbrooke ($543). 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 Saskatoon (20.3 per cent), Regina (13.5 per cent), Edmonton (9.2 per cent), and Kelowna (8.4 per cent). Overall, the average rent for two-bedroom apartments in existing structures across Canada’s 34 major centres increased by 2.9 percent between October 2007 and October 2008. CMHC’s October 2008 Rental Market Survey also covers condominium apartments offered for rent in Calgary, Edmonton, Montréal, Ottawa, Québec, Regina, Saskatoon, Toronto, Vancouver, and Victoria. In 2008, vacancy rates for rental condominium apartments were below one per cent in four of the 10 centres surveyed. Rental condominium vacancy rates were the lowest in Regina, Toronto, Ottawa, and Vancouver. However, Calgary and Edmonton registered the highest vacancy rates for condominium apartments at 4.0 per cent and 3.4 per cent in 2008, respectively. The survey showed that vacancy rates for rental condominium apartments in 2008 were lower than vacancy rates in the conventional rental market in Ottawa, Regina, Saskatoon, and Toronto. The highest average monthly rents for two-bedroom condominium apartments were in Toronto ($1,625), Vancouver ($1,507), and Calgary ($1,293). 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 2008.
You can find the entire report in PDF format through the following link:
http://www.cmhc-schl.gc.ca/odpub/esub/65780/65780_2008_A01.pdf
