According to the latest Rental Market Survey data collected in October by CMHC, the average vacancy rate in privately initiated rental apartments in the Ottawa Census Metropolitan Area (CMA) increased only slightly from last year to 1.5 per cent. Consequently, Ottawa remained one of the tightest rental markets in Ontario.

The low vacancy rate was the result of two contrary influences. On the one hand low borrowing costs coupled with steady employment conditions in the Capital City gave many renters the right incentives to jump into the homeownership market pushing the vacancy upwards. On the other hand minimal rental apartment construction and fewer secondary rental market units kept vacancies low. While both influences roughly balanced each other out, the outflow of households from rental accommodations into homeownership was relatively stronger.

Availability rate is a slightly broader indicator than the vacancy rate, as it captures both the currently vacant rental stock and the stock for which the tenant has given or received notice to vacate. While the vacancy rate remained largely stable at a low of 1.5 per cent, the availability rate jumped from 2.9 per cent in 2008 to 3.5 per cent in 2009.

This suggests that it is possible that some buyers, who are currently renting, have not taken occupancy of their new homes yet, but have already given their landlords their two months notice. The slight jump in availability could also indicate that in Ottawa’s tight rental market, leased units are occupied quite rapidly after they become vacant, maintaining a stable vacancy rate.

Employment performance among first time buyers’ ages 25 to 44 years old has been very resilient, remaining on par with levels this time last year. Labour market recovery for this age cohort has been remarkable and has enabled some potential first time buyers to take full advantage of declining borrowing costs. An economic environment of low interest rates unleashed the pent-up demand accumulated early in 2009. As a result, the movement out of rental and into homeownership in this age group has been significant, pushing vacancy rates upwards.

Another factor supporting the increase in vacancy rate is the weak employment performance among young renters. The age cohort between ages 18 to 24 has been the weakest when compared to other age groups. Total year-to-date full time employment is down 8.7 per cent from last year. Rising unemployment within this age group has obliged some young adults to remain in their parental home, dampening the rate of household formation.

Employment in the Charlottetown area is forecast to post a slight decline this year before posting a moderate increase in 2010. During the first three quarters of 2009, the decrease in employment in Charlottetown was dispersed among all industries except the public service sector, which posted a small increase. Despite the modest declines in employment in 2009, the capital region remains attractive for job seekers compared to other parts of the province. This fact has lead to the continued trend of urbanization, as Islanders continue to move to the capital region from more rural parts of the province.

Positive net-migration is one of the key factors that has contributed to the strong housing market over the past seven years. As of July 2009, the population of Prince Edward Island was estimated at 140,985; an increase of 1,534 persons or 1.1 per cent from 2008. While this increase in population was the result of both a natural increase and positive net migration, the vast majority was the result of the latter. From July 2008 to July 2009, 1,793 international immigrants chose the Island as their new home, which is the highest annual level since recording began in 1971. The main reason for this substantial increase in international migration was the increased effort that the province has allocated to this initiative. The results seen in 2007 and 2008 are expected to be the start of a new upward trend in international migration with preliminary data for 2009 indicating that the year could end up showing an even larger inflow of people. The local housing market is benefitting from this initiative as many of these households are relocating to the capital region, and as such require housing within all tenure types. While the aforementioned data

While the aforementioned data on immigration is positive, it is for the province as a whole. It is important to note that the capital region consistently outperforms the province. For the last census period ending in 2006, the Charlottetown CA, which encompasses the entire urban area around the city, recorded a population growth of 1,391 people or 2.4 per cent. While there was some natural population growth during this period, the majority of the increase was due to in-migration. For the Charlottetown area it had been typical that about 70 per cent of the people moving to the capital region came from elsewhere in the province, while the remainder were from other regions of the country. This ratio had remained fairly constant since the early 1990′s, but since 2006 it has started to change. The reason for this is twofold, with both the movement of people to the west and the recent influx in international immigrants. As earlier referenced, the influx of international immigration is expected to end up being even stronger in 2009 than 2008, due to the popularity of the province’s programs with new immigrants. This will especially benefit the capital region as the majority of the people are settling in the area. This trend should continue to bolster the local housing market over the forecast period, as the population continues to grow.

As a result of the aforementioned market forces, the Charlottetown housing market is expected to exceed the level set in 2008. Although single starts in Charlottetown recorded a decline so far in 2009, multiple starts at the end of the third quarter are on track to have the strongest year since 1988. Single starts are expected to decline 25 per cent in 2009, when compared to 2008. This decline was expected, as many potential homeowners are taking a wait and see approach, before making any large purchases. In addition, single home construction in Charlottetown posted seven years of impressive growth that mirrored the national trend. As such, the decline in 2009 is seen as the market returning to a more sustainable level. In contrast to the decline in singles, multiple starts will end the year close to setting a new record high. The strength in multiple starts is the result of several factors. The increase in multiple unit starts also created a situation where there was a temporary oversupply of rental units that was not fully absorbed until the end of 2007. However, one area where new construction has continued to remain strong is multiple units intended for homeownership. A key reason for the increased activity in this part of the market is the relatively lower cost of semi-detached and row units compared to single-detached homes. Despite the forecasted increase in semi-detached units over the next two years, it is expected that the overall housing market will remain strong during the forecast period. The Bank of Canada cut the Target for the Overnight Rate in the early months of 2009. The rate was 1.50 per cent at the start of 2009 and has since fallen to 0.25 per cent. The Bank has committed to keeping this rate at 0.25 per cent through the middle of 2010 unless inflationary pressures warrant an increase.

The Bank of Canada cut the Target for the Overnight Rate in the early months of 2009. The rate was 1.50 per cent at the start of 2009 and has since fallen to 0.25 per cent. The Bank has committed to keeping this rate at 0.25 per cent through the middle of 2010 unless inflationary pressures warrant an increase.

Mortgage rates have fallen over the course of 2009, but are now expected to remain relatively stable for the rest of the year. Posted mortgage rates will gradually increase through 2010, but will do so at a slow pace. For 2010, the one-year posted mortgage rate will be in the 3.50-4.25 per cent range, while three and five-year posted mortgage rates are forecast to be in the 4.50-6.00 per cent range.

TED-Spread On Wednesday, this widely quoted credit risk indicator fell to a 26-month low. The TED spread is now below its August 2007 levels. (August 2007 is generally viewed as the beginning of the subprime crisis.)

The TED spread is simply the difference between what banks and the U.S. Treasury pay to borrow money for three months. People use it to gauge fear and liquidity constraints in the North American credit market.

The TED spread reached an all-time high of 4.65% at the height of the credit crisis in October 2008. Its long-term average is about 1/2%.

http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2009/07/ted-spread-continues-to-fall.html

brought by Moishe Alexander, CFC canadian funding corp CEO

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

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

Moishe Alexander’s Review

Toronto at Night - Credit Bensonkua, Flickr

The average apartment vacancy rate in the GTA declined to 2.1 per cent in 2008. Average fixed sample two-bedroom apartment rents increased by 1.7 per cent. Market conditions tightened in the rental market as ownership home prices continued to increase and employment growth moderated. Home ownership demand will continue to slow in 2009. The average apartment vacancy rate will be 2.0 per cent next year.

Factors Influencing Rental Demand

Rental market conditions in the Greater Toronto area (GTA) tightened in 2008. The average vacancy rate for purpose-built rental apartments declined to 2.1 per cent – the lowest level in seven years (see Figure 3). A number of factors contributed to the lower rental vacancy rate, including more moderate home ownership demand, steady in-migration, changing demographic trends and a dip in full-time jobs for young people.

Ownership Demand Moderated

A moderation in first-time buying activity in the GTA was one of the key factors underlying the decline in vacancy rates over the past year. CMHC’s Renovation and Home Purchase Survey found that the percentage of intended home purchases accounted for by first-time buyers declined to 40 per cent for 2008 compared to 47 percent in 2007. Local economic conditions became less certain in 2008, impacting the decisions of would-be first-time buyers. Potential first-time buyers are arguably more sensitive to changing ownership market conditions due to lower down payments and incomes, on average, and a lack of accumulated home equity. As a result, the outflow of rental households into home ownership slowed. In addition, some potential first-time buyers have also put their decision on hold due to the elevated cost of home ownership. Between 1997 and 2007, the GTA housing market experienced annual existing home price growth above that of consumer prices and average incomes. Over the last two years, the cost of home ownership became less manageable for first-time buyers who generally have incomes below the average. Even the relatively less expensive condominium apartment market segment, which has served as an entry point into home ownership for many first-time buyers, has become less accessible in some parts of the region. At the same time as the cost of home ownership was increasing, the cost of renting increased below the rate of growth for inflation and incomes. The gap between the average monthly mortgage payment and the average rent for the apartments in the GTA has widened, further prompting some renter households to put their home buying decision on hold. Rental demand for two and three bedroom unit types strengthened the most. The rental universe of two or more bedroom apartments actually increased this year, nevertheless the increase in demand outpaced the increase in supply. The gap between the average principal and interest payment for a condominium apartment and the average rent for an apartment likely widened more for larger unit sizes.

Weaker Full-Time Employment

One of the essential factors influencing renter-households’ decision to move into home ownership is a secure and well-paying job. While GTA labour market conditions remained tight, with job growth at two per cent in 2008, employment prospects for younger people weakened. Youth employment growth declined over the past year, with year-over-year gains only experienced in part-time jobs. Typically, individuals moving into ownership would require full-time employment to save for a down payment or to be approved for a mortgage. More renter households employed in part time positions had to hold off on home purchases. Demand for rental housing strengthened as a result.

Condominium Apartment Development

Pre-construction sales of condominium apartments have been very strong since the early new millennium, when vacancy rates began increasing. In 2007, a record number of pre-construction highrise sales took place. However, while a pre-construction purchase was the first step towards home ownership for many renter households, many of these condominium apartment units have not actually completed. Condominium apartment completions increased in 2008 (see Figure 6). However, over the same period, the average number of condominium apartments under construction increased from the mid-20,000 range to the mid-30,000 range. There are still many households continuing to rent that will be moving once their new ownership housing completes. As will be discussed further in the forecast section of this report, movement from rental into completed condominium apartments will put a floor on the degree to which vacancy rates will move lower over the next year.

Immigrants Fuel Rental Demand

In 2008, the number of immigrants settling in the Toronto area trended higher, contributing to increased demand for rental housing. In 2007, the Citizenship and Immigration Canada raised the target for new permanent residents to Canada by more than five per cent, the highest increase in the past 15 years. Immigration continues to be the driving force behind sustained positive net-migration into the GTA. Immigrants have been attracted to the GTA by the healthy economy, variety of employment opportunities and strong ethnic and cultural networks. Many immigrants tend to rent when first arriving in the GTA, rather than entering home ownership directly. Once they gain quality employment, establish a credit history and accumulate a sufficient down payment, many recent immigrants will move into home ownership. However, the steady inflow of immigrant households into the GTA serves to fill the gap left by the movement of some newcomers into home ownership.

Sub-Market Highlights – Rental Demand Varied by Neighbourhood

Because the Greater Toronto is a very large metropolitan area – the largest in Canada and in the top ten in North America – rental market conditions vary considerably by submarket (see Figure 7). For example, the former City of Toronto has always been popular choice with renter households since it offers a diversity of amenities, services, cultural attractions, educational institutions and employment opportunities. Furthermore, the area includes a variety of transportation alternatives. Renters pay aboveaverage rents for these benefits, but are willing to due so as evidenced by the below-average vacancy rates in the Former City. While the amenities available in the Former City are a key factor explaining below-average vacancy rates, home prices are another factor influencing rental demand. Average home prices in the former City of Toronto are the highest in the GTA. Average rents are also above the GTA average, but not by the same proportion. This means that the gap in household income required to own versus rent is wider in the Former City than for the GTA as a whole. Many households opting to live in the former City of Toronto have arguably chosen to rent as a result. Strong rental demand in the Former City pushed the vacancy rate down to 1.5 per cent from 1.8 per cent in 2007. Other regions of the GTA, such as Durham, actually experienced a softening in rental market conditions with rising vacancy rates. Home ownership is in greater competition with rental in many parts of Durham. Below average home prices relative to the GTA as a whole and low mortgage rates have kept home ownership affordable in the area and supported an outflow of households from rental.

Vacancy Rate Lowest for Most Expensive Units

Following the trend observed over the past three rental market surveys, the lowest vacancy rates in the GTA are observed for the most expensive apartments – those commanding rents over $1,000 (see Figure 8). Average rents have been growing modestly since vacancy rates increased strongly early in the new millennium. Those renter households whose incomes grew in excess of average rents have been able to trade up in the rental market, from mid-range apartments to more expensive units with a higher level of finishings and amenities. As will be discussed later in this report, this same trend has also resulted in some renter households switching from purpose-built rental accommodations to comparatively higher end investor-held condominium apartments available for rent.

Vacancy Rate Increases for Newer Rental Buildings

Between July 2007 and June 2008, over 1,400 new rental units completed with over 40 per cent of these completions taking place in the City of Brampton. The result was an increase in the vacancy rate for newer rental apartments. Given that over 70 per cent of the completions took place in the first and second quarters of 2008, many, if not all of these properties are still “renting up”. It makes sense that these new additions to the rental stock have not yet achieved occupancy levels in line with the GTA rental market as a whole. The higher vacancies experienced by new properties resulted in the increase in the average vacancy rate for those units completed after 1990.

Little Change in Rental Supply

While over 1,400 rental apartments were completed last year, Toronto’s private rental apartment universe remained almost unchanged. Over the same July 2007 to June 2008 period, approximately the same number of units were taken out of the rental universe for reasons such as condominium conversions, demolitions, renovations and sales. With little change in rental supply and stronger demand for rental housing, the number of vacant units shrunk to the lowest level in the past seven years.

Rent Growth In Line With Inflation

CMHC measures annual changes in average rents based on a method that compares rental structures that were common to both the 2007 and 2008 survey years. This eliminates the compositional impact of new structures coming into or being removed from the rental market universe. This approach allows for an analysis of average rent fluctuations resulting from changing market conditions. In 2008, the average two-bedroom fixed sample rent increased by 1.7 per cent, which was almost in line with the general rate of inflation. Over the same period, the cost of ownership increased at the higher rate. The comparatively lower cost of renting helped tighten demand for the rental accommodations.

Rental Affordability Index

According to CMHC’s new rental affordability indicator, affordability in Toronto’s rental market remained in line with the last four years, during which time the indicator ranged between 89 and 91. The indicator dipped slightly from 91 to 90. Median rents grew at a moderately higher rate than median renter household income (see Figure 9). 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 twobedroom apartment, using 30 per cent of its income, is calculated. The threeyear 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 twobedroom 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 required to rent the same unit. In general, as the indicator in- creases, the market becomes more affordable; as the indicator declines, the market becomes less affordable. Please refer to the Methodology section at the end of this report for detailed information on the indicator.

Rental Market Outlook for 2009

The overall apartment vacancy rate will level off at 2.0 per cent in 2009. The average two-bedroom rent will increase by 2.0 per cent. Softening home ownership demand will keep the apartment vacancy rate low compared to what has been experienced for the majority of the new millennium. Rising home prices coupled with more moderate employment growth will continue to keep some would-be home buyers, especially first-time buyers, on the sidelines, deferring entry into home ownership beyond 2009.  The impact of more moderate demand for home ownership, however, will be mitigated by the continuation of strong condominium apartment completions. Many condominium apartments currently under construction were purchased by renter households at the pre-construction stage of development. Over time, condominium apartment starts and completions should follow a similar path. However, since mid-2007, a gap between starts and completions has developed (see Figure 10). As more of these units complete next year, this gap will narrow. Some renter households will vacate their current dwellings to move into home ownership for the first time. Completed condominium apartment developments will also contain investor- held units for rent. Some households living in purpose-built rental apartments will be attracted to the higher level of finishings and amenities offered by brand new condominium developments.

Secondary Rental Market

CMHC also surveys the secondary rental market The secondary rental market survey for the GTA includes information on condominium apartments offered for rent as well as the following additional rental housing types: rented single-detached houses, rented double (semi-detached) houses; rented freehold row/town houses; rented duplex apartments; rented accessory apartments; and rented apartments which are part of a commercial or other type of structure containing one or two dwelling units. The methodology section at the end of this report provides more detailed information on the Secondary Rental
Market Survey.

Condominium Apartment Rental Market

The condominium apartment market remains an important component of the secondary rental market. The total number of apartments, registered under condominium corporations in the GTA, rose by nearly four per cent to 234,303 in 2008. During this period, the number of condominium apartments designated as rental (i.e. units held by investors that are either occupied or vacant), rose by almost six per cent to 44,051 (see Figure 11). Thus, the share of condominium apartments held by investors edged upward slightly to 18.8 per cent – still well-below the levels experienced in the mid-1990s, when approximately one-third of the registered stock was investor-held. While the number of condominium apartments available for rent increased over the past year, their popularity increased as well. The GTA vacancy rate fell to 0.4 per cent in 2008 compared to 0.7 per cent in 2007 (see Figure 12). This vacancy rate is significantly lower than that for purpose-built rental apartments. The reason for the relatively tight conditions in the condominium apartment rental market is twofold. First, the rising cost of home ownership has prompted some households to choose renting versus owning, at least in the short term. Second, condominium apartments offer, in many cases, a higher level of finishings and amenities than the average purposebuilt rental unit. Many renters have been willing to pay a premium to take advantage of better quality and more modern rental apartments.

High-Rise Condominiums Most Popular Rental Type

Larger condominium apartment buildings experienced the lowest vacancy rates. The lowest average vacancy rate of 0.1 per cent was recorded for rental buildings with 300+ units, even while the total number of rental units in these buildings increased by 9 per cent. Many larger projects have completed over the past two years. Typically larger developments benefit from a larger array of amenities that could prove attractive to renters, including larger workout/gym facilities, cinemas and well-outfitted party rooms.

Higher Rents Have Not Deterred Renters

The higher rents charged for rental condominium apartments have not kept renters away from this housing type. The average condominium apartment vacancy rate is 0.4 percent compared to 2.1 per cent for purpose-built rental units. The average two-bedroom rent for a condominium apartment in the GTA is $1,615 compared to $1,078 for the same unit type in a purpose-built rental. Superior quality and valuefor- money often associated with modern condominium apartments trumps lower rents offered in the primary rental market.

Other Secondary Rental Housing Types

The secondary rental market consisting of rental single-detached and semi-detached homes, town houses, duplexes and accessory suites represent a large component of the general rental market in the GTA. The total number of rental units in the secondary rental market was estimated at 153,053 (or approximately a third of the total stock available for rent) in 2008. The average rents for other secondary rental housing types falls more in line with average rents charged for purpose-built rental apartments and thus lower than average rents realized for condominium apartments. The average purpose-built twobedroom apartment is $1,082 compared to $1,083 for all secondary rental market types other than condominium apartments. Similar to the purpose-built rental market, unit size, quality of finishing and location are the likely reasons for the difference in average rents between condominium apartments and other secondary rental types.

You can find the entire report in PDF format through the following link:
http://www.cmhc-schl.gc.ca/odpub/esub/64459/64459_2008_A01.pdf