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

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

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

The overall vacancy rate in Halifax stood at 2.9 per cent in October, down from 3.4 per cent last fall. Vacancy rates in the Halifax Regional Municipality (HRM) trended down in all submarkets but one in 2009. Average rents, based on structures common to both the 2008 and 2009 surveys, were up 2.8 per cent. In the HRM, Halifax City saw the largest decline in vacancies as the rate fell from 2.7 to 2.0 per cent in 2009. The Mainland North area of Halifax City saw the vacancy rate fall a full percentage point to 1.6 per cent. This submarket has a significant impact on the overall HRM vacancy rate as it is home to 28 per cent of the rental stock – the most of any submarket. On the other side of the harbor, Dartmouth City saw a more modest decline in vacancies from a rate of 5.5 to 5.2 per cent in 2009. Dartmouth North again saw the highest vacancy rate in the HRM at 5.6 per cent in 2009 while Dartmouth East recorded the only increase in vacancies – climbing from 4.4 to 5.4 per cent. The Metro Halifax vacancy rate of 2.9 per cent is only slightly higher than the national average of 2.8 per cent. Apart from Windsor, Halifax saw the largest decline in vacancies in 2009

with a 0.5 percentage point decrease. Canadian cities with the lowest vacancy rates in 2009 were Quebec City, Regina and St. John’s with rates of 0.6, 0.6 and 0.9 per cent respectively. Three of the cities with the highest vacancy rates, Calgary, Peterborough and Abbotsford also saw the largest increases in 2009 as vacancies climbed more than three percentage points in each of these major centres. Vacancy rates have remained relatively stable in Halifax for the past decade. In fact, the 2009 vacancy rate of 2.9 is only slightly below the ten-year average vacancy rate of 3.0 per cent. The vacancy rate has not fluctuated much over that time period, in spite of significant levels of new construction and new rental units being added to the supply. Over the past ten years, there have been approximately 585 new rental units added to the supply each year. Currently, there are nearly 600 more rental units under construction (as of October 2009) in the HRM most of which will be completed over the next 12 to 18 months. It is expected that current demand will be sufficient to offset the additional supply and keep vacancy rates within the recent ten-year range. Average rents in Halifax, increased by 2.8 per cent in 2009 compared to 2.0 per cent growth in both 2007 and 2008. This percentage increase is based on a fixed sample methodology including structures common to both this year’s and last year’s survey. Rents increased in response to the elevated demand that pushed vacancy rates downward. Based solely on this year’s sample, the average rent for a two- bedroom unit in Halifax was $877 in 2009. * The survey, completed during the first two weeks of October, is limited to privately initiated structures comprised of at least three rental units that were available for rent or completed before June 30, 2009.

Demand for two-bedroom units increased the most in Halifax in 2009. Two-bedroom units account for nearly 50 per cent of the rental stock in the city and saw the largest decline in vacancy rates from 4.2 to 3.3 per cent in 2009. The decrease in two-bedroom vacancies was largely impacted by the halving of the vacancy rate in Mainland North from 3.0 to 1.5 per cent. One and three-bedroom units saw more moderate vacancy rate declines from 2.8 to 2.4 per cent and from 2.9 to 2.7 per cent respectively. Bachelor units were the only bedroom-type to see an increase in the vacancy rate from 2.1 to 2.5 per cent in 2009. The vacancy rate in the south end of the Peninsula remained unchanged at 1.3 per cent with this area continuing to report the lowest rate in the HRM. Dartmouth North saw its vacancy rate decline from 6.1 to 5.6 per cent in 2009, but retained its 2008 position as having the highest vacancy rate in Halifax.

In terms of age, newer buildings continue to record the lowest vacancy rates, albeit slightly higher than last year. In buildings built since 2000, the vacancy rate increased from 0.8 to 1.0 per cent. This rate is less than half the rate of buildings built prior to 2000. Buildings built prior to 1974 saw the largest decline in vacancy rates of 1.3 percentage points. The oldest buildings (i.e., those built prior to 1960) saw vacancies decline from 4.5 to 3.2 per cent while the next oldest group (i.e., those built between 1960 and 1974) saw vacancies decline from 5.7 to 4.4 per cent. Based on building size, larger buildings continued to record the lowest vacancy rates in the city. Buildings with more than 100 units saw vacancies decline from 2.6 to 2.1 per cent. Smaller buildings with six to 19 units saw the highest vacancy rate of 3.8 per cent in 2009, but also the largest decline from 4.8 per cent in 2008.

The overall average rent increased 2.8 per cent in 2009 based on units common to both the 2008 and 2009 surveys. Three-bedroom units saw the largest increase of 3.1 per cent, while one-bedroom units saw the lowest increase in average rents of 2.6 per cent. Just as in 2008, the average rent increases for two- bedroom units matched the overall HRM increase of 2.8 per cent. In terms of submarkets, Peninsula South saw the most growth in average rents at 4.2 per cent while Dartmouth North saw the lowest increase in average rents of 1.9 per cent. Based solely on the 2009 survey data, the average rent for a two-bedroom apartment in Halifax was $877 per month as of October. Peninsula South remains the highest priced market in the HRM with an average two- bedroom unit renting for $1,318 per month which is 50 per cent higher than the overall HRM average. All other submarkets saw rents below the overall average except for Peninsula North which is just one per cent above the average. The lowest average rents can be found in Dartmouth South and Mainland South where two-bedroom units rent for $683 and $728 per month respectively. Newer buildings continue to

The Barrie CMA rental market experienced softer conditions in 2009. The average vacancy rate for purpose- built rental apartments rose up by 0.3 percentage points this year to 3.8 percent. Several factors contributed to easing demand, including a rebound in homeownership demand and high youth unemployment. Continued moderate migration into Barrie supported demand.

Supply, also, was virtually unchanged, increasing by only 15 units. There were no new purpose-built apartments, but the number of units in the existing universe increased for a variety of reasons.

With a softer rental market the growth in average monthly rent for a two-bedroom unit slowed significantly from last year and came in at 1.2 per cent, well the below the maximum rent increase stipulated by the province.

The economic adjustment has affected employment prospects in Barrie for all age cohorts, but in particular the youngest age cohort of 15-24. This group makes up a significant proportion of Barrie’s labour force, given the region’s overall young population and is also a key source of rental demand. The proportion of the labour force in Barrie made up by the 15-24 year-old age group this year has averaged close to 20 per cent. Both full-time employment and part-time employment for this age group have been trending down. With a slowly recovering economy, young people who had been renting returned to the parental home or doubled up with other youth, while those currently living with parents are staying at home until the economy recovers further.

The rate of migration into Barrie has slowed. Nevertheless migration into Barrie from within Ontario is higher than it is in most other Ontario centres. Moveover, slightly fewer people are moving away from Barrie to other parts of the country. Immigration and births added to the slower, but still significant, population growth rate. A growing and relatively young population continues to support rental demand.

With mortgage carrying costs down due to record-low mortgage rates, first-time buyers have exited rental into homeownership thereby increasing the overall vacancy rate.

The decline in mortgage rates in 2009 put mortgage carrying costs back to where they were in 2006. These payments hit a low in the second quarter, which coincided with an improvement in the employment prospects for the 25-44 year old age group. This is the same age group from which many first-time buyers are drawn, so the surge in existing home sales beginning in the second quarter likely included many purchases by people who were renting at the time.

Renters who move into homeownership usually have relatively high incomes compared to other renters and often occupy the larger, more expensive rental accommodation before their move. Given the significance of the secondary rental market in Barrie, in particular, the number of rented single-detached homes, a number of first-time buyers would be coming from the secondary rental market. As a result, the movement to home ownership in Barrie resulted in a relatively small increase in the primary rental market vacancy rate since some the impact was absorbed in the secondary rental market.

The rental market eased in the Trois- Rivières CMA this year. According to the results of the Rental Market Survey conducted in October by Canada Mortgage and Housing Corporation (CMHC), the proportion of unoccupied units reached 2.7 per cent, compared to 1.7 per cent in the fall of 2008. In so doing, the vacancy rate surpassed the 2-per-cent mark for the first time since 2002. This increase, the third in as many years and the largest, reflects a certain easing of the market. In fact, since 2003, rental market conditions had been particularly tight in the Trois- Rivières area, with the proportion of vacant units hovering around 1.5 per cent. It should be noted however average for the last 20 years (5 per cent). In the fall of 2009, 435 units were vacant (compared to 273 in October 2008) out of a total stock of 16,276 apartments contained in privately initiated buildings with three or more housing units. Many new units and a

The low vacancy rates registered in the area for the past several years greatly stimulated rental housing construction. Until now, this additional supply had been just counterbalanced by the strong demand, which was attributable to the dynamic migration. In 2009, however, rental housing construction maintained the same pace, but demand declined slightly. The weaker job market in the Trois- Rivières area therefore removed the upward pressure on rental housing demand. For one thing, the economic uncertainty that has been looming over Trois-Rivières for several quarters has forced some workers to leave this area for another. At the same time, this economic environment has made the area less attractive in the eyes of job seekers from other areas. Consequently, the supply of housing units exceeded demand, which pushed up the vacancy rate. In addition, financing conditions, which have rarely been so favourable, prompted a few renter households to access homeownership. Given the low mortgage rates, some may even have moved up their decision to buy, which, in turn, vacated a few rental dwellings.

In October 2009, stable rental market conditions were noted in four of the six CMAs in the province, as the Québec, Gatineau, Montréal and Saguenay areas did not register any significant change in their vacancy rates compared to October 2008. This past October, the Sherbrooke CMA had the highest vacancy rate in the province (3.9 per cent), followed by Trois-Rivières (2.7 per cent), Montréal (2.5 per cent), Gatineau (2.2 per cent), Saguenay (1.5 per cent) and Québec (0.6 per cent).

While the vacancy rates went up in all sectors of the CMA, Downtown and Bécancour stood out. In fact, these two zones, which had the highest vacancy rates in the CMA, were responsible for the increase in the overall vacancy rate. In October 2009, the proportions of unoccupied units reached 5.0 per cent in the Downtown zone and 9.1 per cent in Bécancour. When the market eases, the Downtown zone is quite often the first to see its vacancy rate rise. This is due to the fact that its housing stock is older. It has been noted that, as units are vacated in other sectors of the CMA, tenants leave their Downtown dwellings for these units, which are often newer and more modern. In Bécancour, the market seems to have been experiencing difficulties since the closing of a plant in this zone. However, the upcoming commissioning of the Twin Rivers Technologies oilseed crushing plant and the construction of a complex for the production of polycrystalline silicon for the solar panel industry in the industrial and harbour park should give a boost to this zone and put upward pressure on housing demand there.

Elsewhere in the CMA, the vacancy rates remained relatively low. The proportions of unoccupied units reached 2.5 per cent in Cap-de-la- Madeleine and Saint-Louis-de-France and 2.1 per cent in the Université du Québec à Trois-Rivières sector, where demand for rental housing stays relatively constant in any given year, thanks to the presence of the university and the Cegep. Lastly, the vacancy rates attained 2.0 per cent in the North sector and 1.6 per cent in Trois-Rivières-Ouest.

The slackness in the resale market has directly impacted the new home market as has the slowing economy. Single-detached starts will fall to 160 units in 2009 and 170 in 2010, as the market comes more into line with long term demographic requirements. CMHC expects 30 row, condominium and apartment starts in 2009 and another 55 in 2010. Relatively tight rental market conditions and reasonable take up of condominium units will result in some of this activity over the next 18 months.

As Figure 2 indicates, there has been improvement in household incomes in Thunder Bay and with required income being more or less flat, affordability has improved. Next year, with home prices and incomes rising modestly, homeownership should remain an affordable option and therefore demand should strengthen slightly.

After rising 4.3 per cent and 5.5 per cent respectively in 2007 and 2008, the New Home Price Index for Sudbury-Thunder Bay will rise in 2009 and 2010 but only modestly given the slowdown in demand.

Vacancy rates have come down steadily since 1998 in Thunder Bay while two bedroom rents are the lowest amongst other centres in Ontario. Lack of new supply and healthy demand due to strong enrolment numbers at Lakehead University and Confederation College contribute to the demand picture, not-to-mention in-migration from Northwestern Ontario from retirees and education and/or job seekers. CMHC expects the vacancy rate to fall again in 2009 to 1.6 per cent before increasing to 2.0 in 2010 as resale market activity picks up bringing households out of rental housing into homeownership. Rents should escalate in 2009 and 2010 given continued strong demand for rental accommodation.

Developers have plans for condominium in 2010 and beyond. A steady supply condominium units coming onto the market over the last twenty years has given Thunder Bay a nice mix of housing. This type and tenure of housing gives the city some allure, especially as empty nesters from the region look to retire to this city. Pricing will be very important as this product is primarily targeted at empty nesters who do not typically want to pay more for a condo than what they obtain from the sale of the family home or other homeownership unit.

After hitting a record high in 2008, Thunder Bay sales have fallen 18 per cent in 2009. July was the only month to register a year-over-year increase in sales. Sales will fall twenty per cent in 2009 and CMHC estimates a relatively small six per cent increase next year to 1,400 sales. Expect a gradually improving economy as low mortgage rates will positively impact the market next year.

The shortage of active listings in the Thunder Bay existing home market will exert pressure on prices. Although sales are still reasonably solid given last year’s all-time record in the Thunder Bay market, the sales to active listings ratio is unquestionably in a strong balanced to seller’s market position. The supply- demand relationship will cause price appreciation to continue barring some unforeseen economic shock. Watch for average prices to rise four per cent in 2009 and another four per cent in 2010.

The new home market in the Greater Toronto Area (GTA) will see sales activity rise slightly this year in comparison to 2008. The low-rise housing segment will be credited for the increase in sales in 2009 while the high-rise sector will outperform in terms of sales growth next year. Total new home sales will reach 28,500 units this year and remain steady at 29,000 in 2010 — well below the annual average for the new millennium.

For the first time since 2006, low-rise homes will account for the majority of new home sales in the GTA in 2009 and 2010. New low rise home sales will rise by 37 percent this year to 17,000. Although this level is still well below the high reached in 2002, it represents a complete turnaround from last year when sales dropped by over 40 per cent. Low borrowing costs this year are a clear contributor to the rebound in low-rise sales, as is a lack of supply in the resale market. A rise in new listings in the resale market and a reduction in affordability next year will dampen demand for new single-detached homes in the second half of 2010. Total low-rise home sales will move lower in 2010 to 15,500 units — still above the 2008 level. Strong sales for singles in the first part of next year coupled with stable demand for less-expensive semi-detached and row houses throughout 2010 will provide some support for the low-rise segment.

A tougher selling environment for high-rise homes will lead to a sales decline of 23 percent this year to 11,500 units — the lowest level since 2003. More project launches, an improving employment situation for younger workers and a shift towards lower-priced housing types in the second half of next year will boost new high-rise sales in 2010 by 17 percent to 13,500 units. Construction delays and a heightened sense of uncertainty regarding new condominium projects this year has turned buyers away from pre- construction sales offices. At the same time, less project launches have created fewer new options for buyers. Faced with high levels of inventory relative to demand, developers have begun offering generous buyer incentives and reconfiguring remaining units to attract more sales centre traffic. Sales levels have responded and are now much higher than at the beginning of the year. Still, sales are down by over 40 percent in the year-to-date to August and even with further improvement will register an overall decline in 2009. However, current sales momentum will carry into 2010, leading to a much better performance for 2010.

CMHC forecasts total housing starts of 850 units in 2009 and 950 units in 2010. Expect 550 new single-detached homes to break ground in Regina this year, 44 per cent off the 22-year high of 979 units in 2008. Single-detached starts will rise to 600 units in 2010, a nine per cent lift from 2009.

Higher new home inventories and competition from the resale market have prompted builders to scale back construction this year. Demand for new homes is slower due to double- digit price growth in the past two years. Economic uncertainty has also played a role in reducing demand this year. With new home supply past its peak and inventory stabilizing by 2010, builders will drive production up by over nine per cent from 2009 levels. Stable prices, persistently low mortgage rates, and economic growth will also encourage the purchase of new homes.

Seeking to contain inventories, Regina builders started only 337 single-detached homes to the end of August, down 49 per cent from 2008 at this time. As a result, the level of single-detached units under construction declined 23 per cent compared to August 2008. Despite slower starts, the 677 singles under construction this August represent the second highest volume of single units underway for that month since 1984.

As demand has cooled and completions have picked-up, 44 completed single-detached homes remained unsold this August, 42 per cent more than one year prior and the highest August inventory of unsold units in eight years.

Given an average absorption rate of 70 singles per month, it will take the market about 10 months to deplete the 721 single-detached homes in supply this August. One year earlier, the 908 single-detached homes that were in supply could sustain the market for about 15 months, as it was absorbing an average of 60 single-detached units per month. Although market conditions are improving and moving toward balanced conditions, the market is still favouring buyers. Share of starts in

Highlights

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

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

St. John’s Area Vacancy Rate Lower in 2008

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

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

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

While CMHC’s rental market survey historically covered structures containing three or more apartment units only, both demand and supply for this stock has always been influenced by competition from the newly surveyed (since 2007) secondary rental market. This market consists of single-detached; semi-detached, row and duplex; and other-primarily accessory suites.  Statistics for secondary rented units exclude apartments in purpose built rental structures with three rental units or more, condominium apartments, units in institutions, and any dwelling whose type could not be identified in the survey. The estimated number of households in secondary rented units within the St. John’s CMA is 12,687 with an average rent of $618 compared to $592 in 2007. Refer to tables 5.1 and 5.2 for detailed secondary rental market survey results.

Rental Affordability Indicator

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

Transition from Renter to Home Owner Slows

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

Youth Under Age 25 Play a Key Role

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

Brisk Economic Activity Affects Rental Market

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

Across the Board Decrease in Availability Rates

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

Rental Market Outlook for 2009

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

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

Moishe Alexander’s Review

Trois-Rivières, Quebec - Credit cloneofsnake, Flickr

The rental market eased slightly in the Trois-Rivières census metropolitan area (CMA). In fact, the vacancy rate reached 1.7 per cent this past October, compared to 1.5 per cent one year earlier. This very small increase in the vacancy rate for the CMA did not extend to all sectors, though, as conditions eased only in the North, Trois Rivières-Ouest, and Cap-de-la-Madeleine and Saint-Louis-de-France zones. The average rent for two-bedroom apartments in existing structures rose by 3.0 per cent. On average, tenants had to pay $505 to rent such a unit this fall, in comparison with $487 in October 2007.

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.

Trois-Rivières rental market eases slightly

The vacancy rate rose marginally this fall in the Trois-Rivières census metropolitan area (CMA). According to the results of the Rental Market Survey conducted in October by Canada Mortgage and Housing Corporation (CMHC), the proportion of unoccupied units reached 1.7 per cent, compared to 1.5 per cent in the fall of 2007. This second rise in the vacancy rate in as many years has allowed the market to ease somewhat since reaching a low point in 2006. Even with these increases, though, it should be pointed out that the vacancy rate still remained relatively low, having stayed below the 2-per-cent mark for a sixth straight year. The situation in recent years contrasts with the conditions that prevailed in the late 1990s, when the vacancy rate was close to 8 per cent in the Trois- Rivières area. A sustained housing demand, combined with low rental housing construction volumes during the 1990s, has since progressively pushed down the proportion of unoccupied units. In the fall of 2008, there were consequently 273 vacant units out of a total stock of 15,920 apartments contained in privately initiated buildings with three or more housing units.

Strong migration maintains rental housing demand in Trois-Rivières

While the low vacancy rates that have been prevailing in the Trois- Rivières CMA for several years have greatly stimulated rental housing construction, the strong migration has kept demand for rental dwellings at high levels. In fact, since 2002- 2003, rental housing starts have virtually exploded (370 starts on average annually), significantly increasing the supply of units in the CMA. Over the same period, net migration in the Trois-Rivières area reached unprecedented levels (more than 500 newcomers per year since 2003), which put upward pressure on demand for rental housing. Trois-Rivières, like several other areas, must contend with an aging population and get more workers to take up the slack. The area has therefore introduced programs in the last few years to help welcome, and especially retain, international immigrants. These programs have obviously produced results, as evidenced by the high net migration levels recorded in the Trois-Rivières area since 2002. In fact, the international share of total net migration has now reached close to 40 per cent. As such, despite a job market that has been recording ups and downs since the beginning of the current decade, the Trois- Rivières area is effectively succeeding in attracting a large number of international migrants. Given that the increase in the supply of units has exceeded demand in the last two years, a slight easing of the market was felt. As the rise in supply slightly exceeded demand in the last two years, the market eased somewhat.

Elsewhere across the province

In October 2008, diverging trends were noted in Quebec’s six CMAs. While rental market conditions eased in the Sherbrooke and Trois- Rivières CMAs, the Gatineau, Québec, Montréal and Saguenay areas registered decreases in their 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).

Market conditions tight in all sectors except Downtown and Bécancour

In the fall of 2008, the vacancy rate remained relatively low, that is, below 1.5 per cent, in most sectors of the CMA. Only the Downtown and Bécancour zones had less tight market conditions, with vacancy rates of 3.2 per cent and 5.2 per cent, respectively. As in previous years, these two zones had the highest vacancy rates in the CMA, the first, because this sector has the oldest rental housing stock in the area (70 years, on average) and, the second, on account of the fact that there are fewer services nearby (hospital, etc.).

Vacancy rate still low for apartments with two or three bedrooms and more

In October 2008, market conditions eased marginally for all apartment categories. Like in previous years, roomier apartments, that is, those with two bedrooms and those with three or more bedrooms, had the lowest vacancy rates, at 1.2 per cent and 1.4 per cent, respectively (compared to 2.3 per cent for one bedroom apartments and 4.3 per cent for bachelor units). These bigger apartments suit many people, especially students and families. They also provide tenants with more versatility, allowing them to use a room as a home office, for example. These larger apartments therefore target a broader client group and are usually easier to rent than smaller units. In 2008, market conditions eased the most for apartments with three or more bedrooms, as their vacancy rate rose from 0.8 per cent in October 2007 to 1.4 per cent a year later. The arrival of many units of this type on the market over the past year partly accounts for this increase.

Very few newer units vacant

While they command the highest rents, on average ($645), newer units, that is, those built in 2000 or later, had the lowest vacancy rate, at 0.5 per cent. These units seem to be preferred by tenants, who do not hesitate to pay a little more to get a unit in a recent building with contemporary features. Conversely, it can be noted that older apartments (built before 1960) registered the highest vacancy rate (2.8 per cent). These units are, to no great surprise, much more affordable, and by far, as they effectively rent for close to $200 less per month ($409).

Rent increases above inflation

The rent increases were significant in October 2008. In fact, the average rent for two-bedroom units rose from $487 in October 2007 to $505 in October of this year. The fact that the vacancy rate for two bedroom apartments remained low this fall partly accounts for this increase in the average rent. Not surprisingly, the North and Trois- Rivières-Ouest sectors had the highest average rents in October 2008, at $552 and $537, respectively (for two-bedroom apartments). Rental housing construction has been vigorous in recent years in these two zones. The arrival of new units, which usually command higher rents, pushed up the average rents in these geographic sectors. Conversely, the Downtown sector had the lowest average rent for two bedroom units this fall ($449), on account of the advanced age of the housing stock there. Contrary to what one might think, Figure 7 apartments in the highest rent ranges had the lowest proportions of vacant units. In fact, units commanding rents averaging at over $500 all registered vacancy rates below 1 per cent this fall. Since apartments in newer buildings post the highest rents, these results support the hypothesis that tenants are willing to pay more for units with modern features. In order to exclude the impact of new structures and conversions added to the universe between surveys and therefore get a better indication of the change in rents charged in existing structures, it is useful to analyze the change in rents using a fixed sample of existing buildings. Between October 2007 and October 2008, the average rent for two-bedroom apartments in existing structures rose by 3.0 percent.

Availability rate remains stable

The availability rate remained stable this fall, at 2.1 per cent. Taking into account not only vacant units but also units for which the existing tenant has given, or has received, notice to move, and a new tenant has not signed a lease, the availability rate gives a slightly broader idea of the short-term supply of unoccupied units. As was the case for the vacancy rates, the Downtown and Bécancour sector also had the highest availability rates in the fall of 2008, at 3.2 per cent and 5.2 per cent, respectively. All the other zones had availability rates below 3 per cent.

Vacancy rates stay high elsewhere in the Mauricie area

Elsewhere in the Mauricie area, the rental market tightened somewhat this fall in the agglomerations of La Tuque and Shawinigan. In fact, the proportion of vacant units in La Tuque reached 8.4 per cent in October 2008, down from the level recorded in 2007 (9.9 per cent). In Shawinigan, the vacancy rate fell marginally, to 5.4 per cent (versus 5.7 per cent a year earlier).

Vacancy rate expected to keep rising slightly

The significant rental housing construction in recent years will contribute to slightly driving up the vacancy rate in the Trois-Rivières CMA. In fact, since the beginning of the current decade, over 2,000 new rental housing units have been built, and activity will remain just as strong in 2008 and 2009 as in previous years. In addition, the slowdown in employment, which will continue until the end of 2009, should dampen demand for rental housing. However, despite the anticipated slight easing of the market, the vacancy rate will remain low, on account of a sustained demand for rental housing resulting mainly from the strong migration. The main driving force behind the rental market for the last several years in the Trois-Rivières area, migration will effectively continue to stimulate demand for rental housing from now until the end of 2009. Consequently, the supply of new units will contribute to pushing up the vacancy rate, but the strong migration will limit the increase, by putting upward pressure on demand for rental housing in the Trois-Rivières CMA in 2009.

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

http://www.cmhc-schl.gc.ca/odpub/esub/64463/64463_2008_A01.pdf

Moishe Alexander’s Review

New Home Market – New Home Construction Under Pressure

St Catherines, Ontario - Credit B. Gilliard, Flickr

Moishe Alexander says new home construction will ease back by 12 per cent to around 1,000 homes in 2009 from 1,140 home starts in 2008. The contraction will be felt across all housing types, with the number of single detached home starts easing off by about 13 per cent. Given their popularity, townhouse starts will moderate by only 8.3 per cent. The lower number of starts is attributable to uncertainty about economic prospects, limited land supply, demographic changes and more selection in the resale home market. Construction of single-detached homes will continue to moderate because of land supply limitations.

This will translate into higher prices, especially in the relatively built-up northern part of St. Catharines- Niagara. Given the land supply limitations and Greenbelt legislation constraints in the north, more active residential construction is expected to occur in the southern areas of the region. Single-detached homes will also continue to lose their attraction due to changes in the region’s demographic composition. The declining average number of persons per household suggests that smaller households will require smaller and less expensive homes. Moreover, an aging population will need to live closer to amenities, in homes which are easier to maintain than single detached houses. In some cases, wealthy seniors will move from small single-detached houses to larger condominium apartments. This is still a movement to higher-density housing. To accommodate a growing population of older people, there will be more construction of townhouses and apartments, more retirement home building and many redevelopment projects. Some of these projects are expected to take place in former industrial sites abandoned by the manufacturing industry. Prices for new homes will continue to grow although at a slower pace than in 2008. Rising residential construction costs associated with land supply constraints and higher development charges will account for the major part of the increase. Increasing concrete and steel costs will also contribute to higher costs for high-rise construction. Consequently, in 2009, there will be a shift to more modestly priced housing which will lower the average price. The softening and well-supplied resale market will offer a broader selection of homes for buyers thereby encouraging more interest in resale homes which are more affordable relative to the new home market. The price differential between Toronto and St. Catharines- Niagara homes, on the other hand, will continue to attract many well off households from Toronto area, especially among people of preretirement age and those whose commutes are less-than-daily because of workplace flexibility. This will provide some support to the slowing market.

Resale Market – Back to Balance

Moishe Alexander says sales are forecasted to moderate again in 2009 by 4.9 per cent to 5,800 transactions. A moderation in employment, slow growth in earnings and less migration are the main factors behind the projected tapering off. Prices increasing at a more subdued pace will mitigate the decline in demand. The region is losing population to all other areas in Canada except for Toronto and Hamilton. Since people moving to St. Catharines-Niagara tend to be older than those leaving, there will not be as many first-time buyers coming to the region. At the same time, the housing demand of incoming migrants from Toronto and Hamilton will be probably more concentrated in the adult lifestyle-housing segment of new homes. The number of listings in 2009 is expected to trend slightly higher to the 12,600-level which is a moderate gain of 0.8 per cent after the 6.7 percent increase in 2008. The sales-to-new listings ratio will move down to balanced market territory at around 49 per cent in 2008. The ratio will ease down slightly in 2009. The greater selection in the resale market will underlie the deceleration in the growth of resale home prices to 1.9 per cent, a rate similar to inflation. Buyers will have definitely more options to find a home of their choice. Resale home prices have been growing slower than new home prices in 2008. This is forecast to change in 2009 as builders will start sensing demand for new homes is declining. As a result, the resale price growth will again outpace new home price growth, but both will be slower than in the past.

Economic Factors- Local Economy to Contain the Slowdown

Moishe Alexander says that in 2008, the labour market has been strong creating slightly over two percent more new jobs. In 2009, the economy is not expected to perform as strongly. Employment is forecast to moderate by 0.7 per cent and the unemployment rate will edge a little higher. The moderating employment picture is also consistent with demographic trends. The region has one of the oldest and slowest growing populations in Canada. More and more baby-boomers will be retiring in the coming years and since the migration into the region is not expected to be strong, the labour force will be shrinking. Several strong service-producing sectors, particularly health care, public administration and, to a lesser degree, educational and financial services, will have better performance somewhat offsetting job losses in other sectors. Even tourism sector which is perceived to be very vulnerable to the fluctuations in the value of the Canadian dollar has been doing relatively well. Although the number of trips by US citizens is down significantly, a steady inflow of international tourists and more domestic travellers have sustained the tourist industry. Average weekly earnings will grow in 2009 but at a slower rate than in 2008. Some service sectors are adding relatively high-wage jobs. The regional economy is becoming better positioned to weather economic downturns thanks to diversification of the production base. Also, the region is gradually shifting more to the creation of many smaller but more viable businesses which replace large plants.

Mortgage Rates

Moishe Alexander says that mortgage rates are expected to be relatively stable throughout the last quarter of this year, remaining within 25-50 basis points of their current levels. Posted mortgage rates will decrease slightly in the first half of 2009 as the cost of credit to financial institutions eases. Rising bond yields, however, will nudge mortgage rates marginally higher in the latter half 2009. For the last quarter of 2008 and in 2009, the one year posted mortgage rate will be in the 6.00-6.75 per cent range, while three and five year posted mortgage rates are forecast to be in the 6.50-7.25 percent range.

You can find the entire report in PDF format through the following link:
http://www.cmhc-schl.gc.ca/odpub/esub/64315/64315_2008_B02.pdf