Thursday, June 09, 2011

Vancouver Rental Market Update April 2011

An important component of the housing market is the available rental stock. If inadequate housing is being built we should expect low vacancy rates and increasing rents. CMHC released its survey (press release here) on monthly rents and vacancy rates for various parts of the country. Overall vacancy rates have declined in Canada, but Vancouver and BC? Mmmm... not so much.
Rental market conditions eased across British Columbia housing markets in April 2011, in contrast to most other rental markets in western Canada. The supply of rental units increased as people moved from apartments in purpose built rental buildings to other forms of housing, including homeownership, secondary rental units such as investor-owned condominiums or secondary suites. Favourable mortgage interest rates combined with an ample supply of homes listed for sale for home buyers to choose from and a more stable economic outlook, drew some renter households towards ownership during the first quarter of 2011. The effects of this forward buying are reflected in higher vacancy rates in the province’s more expensive urban housing markets.

Other factors affecting demand for rental accommodation include immigration and youth employment levels. Immigration continues to support rental housing demand, as recent immigrants tend to rent first before becoming homeowners. However, recent data show that the level of immigration to British Columbia dipped in the fourth quarter of 2010, pointing to moderating rental housing demand. During the first four months of 2011, British Columbia youth unemployment levels rose compared to levels recorded during the first four months of 2010. Lower levels of youth employment likely reduced household formation among young adults (under 24 years of age) who are predominantly renters, reducing demand for rental accommodation.

The vacancy rate edged higher in the Vancouver CMA but remained relatively unchanged in the Victoria and Abbotsford CMAs. The movement of renters to homeownership continued during the later part of 2010 and into 2011, freeing up rental accommodation. As well, purpose-built rental apartments in these urban centres face increased competition from the secondary rental market, including secondary suites rented out by homeowners and investor-owned condominiums available for rent.
The CMHC report attempts to break down rents and vacancies based on region and on dwelling type, namely apartments, townhouses, detached dwellings, etc. based on number of bedrooms. Larger dwellings typically have higher vacancy rates than smaller ones and professionally-managed dwellings typically have lower vacancy rates than "amateur" dwellings.

Here are the numbers for "private apartments" (I'll update this as I fish out more data):

Vacancy rate
April 2010 2.2%
April 2011 2.8%

Availability rate (The availability rate measures the number of rental units which are vacant or for which the tenant has given or received notice to move and a new tenant has not yet signed a lease compared to the universe of rental units.)
April 2010 3.1%
April 2011 3.7%

Rents (CAD)
April 2010 978
April 2011 989

Change in rent
Apr-09-Apr-10 2.3%
Apr-10-Apr-11 1.6%

Consider these readings as the "core" rental market. CMHC has in the past attempted to measure non-core rentals, such as houses, basement suites, and privately-held condo units rented out directly by owners or through smaller property management companies. It appears this half's survey did not include those data. While the "non-core" data are interesting, it's difficult to ascertain whether they bring much statistically significant insight into setting housing policy. I expect if the "core" rental market is strong, so too should the "non-core" readings and, akin to core CPI, the core rental market can be used on balance to measure the health of the overall rental market.

The first item to note is that Vancouver usually has lower vacancy rates than outlying areas. When looking at cap rates for apartments, we should understand that an area with lower vacancy rates will carry a lower cap rate. Second CMHC notes (surmises?) that the home ownership rate increased in Vancouver through 2010 and the first months of 2011, meaning the "core" market faces a reduced tenant pool. Third it noted that there is decreased immigration into Vancouver than in past quarters.

I think one additional point is that, as I noted on back in March, the outflow of temporary workers due to a federal government policy shift is starting to have direct effects on the rental market:
for Q1 2011 and potentially beyond there will be that many more dwellings looking for inhabitants, and perhaps this indicates a push by the government to get permanent residents, who are in sum suffering from elevated unemployment levels, back to work.
Backing up anecdotes I have been hearing online, the experiences of friends looking for accommodation in the Vancouver area, perusals of Craigslist, and my knowledge of landlords attempting to fill vacancies, this report should not come as a surprise.

This was a weak report for the property rental industry of Vancouver and BC as a whole. Note this trend is opposite to that seen nationally and is distinctly opposite to the direction rents are taking in the US.

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