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 on monthly rents and vacancy rates for BC.
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%
April 2012 2.6%
April 2012 2.6%
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%
April 2012 3.7%
April 2012 3.7%
Rents (CAD)
April 2010 978
April 2011 989
April 2012 1013
April 2012 1013
Change in rent
Apr-09-Apr-10 2.3%
Apr-10-Apr-11 1.6%
Apr-11-Apr-12 2.9%
Apr-11-Apr-12 2.9%
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.
Vancouver usually has lower vacancy rates than outlying areas. When looking at cap rates for apartments, an area with lower vacancy rates will carry a lower cap rate. Rents were generally strong over the past year though vacancy rates have not statistically decreased. Increases in rent have generally kept up with wage growth. The allowable rent increase in BC for 2011 was 2.3%; this year it's 4.3%. It is plausible that last year saw the rental market demanding changes exceeding the allowable rent increase. How can the 2.9% increase seen last year exceed the rental limit? There are two major reasons: first, the survey includes some rent increases starting early in 2012 which can be at the 4.3% rate, and second, when a unit has tenant turnover, landlords have prerogative to increase rents to whatever they see fit.
Overall this is a solid report for rental growth, something in my view necessary to bring property valuations back down to earth.
Overall this is a solid report for rental growth, something in my view necessary to bring property valuations back down to earth.
4 comments:
Nice info Jesse. Those are some healthy looking vacancy rates. It's good to know that even with a growing supply base there are still enough people to fill them in. I can't figure out where the bulk of the demand for housing is coming from though. Are there really that many people moving into Vancouver, or are more adult children moving out from their parent's house like I did a few years ago.
Liquid, the rental market is somewhat of an enigma when it comes to vacancy rate. I can provide some context, when I've rented out basement suites the price is very important. List at, say $800/month I got lots of calls, list at $850 I got crickets. Renters are cost-sensitive for affordability reasons and will figure out a way of finding accommodations one way or another. Many landlords will mothball suites if tenant quality looks suspect (usually wrought through previous bad experiences). The market is also rather fluid, on the basement suite end I would normally not expect more than 1-2 years from a tenant before they move elsewhere, even if rent increases were kept to a minimum.
If we use US rental markets as a gauge -- which I think is predominately valid -- rents increase roughly at inflation even when prices crash. I know this may not make intuitive sense to some but that's what happens, and IMO is the most likely outcome if Vancouver's prices hit a weak patch.
No need to look at US markets, Toronto during the early 90's bust is a good example - real rents dead flat all the way through. Same for Vancouver in the early 80's and late 90's.
The people who think that a falling ownership rate should result in rising rents don't understand that a falling ownership rate necessarily means an increase in rental stock.
During a bust growth in total stock slows of course but incomes are also down.
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