Friday, August 10, 2012

Vancouver CMA Rent Analysis

An important part of the housing market is the rental stock, most closely surveyed by CMHC from a universe of just over 100,000 units from buildings containing 3 or more units (CANSIM table 027-0040, using rental survey data taken every October). This dataset is interesting to track because its pool has been relatively unperturbed by new dwellings: most of the rental stock tracked by CMHC is of older vintage. This provides a way of tracking same-unit rental growth over time, something that individual investors would be most concerned about and provides a method to directly compare same-unit price trends to their yields, at least on a relative basis, something that can become muddied with the change of vintage of a survey's data sources. I have pulled the data to look at how rents have changed in Vancouver CMA for this "baseline" rental pool and have normalized them based on 2002 CPI-adjusted prices.

We can see that real rents have been appreciating between 0.75% and 1.25% per year. Note that from between 2006 and 2010 population growth was on the high end of historical ranges and this is correlated with tightness in the rental market.

Looking at the rent to median income ratio:
Median incomes have fluctuated more than rents, causing the ratios to be more variable. After 2008 it can be immediately seen that as a percentage of income rents are now more dear.

An interesting graph is tracking dwelling spreads -- the percentage change between a dwelling type and the dwelling type with one additional bedroom:
What this graph shows is a "curve" for the spread between different dwelling types, in some ways akin to a bond yield curve. A diminishing spread would indicate compression between dwelling types.

There had been some thought that real rents have not been increasing. These data indicate that real rents are increasing at a rate around 1% per year, with more marked changes happening recently from 2006 through 2009. In terms of incomes there is additional fluctuation due to labour market changes, however it appears that rents are over longer time periods tracking incomes closely, though 2011 has produced tighter conditions.

Changes in population growth appear to be having an effect on rental rates. It is unclear recent tightness in the rental market is a permanent change -- for example, rents are increasing because the city is comparably more desirable for a given income -- or if we should expect relative weakness in rental growth going forward. The most recent rental survey from April 2012 indicates no strong signs of weakness.

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