Vacancy rates in apartment buildings across the country are at near-record lows, but expensive land and high construction costs are keeping developers from building new inventory. New buildings would likely fill quickly, but developers have opted to put up condos instead because they provide a better short-term return. Further deterring development are interest rates so low that it is cheaper to buy an existing building with Canada Mortgage and Housing Corporation (CMHC) insurance than to arrange financing to build a new one.
The average rental apartment vacancy rate in Canada’s 35 major centres decreased slightly to 2.6 per cent in October 2010, from 2.8 per cent in October 2009, according to the fall Rental Market Survey released by CMHC.
“The economic recovery that has taken place over the past year has boosted demand for both rental and ownership housing,” said Bob Dugan, Chief Economist at CMHC’s Market Analysis Centre. “High levels of immigration have supported demand for rental housing, thus pushing the vacancy rate lower. In addition, improving economic conditions have likely boosted household formation which, in turn, has added to the demand for rental housing. These two factors combined, have put downward pressure on the vacancy rate.”
The results of CMHC’s fall survey reveal that, in October 2010, the major centres with the lowest vacancy rates were in Winnipeg (0.8 per cent), Regina, Kingston and Québec (1.0 per cent each). At a provincial level, Manitoba and Newfoundland and Labrador posted the lowest vacancy rates at 0.9 per cent and 1.0 per cent, respectively.
The survey reveals that the major centres with the highest vacancy rates were Windsor (10.9 per cent), Abbotsford (6.5 per cent), Saint John (5.1 per cent), and London (5.0 per cent). On a provincial basis, the highest vacancy rates were in Alberta (4.6 per cent) and New Brunswick (4.5 per cent).
The Canadian average two-bedroom rent was up from $836 in 2009 to $860 in 2010. The highest average monthly rents were in Vancouver ($1,195), Toronto ($1,123), Calgary ($1,069), Ottawa-Gatineau (Ontario part, $1,048), Victoria ($1,024), and Edmonton ($1,015). Of all the major centres, only these six had average rents at or above $1,000. The lowest average monthly rents for two-bedroom apartments in new and existing structures were in Trois-Rivières ($533), Saguenay ($535), and Sherbrooke ($566).
Year-over-year comparisons of average rents can be slightly misleading because rents in newly built structures tend to be higher than in existing buildings. By excluding new structures and focussing on structures existing in both the October 2009 and October 2010 surveys, this provides a better indication of actual rent increases paid by tenants. Overall, the average rent for two-bedroom apartments in existing structures across Canada’s 35 major centres increased 2.4 per cent between October 2009 and October 2010, a similar pace of rent increase to what was observed between October 2008 and October 2009 (2.3 per cent).
CMHC’s fall Rental Market Survey also found that the rental apartment availability rate in Canada’s 35 major centres was 3.8 per cent in October 2010, down from 4.1 per cent in October 2009. A rental unit is considered available if the unit is vacant (physically unoccupied and ready for immediate rental), or if the existing tenant has given or received notice to move and a new tenant has not signed a lease. Availability rates were highest in Windsor (12.5 per cent), Abbottsford (7.7 per cent), London (7.4 per cent) and Hamilton (6.8 per cent). The lowest availability rates were in Québec (1.2 per cent), Winnipeg and St. John’s (1.4 per cent), and Regina (1.5 per cent).