Higher vacancy rates curb rent hikes
It all depends on your perspective.
If you’re a renter, it’s good news; if you’re a landlord, not so much.
Higher vacancy rates have inhibited rent increases this year, says Richard Cho, senior market analyst with Canada Mortgage and Housing Corp.
“The rental rates softened this year with competition from the home market due to increased affordability,” he told delegates to CMHC’s recent annual Housing Outlook Conference.
Monthly carrying costs for resale home mortgages peaked in 2007, while rents have been “relatively stable,” says Cho.
“There was a gap between the two of $962 in 2007, but now it was about $300 this spring. That’s an incentive for renters to move into home ownership.”
But condo prices and home values are currently increasing, “so the gap widens,” and people will be less inclined to move, he says.
The average monthly rent for two-bedroom apartments was $1,148 in 2008. This year, the average is expected to be in the range of $1,075, says CMHC.
But that’s not the only factor affecting the apartment rental market, says Gerry Baxter, executive director of the Calgary Apartment Association. “There are more units out there, even though the rental universe has shrunk considerably.”
Condo conversions have taken some rental units out of the market over the year, although the rate of conversions has decreased with the market slowdown.
“But then there are all those condos in the market where the owners couldn’t sell them, so they opted to rent them instead,” says Baxter.
“Add in the fact that the in-migration during the boom turned into the great skedaddle, and people left the city. Now there’s a smaller rental population as well.”
CMHC is forecasting an apartment vacancy rate of four per cent this year. But Baxter is expecting vacancy rates to be even higher than the forecast.
“Most landlords I have talked to are saying that it’s a much bigger challenge to try renting than it has been in the past — and the reality is that the vacancy rate could be more in the five-to seven-per cent range,” he says.
That’s good news for renters, who are able to take their time and shop for the best deal, says Baxter. “It’s competitive out there, so there are incentives and lowered rents,” he says.
Landlords needed “to do more to compete,” says Cho, adding that could tighten up slightly next year.
CMHC sees the $1,075 average rent forecast for a two-bedroom unit this year increasing marginally to an average of $1,100 next year.
Gerry Baxter, president of the Calgary Apartment Association.