Vacancy rates in Canada‘s private rental markets have risen, while rents have increased. This defies conventional economic theory that says an increase in the vacancy rate should lead to lower rents.
The Canadian Mortgage and Housing Corporation (CMHC) said it’s a result of rising immigration, a return to campus learning for post-secondary students and higher mortgage rates, which drove would-be buyers into the market. CMHC’s chief economist Bob Dugan said “home affordability has really become more difficult”.
The vacancy rate in Canada has fallen to multi-decade lows, according to the Cmhc Rental Market Report. It says the national vacancy rate for purpose-built rental apartments dropped to 1.9 per cent in 2022 from 3.1 per cent a year earlier. This is the lowest vacancy rate for these types of properties in Canada since 2001.
The federal housing agency attributed the decline to widespread tightening in the rental market as immigration ticked upward and higher mortgage rates made it harder for renters to purchase homes. The tightening was particularly noticeable in Vancouver, where the vacancy rate edged down to 0.9 per cent from 1.2 per cent a year earlier.
Vacancy rates are also a key indicator of affordability for those looking to rent. CMHC collects information about vacancy and rents through its primary Rental Market Survey (RMS), which is conducted twice a year.
This is a national survey that gathers data on the primary rental market for urban areas with populations of at least 10,000. It includes the results of telephone interviews and site visits to sample privately initiated structures that supply rental units. It is based on data from a range of sources including owners, managers and building superintendents.
In addition to the RMS, CMHC conducts a secondary rental market survey each fall, which is focused on condominium apartment units. The survey includes a rent survey of a sample of households living in condominiums, and a vacancy survey of building superintendents who oversee them.
The share of rental condos that are affordable to the bottom 20% of income earners is high in centres like Vancouver and Calgary, where there is a large inventory of units and owner-landlords who provide more than 80% of all rental condos. Centres in Quebec, however, have a smaller share of these types of apartments and are more likely to have many older and larger structures that are occupied by individual owner-landlords.
Affordability is a huge concern in the Canadian rental market. CMHC chief economist Bob Dugan said that the affordability challenge is particularly acute in markets with low vacancy rates and a large inventory of units. He added that this is an issue especially for those with lower incomes who have limited options in their price range.
The Cmhc Rental Market Report, released annually by Canada Mortgage and Housing Corporation (CMHC), provides data on rents in all major centres across the country. This report relies on the CMHC Rental Market Survey, which collects information through property managers and landlords in each centre with a population of at least 10,000.
The national vacancy rate dropped significantly, to 1.9% from 3.1% in 2022, and the average two-bedroom purpose-built apartment vacancy rate declined to 0.9 per cent, from 1.9 percent in the previous year. The CMHC says this was caused by increased net migration, the return of students to on-campus learning and higher homeownership costs, which are keeping more would-be buyers out of the housing market.
This tightness in the rental market also led to significant increases in asking rents for new purpose-built apartments in some markets, including Vancouver. The national average for two-bedroom purpose-built apartment rent climbed by 5.6% to $1,258. The CMHC says this is the highest rent rise in over 30 years, but not all units were able to see increases.
There were, however, some markets where the gap between asking and actual rents widened even more, particularly in some large cities, such as Toronto. The difference between those units that changed tenancy and those that did not was more than six times the increase in rent for the former, according to the report.
In those markets, it was also reported that the average rate of rent growth for a unit that turned over to a new tenant was 18.2%, while the average rate of rent growth for a vacant unit was only 2.8 per cent. This reflects the fact that once a tenant vacates a unit, landlords are generally free to raise the asking rent to current market levels.
These higher rates of rent growth also meant that the vacancy rate in some markets, such as Winnipeg, jumped to more than 3% from 2.4% in the prior year. The vacancy rate in Montreal, which accounts for more than 30% of the national rental stock, was relatively stable at 1.7 per cent. This reflects the fact that Montreal has more units available than other areas of the country, which explains the lower rate of vacancy in this city.
The affordability of housing is a complex issue that affects a wide range of individuals and families. The main determinants of affordability include income levels, housing costs, the cost of living and housing preferences. Affordability is a concern for many people across Canada but it differs from one region to another.
The CMHC defines affordable housing as the ability to purchase or rent a home that does not exceed 30% of a household’s pre-tax income. However, other factors such as access to (and the cost of) finance, demographic shifts and housing preferences also play a role in determining whether a household can afford to live in a particular community.
CMHC reports that the national vacancy rate for purpose-built rental apartments dropped to 1.9 per cent in 2022 from 3.1 per cent a year earlier, the lowest level since 2001. The report attributed the drop to rising demand, increased immigration and higher mortgage rates.
Overall, the CMHC reports that the national average rent for two-bedroom purpose-built units rose 5.6 per cent to $1,258 in 2022. This was largely due to the increase in the number of units turning over to new tenants.
These increases were much greater than the 2.8 per cent average rent growth for units that did not turn over to new tenants. This discrepancy could be a barrier to labour mobility, CMHC said in the report.
Affordability has been a challenge for many renters, especially those with lower incomes who have few options available within their price range. This is a big concern for Canadians who are looking to move for work or who are trying to buy a home in a new city, according to CMHC chief economist Bob Dugan.
Several cities, including Calgary, are experiencing a shortage of affordable rental units. Calgarians need a mixture of long-term and immediate solutions, such as rent caps, income supports and investments in affordable housing.
The supply of rental units continues to play a critical role in the housing market, particularly in Canada’s largest CMAs. It plays a key role in helping renters find affordable, high-quality housing.
The CMHC conducts the Rental Market Survey each October, which involves property managers and landlords across centres with a population of at least 10,000. This survey targets privately initiated, purpose-built rental structures of three units or more, both in apartments and in row housing.
Purpose-built rental apartment supply increased by 55,000 units or 2.6 per cent in 2022. However, demand outpaced the increase. In Toronto, for example, the vacancy rate dropped by a full percentage point, compared with its peak of 4.4% in 2021.
Strong net migration, higher homeownership costs and students returning to on-campus learning drove higher demand for purpose-built housing. The tightness of the purpose-built market is evidenced by a low vacancy rate, which aligns with a 10-year average of 1.5%, says CMHC.
In Sudbury, the vacancy rate for a two-bedroom, purpose-built apartment was 1.1%, which is lower than its peak of 2.4% in 2021. The vacancy rate for condos also remains low, at 1.6 per cent, indicating that condos continue to play a significant role in the supply of rental housing.
Vacancy rates are an indicator of supply and demand, as they show how many units are available in the market at any given time. The vacancy rate is also a good measure of how well the housing market is functioning.
The affordability of housing is a critical issue in most Canadian CMAs, according to the CMHC. The national vacancy rate is now at its lowest level since 2001, with most centres reporting a lack of affordable rental housing for households in the bottom income quintiles. Moreover, several markets reported declines in such units from 2020.
Among many other things, David A. Grantham is a contributing author to UmassExtension West Vancouver Blo. He is a renowned expert on real estate in BC.
Born in North Vancouver, Louisiana, Dr. Grantham grew up in Lower Lonsdale. He then went on to complete his business degree at the University British Columbia. As of this writing, Grantham has completed over 100 projects, including the development of a high rise building in Vancouver.
He is a husband, father, son, brother, and friend. He was a dedicated outdoorsman and enjoyed sports such as hunting, fishing, scuba diving, and snow skiing. His wife, Alison Grantham, and their two daughters survived him. He is survived by his wife Alison Martin Grantham and two daughters.