CMHC says rental vacancy rate lowest in two decades

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The rental vacancy rate falls to a two-decade low while rental growth hits new highs

Canada's vacancy rate reached 1.9 percent for non-residential buildings in 2022 - up from 3.1 percent in 2021. Canada’s vacancy rate reached 1.9 percent for non-residential buildings in 2022 – up from 3.1 percent in 2021. Photo by Postmedia

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New data from Canada’s Housing Authority highlights the extent to which the country’s housing affordability challenges have spilled over into the rental market, driving rents higher and pushing vacancy rates down to decades-old lows.

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Canada Mortgage and Housing Corporation’s annual rental market report, released Jan. 26, showed that the national vacancy rate for functional housing fell to 1.9 percent in 2022, from 3.1 percent a year earlier, the lowest level since 2001.

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Vacancy rates fell in most metropolitan areas, including Toronto, Montreal and Vancouver, with Toronto’s drop from 4.4 percent to 1.7 percent being among the largest.

Two-bedroom functional rentals also rose significantly, up 5.6 percent to a national average of $1,258. Vancouver at $2,002 and Toronto at $1,779 had the highest average rents for such units.

The agency attributed the overall tightening of the market to rising immigration, a return to campus learning for post-secondary students and higher mortgage rates, the latter of which drove potential buyers into the rental market.

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The affordability of home ownership has really gotten more difficult and that is putting that pressure on the rental market now

Bob Dugan

“Home affordability has really gotten more difficult, and that’s putting pressure on the rental market,” CMHC chief economist Bob Dugan said in an interview.

For the first time, CMHC also broke out the difference in rent increases for units handed over to new tenants. For those units, rent rose 18.2 percent, more than six times the 2.8 percent increase for units that didn’t sell. The disparity was even wider in some large markets like Toronto, where units sold averaged rental growth of 29.1 percent, compared to just 2.3 percent for existing tenants. Other cities like Edmonton saw virtually no gap between the two categories, indicating a more balanced market.

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The overall national turnover rate also fell from 15.5 percent in 2021 to 13.6 percent in 2022.

Previous data that only looked at average rents failed to capture the magnitude of the affordability challenges faced not only by new renters — particularly young people and new Canadians — but also by those looking to relocate for work, Dugan said. In the latter case, the dramatic increase in rents for these rotating units would pose a “barrier to labor mobility,” Dugan said, with potentially greater economic consequences.

The new data also provided additional insights into the markets facing the biggest supply problems, which Dugan cited as the key problem underlying the country’s affordability woes.

“We really need supply and we need to think of the whole housing market: rental, ownership, all together when we’re thinking about solving affordability,” he said.

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Other options like rent control might make a difference in the short term, but Dugan was reluctant to support the idea, suggesting it would only address a “symptom” of the real problem.

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“We need to attract investment into the housing market to have more units built,” Dugan said. “Rent controls can impact relative returns. So lowering rental yields might not attract as many investors. We have to think about it very carefully because we need the investment to increase the supply.”

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That markets have tightened in 2022 despite strong increases in supply underscores the importance of Canada’s supply challenge.

In a previous report in June, CMHC had forecast that Canada would need to build 3.5 million additional housing units by 2030 to make housing affordable for all – which would require the pace of housing starts to double from current levels.

Thursday’s report showed rental supply grew by 55,000 purpose-built rentals, or 2.6 percent, in 2022, but demand outpaced that with 79,000 additional units nationwide.

The report also described Toronto’s increase in purpose-built units as the “strongest in decades,” but there too, a surge in demand washed over profits.

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