Rental market proves robust housing supply dynamics help people find homes

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Millicent Wong
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Rental market proves robust housing supply dynamics help people find homes

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Condos and rentals are two sides of the same coin, and they’ve turned around significantly during the pandemic

A construction worker atop a condominium building under construction in downtown Montreal. A construction worker atop a condominium building under construction in downtown Montreal. Photo by Christine Muschi/Bloomberg Files

Home ownership and rental housing are two sides of the same coin, and they’ve turned around significantly during the pandemic: Across the country, there were unprecedented gains in prices and sales for condominiums, while demand for rental housing increased slightly overall but slowed in some markets.

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the The demand for rental apartments increased in 2021 compared to the previous year, along with the resumption of economic activity, particularly in sectors that employ young workers, and a rising influx of immigrants, according to a recent report by Canada Mortgage and Housing Corp. (CMHC). Fortunately, rising demand met an increase in rental supply, which helped stabilize vacancies and rents in 2021.

The rental housing market is served through two main channels: purpose built rental housing (PBR) and privately owned condominiums. The PBR vacancy rate was 3.1 percent in October 2021, similar to the same period in 2020 but much higher than in 2018 and 2019.

PBR vacancy rates fell in Calgary, Halifax and Vancouver, but rose in Toronto and Winnipeg. Toronto’s slow economic recovery, particularly in youth employment, contributed in part to the slow growth in rental demand there.

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One thing is certain: the rental housing market provides strong evidence of the effectiveness of supply and demand principles. For example, from October 2020 to October 2021 across Canada, occupied rental housing rose by 41,000 units, which should have put upward pressure on rents, but supply of PBR housing increased by 40,000 units, offsetting demand.

Equally notable, as of October 2020, rental supply had exceeded demand by around 26,000 units over the previous 12 months, easing pressure on rents and vacancies. Oddly enough, supply-side skeptics, who doubt that increasing housing supply will help ease pressure on house prices, are less critical of supply-side solutions for rental housing.

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The resurgence of PBR construction has been a key stabilizing factor in rental markets, with supply outpacing demand in Toronto and Winnipeg by 4,000 and 1,000 units, respectively. That’s one of the reasons Toronto’s vacancy rate was 4.6 percent in October 2021, significantly higher than in October 2020. In comparison, the vacancy rate in Vancouver fell to 1.2 percent and in Halifax to 1 percent.

University towns also reported tight rental housing markets. As campus learning gradually resumed, university students returned in large numbers, contributing to the growth of small, student-dependent rental markets.

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This has been exacerbated by the increase in the number of international students. The number of study permit holders increased by 44.3 percent between October 2020 and August 2021 compared to the same period last year, according to government data. As a result, vacancy rates have fallen in places like Kingston (1.4 percent) and London (1.9 percent) in Ontario over the past year.

Overall, however, rents in Canada grew at a slower pace in 2021 than in the previous year thanks to a significant increase in rental supply. For example, rents in Toronto rose 1.3 percent, a much slower growth rate than in 2020. But tighter markets in Vancouver and Halifax meant rents there rose 2.4 percent and 4.8 percent, respectively, and with it the increases exceeded the previous year.

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However, despite the increasing supply of PBR housing, a significant proportion of the population still struggles to afford housing in large urban centres.

Consider that an average earner in Vancouver has to work 198 hours (about 28 standard shifts) each month just to keep the average monthly rent for a two-bedroom apartment at 30 percent of their gross income. In comparison, an average wage earner in Quebec would only need to work 105 hours to rent an affordable apartment.

With the acceleration of economic recovery in sectors that employ young workers (e.g. hospitality and tourism), a significant increase in net migration and an increase in the number of international students, a steady increase in demand for rental housing is inherent associated with these three demographics. Luckily, continued expansion of rental supply will help maintain the balance.

Murtaza Haider is Professor of Real Estate Management at Ryerson University. Stephen Moranis is a real estate industry veteran. They can be reached at the Haider-Moranis Bulletin website, www.hmbulletin.com.

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