| || ||Robin Wiebe |
Senior Economist, Centre for Municipal Studies
This week’s release of CMHC’s annual rental market data provides further clear illustration of the differing and shifting fortunes among this country’s regions. The numbers, based on a survey of landlords and property managers, reveal extremely tight rental markets in Toronto and Vancouver, but much softer conditions in Alberta and Saskatchewan. Indeed, Vancouver’s vacancy rate is at a 10-year low, while Toronto’s is the lowest since 2001. By contrast, vacancy rates are at record highs in Calgary, Regina, and Saskatoon, and at a 20-year peak in Edmonton. Such patterns reflect the general economic strength of these cities and the resulting residential demand. Soft markets for resources, especially oil, have hit the West hard. For this year, The Conference Board of Canada estimates that economic growth in Calgary and Edmonton will be negative, and only modest expansion is expected in Regina and Saskatoon following a contraction in 2015. By contrast, for the third straight year, Toronto and Vancouver will each post growth of 3.5 per cent or better. Halifax will see relatively solid growth this year, while moderation rules in most other major centres.
Strong economies attract migration, driving demand for both owned and rental accommodations. In a second-round effect, brisk house price increases prompt spillover into rental tenure. This is clearly the case in Toronto and Vancouver, where already high house prices have risen in double-digit terms this year, making ownership unaffordable for at least some potential homebuyers. In addition, these cities, along with Montréal, get most of Canada’s international immigrants—a cohort that usually rents when they first get established in Canada. Accordingly, the vacancy rate has fallen to just 0.7 per cent in Vancouver and sits at 1.3 per cent in Toronto. (See Chart 1.)
By contrast, house prices in Alberta and Saskatchewan have been flat over the past two years, meaning ownership affordability has not deteriorated, compounding the fall in residential demand resulting from employment weakness. Perhaps not surprisingly, vacancy rates jumped to roughly 7 per cent in Calgary and Edmonton, hit a record high in Regina, and soared to double digits in Saskatoon.
House prices have risen only fractionally in Ottawa, Montréal, and Halifax, moving the affordability needle only slightly. Ottawa’s tepid economy has kept its vacancy rate fairly stable over the past few years, Halifax’s rate has fallen slightly as its economic health has improved, while Montréal’s has risen due to more completions of new rental units over the past few years, including a surge in 2016.
Rent increases have mirrored these patterns; the average monthly charge for a two-bedroom suite rose a record 6 per cent in Vancouver (an eight-year high) and 3.4 per cent in Toronto, but fell in both Calgary and Edmonton. Rent increases in Regina and Saskatoon were soft at around 1 per cent, while those in the middle-of-the-pack cities, Ottawa, Montréal, and Halifax, were closer to 2 per cent. (See Chart 2.)
The current economic and rental market landscape has indeed shifted dramatically from just three years ago, when Canada was still enjoying the benefits of the resource boom. In 2013, Calgary and Edmonton were enjoying economic growth near or above 5 per cent annually; the resulting burgeoning residential demand prompted booming resale markets, deteriorating ownership affordability, and rental vacancy rates closer to 1 per cent—below those in Toronto and Vancouver. Annual rent increases topped 6 per cent in the Alberta cities that year. Regina and Saskatoon also had relatively low 2013 vacancy rates and healthy rent gains. Vacancy rates in Halifax, Montréal, and Ottawa were moderate, with correspondingly mid-range rent increases. The latest readings are a salutary reminder that things can turn on a dime.
Over the medium term, the rental market enjoys decent underpinnings, although there will, of course, be regional variations. Canada intends to continue welcoming a significant number of international migrants, its population continues to age, urban intensification persists, rental tenure will remain an affordable housing solution, and the economy is showing signs of improvement. All this points to healthy residential demand, of which rental units should play an important role in addressing. Regionally, gradual oil price gains should bolster residential demand in the Alberta cities, the Saskatchewan economy is forecast to modestly improve, and Toronto and Vancouver should continue to attract newcomers, boosting housing requirements. Economic conditions in Halifax, Montréal, and Ottawa will remain decent, but unspectacular, providing moderate support for residential demand.
Canada is a nation of regions, and CMHC’s rental data release clearly demonstrates the regional variation in rental markets.
Prospects for 2017: The Outlook for the Canadian Economy—Insights from the Chief Economist
The Conference Board of Canada, December 8, 2016 at 2:00 p.m. EST