Canada Mortgage and Housing released its Spring Rental Market Report today. Highlights:

• The average apartment vacancy rate in Alberta’s urban centres increased from 2.9 per cent in April 2008 to 4.6 per cent in April 2009. All centres except Grande Prairie reported a higher vacancy rate in 2009.
• The 2009 vacancy rates ranged from a low of 1.2 per cent in Cold Lake to a high of 8.5 per cent in Grande Prairie.
• Calgary and Edmonton, the two largest urban centres, reported vacancy rates of 4.3 and 4.7 per cent, respectively.
• The provincial average rent for all unit types was $962 per month in April. At $2,088, Wood Buffalo had the highest average monthly rent amongst all urban centres in Alberta, while Medicine Hat had the lowest average rent at $654 monthly.

Brought by Moishe Alexander, CFC CEO.

Moishe Alexander’s Review

Highlights

Moishe Alexander says the average vacancy rate in the Windsor CMA rose to 14.6 per cent in October 2008, up from 12.8 per cent last fall. Unemployment among young persons and residents leaving to search for work elsewhere contributed to the increase. The average rental apartment vacancy rate will remain high in 2009, peaking at 17 per cent.

Demand for Rental Apartments Waned in 2008

Moishe Alexander says Demand for privately-initiated rental apartment units in the Windsor Census Metropolitan Area (CMA), waned in 2008. The already high vacancy rate increased to a record 14.6 per cent from 12.8 per cent in 2007. Vacancy rates were unchanged or higher for all apartment types. A number of factors have contributed to the rising number of vacant rental apartments in Windsor.
Migration is a key factor in housing demand. Low unemployment rates draw migrants to a centre in search of work. Windsor’s unemployment rate has been well above the provincial average over the last four years. In 2007, Windsor averaged 9.3 per cent unemployment.  In 2008 the rate has exceeded 10 per cent in some months.

Not only has this poor employment scenario meant fewer people are moving to Windsor, it has also meant Windsor residents are moving elsewhere in search of work. In 2007, the Windsor CMA lost an estimated 1,700 people to other centres.

Employment among young people is another important factor in rental demand since they tend to be more likely to rent than other age groups.  This group has not been spared from job losses in the area. At the same time, Statistics Canada has found a growing trend of young adults staying in the parental home longer.

The resale market currently favours buyers since prices are declining.  However, fewer renters are choosing to take advantage of these conditions due to uncertain employment prospects.  For example, the rent for a three-bedroom townhouse averaged $875 in October 2008, an amount which would easily allow for a monthly mortgage payment on a starter home in Windsor. Nevertheless, the total vacancy rate for townhouse units decreased from 13.7 per cent in 2007 to 11.7 per cent in 2008, indicating tenants were not moving into homeownership.

Vacancies Highest Downtown

Moishe Alexander says All four zones in Windsor City had a higher vacancy rate in 2008 due to fewer employment opportunities, outflows of residents to other regions in search of employment.
Downtown Windsor, Zone 1, had the highest vacancy rate in the CMA once again, increasing from 15.4 per cent the previous year to 17.5 per cent in 2008 . The vacancy rate increased for all apartment types. Zone 1 has traditionally had the highest vacancy rate of any Windsor zone in part due to the large proportion of older structures which often require more repairs and therefore may be considered less desirable by potential tenants.

The core has also experienced the loss of a number of commercial businesses implying fewer people will need to live there to be close to their work. The downtown is also the prime nightlife destination which may deter some potential renters who dislike the associated noise and traffic congestion.  The vacancy rate for one bedroom apartments was highest in Zone 2 at 23.2 per cent. This zone has a number of smaller buildings primarily one bedroom. Smaller buildings, such as those with less than 20 units tend to have higher vacancies during periods of oversupply as tenants have options and preferences for larger buildings which tend to have more security, and professional onsite management. Rents for one bedroom units in this zone remain low in an attempt to compensate.

Traditionally in Windsor the most popular location for renters to choose is Zone 3-East Outer which had the lowest overall vacancy rate in the City at 10.6 per cent, as well as the lowest one bedroom vacancy rate at 9.5 per cent. The latter was significantly lower than the one bedroom vacancy rates in surrounding zones. This zone includes larger buildings with prime locations along the river which are more attractive to tenants. These buildings offer newer units and professional on-site management. As well the larger property management firms have the resources available to offer rental incentives which many smaller landlords do not.

Both the University of Windsor and St. Clair College are located in Zone 4.  Although students are usually a source of demand for rental accommodation, the vacancy rate rose from 14.5 per cent to 14.9 per cent at the same time as the stock of apartments decreased. The completion of several new student residences over the past few years coupled with students doubling up as evidenced by the decrease in the two bedroom vacancy rate have contributed to the greater number of vacancies.

Demand for One- Bedroom Apartments Falls

Moishe Alexander says Despite a decline in the stock of onebedroom apartments, the number of vacant units rose from 1,023 units in 2007 to 1,175 in 2008 resulting in a 15.7 per cent vacancy rate. With an average difference of $127 between a one-bedroom and a two-bedroom unit, some renters would have chosen to double up and share expenses. At the same time, for people in a stable employment situation, the current situation offered an opportunity to move up to a larger apartment. Given the generally weak employment situation, there were few new tenants to move into the vacated smaller units.

Rents Stable

Moishe Alexander says CMHC has introduced a measure for the change in rents for existing structures. By focusing on existing structures, we can exclude the impact of new structures added to the rental universe between surveys and conversions and get a better indication of the rent increase in existing structures. For the Windsor CMA, a softer rental market has meant that the average rent for a two-bedroom apartment unit in an existing structure showed no significant change from October 2007 to October 2008. Landlords attempting to boost occupancy rates have held the line on rents in this very competitive market.

Newer Buildings Have Lower Vacancies

Moishe Alexander says Buildings constructed pre-1960 had the highest vacancy rate at 21.6 per cent in 2008. These buildings tend to be walk-up units near the core and in need of greater maintenance. The rates for buildings constructed in 1990 and after had the lowest vacancy rate at 10.2 per cent.

Larger Buildings Have Lowest Vacancy Rate

Moishe Alexander says The trend for larger buildings to have vacancy rates below the market average in Windsor continued in 2008.  Large buildings with 100 or more units had the lowest one bedroom and second lowest two-bedroom vacancy rates despite having the highest average rents. Larger buildings are usually run by property management firms who can afford rental incentives, security, on-site superintendents and building maintenance to keep and attract tenants. These buildings also tend to have choice locations along the river in Windsor.

Smaller buildings with less than 20 units continue to have the highest vacancies for apartments with one, two and three or more bedrooms.

Availability Rate Rises

Moishe Alexander says CMHC’s availability rate measures the percentage of units for which the existing tenant has given or received notice to move and a new tenant has not been found for the unit. The rate also includes those units that are currently empty or vacant and as such the availability rate is always higher than the vacancy rate. Availability rates give a slightly broader indication of the trends in the available rental supply.

High availability rates indicate that the movement from rental to homeownership continues, although it is not as strong as in the past. It also indicates that with the numerous vacant units available, renters are easily able to move among units if a better unit becomes available. For the Windsor CMA, the availability rate increased from 14.4 per cent in October 2007 to 16.8 per cent in October 2008. The difference between the vacancy rate and the availability rate stands at 2.4 per cent in the Windsor CMA. The higher availability rate suggests that turnover among tenants has been relatively high.

Rental Affordability

Moishe Alexander says The rental affordability indicator is a gauge of how affordable a rental market is for those households which rent within that market. A generally accepted rule of thumb for affordability is that a household should spend less than 30 per cent of its gross income on housing. The new rental affordability indicator examines a three-year moving average of median income of renter households and compares it to the median rent for a two-bedroom apartment in the centre in which they live. More specifically, the level of income required for a household to rent a median priced two-bedroom apartment, using 30 per cent of its income, is calculated. The threeyear moving average of median income of households in a centre is then divided by this required income.  The resulting number is then multiplied by 100 to form the indicator.  An indicator value of 100 indicates that 30 per cent of the median income of renter households is necessary to rent a two-bedroom apartment going at the median rental rate. A value above 100 indicates that less than 30 per cent of the median income is required to rent a twobedroom apartment, conversely, a value below 100 indicates that more than 30 per cent of the median income is required to rent the same unit. In general, as the indicator increases, the market becomes more affordable; as the indicator declines, the market becomes less affordable.
According to CMHC’s new rental affordability indicator which moved from 86 in 2007 to 93 in 2008, affordability in Windsor’s rental market improved for the fourth year in a row.

Rental Market Outlook

Moishe Alexander says The average rental apartment vacancy rate will remain high in 2009, peaking at 17 per cent. A moderating economy will dampen both rental and ownership demand. Continuing out-migration, especially of the prime renter 18-24 year old age group, from the Windsor area in search of job opportunities will contribute to the surplus of vacant apartments. Employment levels will begin to slowly improve towards the end of 2009 as construction of the new $1.5 billion border crossing gets under way. Rent increases will be virtually nonexistent as landlords try to maintain rents on paper and offer other incentives to keep and attract tenants.

You can find the entire report in PDF format through the following link:
http://www.cmhc-schl.gc.ca/odpub/esub/64407/64407_2008_A01.pdf

Moishe Alexander’s Review

Highlights

Moishe Alexander says Ottawa’s vacancy rate for apartment units fell to 1.4 per cent, the lowest level since 2001. Robust rental demand pushed up average rents faster than the rate of inflation. Increased immigration, along with slower rental construction, will lead to further tightening of the rental market in 2009.

Rental Market Survey Vacancy Results

Moishe Alexander says Rental market data released by CMHC’s latest survey confirmed that the October vacancy rate in the Ottawa Census Metropolitan Area (CMA) experienced tightening during 2008. The proportion of privately initiated apartments vacant in structures with three or more units declined to 1.4 per cent in this year, down from 2.3 per cent in 2007.  The recent level of rental market activity in Ottawa has been mostly driven by strong demand growth.  Rental demand during 2008 was sustained by a stable economy with factors such as strong young adult employment growth, rising costs of homeownership and high migration levels being particularly influential.

Factors Supporting Rental Demand

Higher Homeownership Costs

Moishe Alexander says Ottawa’s economic fundamentals are very strong. In 2008, the labour market strength was supported by a solid trend in job creation and, as a result, Ottawa’s workforce enjoys one of the highest average incomes among Canada’s major cities. However, although strong fulltime employment supports a high level of homeownership demand, record high prices and growing economic uncertainty dampen demand for ownership housing. As a result, some of Ottawa’s potential homeowners have decided to stay in their rented units and postpone their purchase intentions.

Strong Young Adult Employment

Moishe Alexander says Among the various demographic groups affecting the rental market, the young population between the ages of 18 to 24 years old has traditionally been a strong source of demand, since they usually lack the financial means to secure a mortgage.  Consequently, their success in the labour market has a crucial influence on their propensity to move out of the parental home and into the rental market.

Younger adults reached a 20-year record high level of full-time jobs, increasing by 3.8 per cent from January to September, when compared to last year. Therefore, rental demand among this age cohort has remained strong.

Increasing International Migration

Moishe Alexander says International migration flows in Ottawa have been growing at historically high rates, offsetting the weaker inter- and intra-provincial trends in recent years. During the intercensal period of 2001 to 2006, the Capital City received an all-time high annual average in-flow of six thousand immigrants. It is important to note that from arrival it takes an immigrant household between 5 to 7 years to purchase a home which implies greater rental demand.  Interestingly, Ottawa’s growing recent immigrant population was not only younger than the Canadian-born population, but was also on average more educated than their previous immigrant counterparts. Such qualities have allowed recent immigrants to perform well in the labour market, encouraging them to stay in the Capital City. This provided a boost to rental demand during 2008.

Sources of Rental Supply

Slow Rental Construction

Moishe Alexander says On the supply side, the purposebuilt rental construction trend has eased since the peak reached in 2002. The new supply of purposebuilt rental units during the first ten months of 2008 exceeded the average for the past five years only mildly, with just 142 new units built.  At the same time, apartment completions in the 12 months ending in June 2008 were up by only 11 units compared to the same period last year. Indeed, the rental apartment universe has remained virtually unchanged since 2004, which contributed to lower the vacancy rate.

Increase in Condominium Apartment Rentals

Moishe Alexander says Rental market activity in the Ottawa CMA purposed built market is increasingly competing with the supply of condominium apartments rented out by investors. Compared to last year, an additional 313 condominium apartment units were offered for rent in 2008, equivalent to an increase of 8.4 per cent. As a result, the supply of rental units within this segment has reached over 19 per cent of the growing condominium apartment universe in 2008. The total number of condominium apartments rented out comprised 6.7 per cent of the purpose-built apartment rental market supply.

Fewer Secondary Rental Market Units

Moishe Alexander says In 2008 the estimated number of households in the Secondary Rental Market declined by 2.8 per cent, with 35,433 households renting dwellings not covered by CMHC’s Rental Market Survey.1 This total number of housesholds comprises 35% of persons renting in Ottawa.The only property type that gained popularity among renters was single-detached homes, up almost 24 per cent from 2007. Although other Secondary Rental dwellings such as semi-detached, rows, and duplexes still represent 64 per cent of the market, they attracted almost 9 per cent fewer households than last year.

Apartment Rental Market

Vacancy Rate Falls to 1.4 Per Cent

Moishe Alexander says As a result of increasing demand for rental dwellings and slow rental construction, the Rental Market in Ottawa CMA experienced tightening, with widespread reductions in the vacancy rate across all apartment sizes. As well, all rental market zones experienced lower vacancy rates than last year, with New Edinburg/Manor Park/Overbrook and Westboro South/Hampton Pk/ Britannia registering the lowest in Ottawa, both with 0.7 per cent.

Rent Increases Faster than Inflation

Moishe Alexander says The fixed sample average rent in the Ottawa CMA, which effectively compares rent for apartment units surveyed both in 2007 and in 2008, increased by a solid 3.6 per cent. This increase was widespread across all bedroom types.

High Growth in Rent for 3-Bedroom Apartment Units

Moishe Alexander says A significant acceleration in rent increases was experienced by the less common, more expensive three bedroom apartment units, which grew by four per cent from last year.  Such a jump in average rents reduces the cost gap between three bedroom apartments and homeownership.

One reason behind this trend is the growing demand from households seeking a more comfortable lifestyle comparable to that of the less affordable single-family home. Among these households, we find immigrants who tend to have larger families and are more likely to live with their extended family than Canadian born households, thus requiring bigger accommodations.  The vacancy rate for this segment dropped to 1.8 per cent, down from 2.8 per cent in 2007.

Two Bedroom Apartment Rent Exceeds Inflation

Moishe Alexander says Households looking to rent a typical two-bedroom apartment during 2008 faced less choice and higher average rents than a year earlier. The vacancy rate for this apartment type tightened from 2.3 per cent in 2007 down to 1.5 per cent this year, driving the average rent up 3.7 per cent from a year ago.

Popularity of these type of apartments is driven by the fact that over 40 per cent of them are located in popular areas such as Altavista/Hunt Club, Downtown, Westboro/Hampton/ Brittania and Glebe/Old Ottawa South.

Rental Demand Stronger in Regions Close to the Core

Although most regions have been tightening steadily since the 2004 peak, the trendier and more centric regions of Sandy Hill/Lowertown, Glebe/Old Ottawa South, and New Edinburg/Manor Park/Overbrook were among the areas with stronger rental activity in 2008. These rental zones experienced a combination of lower than average vacancy and rent increases above the city average.  Interestingly, the average rent in the area of Gloucester/Cumberland remained relatively flat, even though it experienced one of the most significant drops in the vacancy rate (from 2.6 to 1.1 per cent) and had the second lowest number of units available for rent. In contrast, following previous years’ trend, the less popular area of Vanier offered the cheapest average rent and the highest rate of vacancy.

Lower Vacancy Among Newer and Bigger Structures

Moishe Alexander says Even though vacancy rates declined across all bedroom types and regions, significantly tighter conditions were experienced in trendier and more attractive segments of Ottawa’s Rental Market. Apartment units in newer structures built after 1975 were particularly popular among renters, especially those built after the turn of the century. This type of apartment saw their vacancy rate drop sharply from 2.5 per cent to 1.2 per cent in 2008 and their average rents increase by 5.7 per cent from last year.

Similarly, bigger structures were particularly attractive among households seeking better services and amenities. This was especially true for rental buildings with 100 to 199 units, which saw their vacancy rates cut significantly from last year to just 1 per cent. Thus, monthly rents increased by 4.7 per cent from last year.

Townhome Rental Market

Vacancy Contracts to 2.2 Per Cent

Moishe Alexander says Town home rental activity during 2008 gained intensity as some households seeking single-family home-like lifestyles began to move away from growing resale prices. As a result, the vacancy rate for row house rental units declined to 2.2 per cent in October 2008, down from 2.9 a year earlier.

Average Rent Posts Moderate Increase

Moishe Alexander says Although the average monthly rent for this type of dwelling stayed significantly above that for apartment units, the growth in row house average rents remained below the rate of inflation, at 1.5 per cent. Average rents for row house units tend to be less responsive than apartments to tightening conditions due to their typically dispersed location in suburban areas away from the more expensive Downtown core.

Suburban Regions Tightened the Most

Moishe Alexander says The region of Nepean/Kanata, which currently offers 49 per cent of the total row house rental universe in the Ottawa CMA, experienced substantially tighter rental conditions in 2008.  As some households seek suburban lifestyles in this increasingly popular region, stronger demand cut the number of vacant units almost in half compared to last year, driving the vacancy rate down to 1.9 per cent from 3.2 per cent in 2007 and 5.1 per cent in 2006.

However, the growth in average rent in Nepean/Kanata increased only mildly by 1.8 per cent, and was eclipsed by the jumps seen in other regions closer to the core. This was particularly true for Glebe/Old Ottawa South and Carlington/Iris, which saw growth rates in average rents of 3.4 per cent and 4.2 per cent from last year, respectively.

Condominium Apartment Rental Market

Increasing Popularity of Condominium Apartment Rentals

Moishe Alexander says Despite the increase in condominium apartment rentals, the vacancy rate for this segment remained at 0.5 per cent, steady from last year. At the same time, the average rent stood at $1,093 per month, equivalent to a 22 per cent premium over purpose-built rental apartment units. Such strong demand within the fastest growing segment in Ottawa is being fuelled by its growing popularity among young professionals and empty-nesters who value highquality building services and proximity to the core and its amenities. Not surprisingly, the vacancy rate for rented condominium apartments in buildings with 150 units or more was the lowest, at just 0.2 per cent.

Condominium Apartments Supply Differs by Regions

Moishe Alexander says Pressure for purpose-built rental accommodation in the Downtown core eased considerably since last year due to a steep rise in condominium apartment supply. The purpose-built apartment vacancy rate reached 1.6 per cent in the Downtown core, up from 0.2 per cent in 2007. The inner suburbs experienced tightening in recent years, with its vacancy rate at 0.4 per cent this year, down from 1 per cent in 2007. Such tightening was mostly due to stronger demand pressures arising from the relatively more affordable rents. The popularity of condominium apartment rental remains strong in 2008 in this region, despite the fact that renters faced on average a 20 per cent premium in rent for a two-bedroom condominium apartment, over regular two bedroom rental apartments.

In contrast, the outer suburbs proved to be the preferred area for growth in condominium apartment rentals.  Although these regions saw the fastest yearly supply growth of 14.4 per cent, strong demand resulted in the lowest vacancy rate of 0.1 per cent, down from the already low 0.2 per cent. A relatively lower monthly rent in exchange for suburban lifestyles was an influential factor among renters, who faced an average rent of $940 for a two bedroom condominium apartment or 1 per cent above that of purpose-built rental units.

Affordability Indicator

Moishe Alexander says The rental affordability indicator is a gauge of how affordable a rental market is for those households which rent within that market. A generally accepted rule of thumb for affordability is that a household should spend less than 30 per cent of its gross income on housing. The rental affordability indicator examines a three-year moving average of median income of renter households and compares it to the median rent for a two-bedroom apartment in the centre in which they live. In general, as the indicator increases, the market becomes more affordable. This indicator is further explained in the Methodology section of this report.

According to CMHC’s rental affordability indicator, affordability in Ottawa’srental market improved this year. The indicator has been on an increasing trend since 2005 when it was at a low of 95. This year the median income of renter households grew by 6 per cent, while the median two-bedroom apartment rent jumped by just 4.4 per cent.  As a result, the rental affordability indicator in Ottawa stands at 98 for 2008, up from 97 in 2007.

2009 Rental Market Outlook

Moishe Alexander says A combination of strong rental demand with slow supply of purposed-built apartments will prevail next year, pushing vacancy rates down further to 1.0 per cent.  As well, record-high priced homes and economic uncertainty will deter some renters from jumping into the homeownership market.

Ottawa’s two bedroom apartment rents are expected to grow by 3 per cent in 2009. This increase will be below this year’s growth of 3.7 per cent because there will be lower turnover among tenants. The Residential Tenancies Act allows rent increases over the provincial guideline for apartments that become vacant.

You can find the entire report in PDF format through the following link:
http://www.cmhc-schl.gc.ca/odpub/esub/64423/64423_2008_A01.pdf

Moishe Alexander’s Review

Highlights

Moishe Alexander says The vacancy rate in the Moncton CMA was lower in 2008 at 2.4 per cent compared to last fall’s results. The largest decline occurred in West Moncton, where the vacancy rate was down 3.5 percentage points to 2.4 per cent. The overall average rent in Greater Moncton was up 2.4 per cent in 2008. Within the region, Moncton City had the largest increase at 2.6 per cent. The highest average rent in Greater Moncton was in Dieppe City at $638. Meanwhile, the average rents in Moncton City and Riverview were slightly lower at $625 and $630, respectively.

Moncton 2008 Rental Market Survey

Greater Moncton Vacancy Rate Declines in 2008

Moishe Alexander says Results from Canada Mortgage and Housing Corporation’s recently completed Rental Market Survey* revealed a lower vacancy rate for the Moncton CMA in the fall of 2008.  In October of this year, there were 234 vacant units in Greater Moncton, down from the 419 vacant units recorded during last year’s survey. As a result, the vacancy rate in Greater Moncton fell from 4.3 per cent last year to 2.4 per cent in the fall of 2008.  The expansion of the local rental universe during the past twelve months has not kept up with demand, resulting in fewer vacant units and a lower vacancy rate.

In 2008, the vacancy rate for twobedroom units, which account for approximately 67 per cent of the local inventory, mirrored the performance of the overall vacancy rate, dropping to 2.6 per cent from last year’s rate of 4.3 per cent. For one-bedroom units, the decline in the vacancy rate was even more substantial, down to 1.5 per cent compared to 4.4 per cent last year.

Within the tri-community area, Dieppe City had the lowest vacancy rate at 1.8 per cent, followed by Moncton City and Riverview at 2.4 and 3.4 per cent, respectively. In the outlying areas of the Moncton CMA, the vacancy rate was a low 0.9 per cent.

Stable Demand and Reduced Construction Push Down Local Vacancy Rate Throughout Greater Moncton

Moishe Alexander says The Greater Moncton area has benefited from positive economic growth during the past decade. During this period, annual employment growth in the area has been between two and three per cent annually. To the end of the third quarter, total employment in 2008 was on a record setting pace. With solid economic fundamentals and rising employment, population growth in Greater Moncton was the most significant among New Brunswick’s urban centres, bolstering housing demand. Despite favorable market conditions for home ownership, demand for rental units in the Moncton CMA persists, as evidenced by the lower vacancy rate in 2008. This year also marked the second consecutive decline in Greater Moncton’s vacancy rate after several years of steady increases dating back to 2001, when the vacancy rate was 1.6 per cent.  The most significant vacancy rate fluctuation in the tri-community area occurred in Dieppe City where the vacancy rate dropped from 4.0 per cent last year to 1.8 per cent in 2008, the lowest in the area.

Substantial population growth in recent years has resulted in steady demand for rental units. However, construction activity has not grown in step with demand. Higher than average starts in 2006 pushed up the vacancy rate last year. Subsequently, apartment starts declined in 2007 to a more typical level for the City of Dieppe.  With no apparent decline in demand, and expansion of the local rental universe constrained by fewer apartment starts, the number of vacant units declined in 2008.

The vacancy rate in Moncton City was identical to the overall rate for the CMA at 2.4 per cent. This was not unexpected, as the rental universe in Moncton City accounts for approximately eighty per cent of the

CMA’s overall inventory. Although population growth in Moncton City lagged behind its neighbor, Dieppe, it has nonetheless remained positive as the region’s dynamic economy continues to fuel economic development and attract people to the area. However, as was the case in Dieppe, new rental unit construction has declined in recent years. In fact, last year, apartment starts in Moncton City were substantially lower than the average annual total recorded during the past ten years. Fewer vacant units combined with steady demand have thus pushed down the vacancy rate from 4.4 per cent last year to 2.4 per cent in 2008.

With fewer new rental projects started in Moncton City last year, the vacancy rates in each of the region’s four separate zones were down in 2008. Both the East and North Moncton zones posted moderately lower vacancy rates in 2008 compared to last year. However, in both Central and West Moncton, this year’s vacancy rate was down considerably from 2007 levels. In Central Moncton, the vacancy rate was halved, down to 2.9 per cent from last year’s vacancy rate of 5.8 per cent.  In West Moncton, a similar decline occurred with the local vacancy rate falling from 5.9 per cent last year to 2.4 per cent in 2008.

In both Moncton City and Dieppe City, the significant decline in the vacancy rate is mainly attributed to reduced apartment unit construction.  Consequently, supply has fallen behind demand and the number of new rental units added to the local inventory has not been sufficient to prevent a significant decline in the vacancy rate.

In both centres, developers have shifted some of their focus to semi- detached homes. In recent years, the popularity of semi-detached homes in the Greater Moncton area has resulted in tremendous growth, with the bulk of new units added in Moncton City and Dieppe City. With semi-detached homes, consumers can obtain a newly-built product with a mortgage payment comparable to the typical monthly rent for a newer twobedroom apartment. Semi-detached homes also offer – in many cases – the option to obtain a customized home and they allow the owner to build equity in their new home. As such, semi-detached units have lured an increasing number of individuals to homeownership. The resulting demand has caused some developers to shift their focus from apartments to semi-detached homes, contributing to a reduction in supply and a lower vacancy rate.

In comparison, the growth in semidetached homes in the town of Riverview has been muted. Prior to this year, rental unit construction in the Riverview area had been proceeding at a relatively conservative pace. However, the new Gunningsville Bridge linking Riverview to Moncton’s downtown core has greatly improved accessibility for local residents. As a result, Riverview has benefited from increased apartment starts in both 2007 and 2008. The resulting expansion of the local rental universe has struck a better balance between supply and demand, limiting the decline in the local vacancy rate.  Although Riverview posted a lower vacancy rate in 2008, the decline was modest compared with Moncton City and Dieppe City, falling from 4.2 per cent last year to 3.4 per cent.

Vacancy Rate Lower in Newer Units

Moishe Alexander says In the Greater Moncton area, as is the case in many urban centres across the nation, the trend in residential construction has been towards larger homes with more amenities and living space. A growing number of consumers choosing to rent are also leaning towards larger, more elaborate units. Based on this year’s rental market survey, the vacancy rate for units built after the year 2000 was a low 0.7 per cent. This was a sharp decline from last year’s vacancy rate of 2.8 per cent. The vacancy rate for units constructed between 1990 and 1999 was equally low at 1.7 per cent. For units built prior to 1989, the vacancy rate increased with the age of the structure and varied between 2.1 per cent and 5.0 per cent. The vacancy rate was also lower in the upper rent ranges, which also confirms the fact that many consumers are seeking newer units with added features. In general, the higher priced units in Greater Moncton tend to be those most recently added to the local rental universe since they generally provide more value added items to consumers. In 2008, the vacancy rate for units where rent exceeded $800 declined to 0.7 per cent from last year’s level of 1.4 per cent. Although these units represent a small part of the overall rental universe in the Moncton CMA, they tend to be absorbed quickly once available, as they generally offer additional amenities such as elevators, laundry hookups, additional storage space, and in some cases underground parking. These extra features have been particularly relevant for empty nesters and retirees who favor the maintenance free living of a rental unit, while wanting to maintain the large living space and amenities associated with a single family home.

Rent Increase Moderate in the Moncton CMA

Moishe Alexander says In 2008, the average rent in the Moncton CMA for all unit types was $626, up from last year’s average of $610. The average rent for two bedroom units, which account for approximately two thirds of the CMA’s total rental universe, went from $643 in 2007 to $656 in 2008. Also, as to be expected, the average rent was the highest in structures built after 2000, at $727 per month. With many renters seeking larger, quality built units with additional amenities, newer units are generally absorbed with minimal delay despite the premium on rent.

Within the CMA, Moncton City had the lowest average rent in 2008 at $625 while Dieppe City had the highest at $638. The Town of Riverview was near the midway point between its two neighboring communities at $630. Riverview also posted the largest year-over-year increase in average rent, with a $22 per month increase from last year’s level of $608. Last year, Riverview had more apartment starts than either Moncton City or Dieppe City. As a result, a larger number of new units were added to the rental universe in Riverview. Owing to a competitive marketplace, newly added units typically offer additional amenities to lure potential renters, applying upward pressure on rents. This phenomenon has contributed to the larger increase in the average rent in Riverview.  The health of the local housing market has also had an impact on overall rents in the Moncton CMA. To the end of October, single-detached housing starts, though lower than last year, remained high in historical terms.  During the same period, the resale market, which is not expected to match last year’s record setting performance, has performed beyond expectations, with a minimal decline in sales compared to last year to the end of October. Favorable conditions, for both purchase and new construction, combined with relatively stable mortgage rates, have helped fuel activity in both the new and existing home market. Consequently, the wide range of housing choices available to area residents has limited the increase in average rent to a modest 2.4 per cent in 2008 (the 2.4 per cent average rent increase is based on a fixed sample methodology).

Availability Rate Declines in 2008

Moishe Alexander says Based on the results from the 2008 Rental Market Survey, the availability rate in the Moncton CMA declined in 2008, with a significant drop from 5.7 per cent last year to 3.1 per cent in 2008. Within the CMA, the availability rate was comparable in both Moncton City and Dieppe City at 3.1 and 2.8 per cent, respectively.  Meanwhile, the availability rate in Riverview was slightly higher at 3.9 per cent.

Since many renters prefer a larger space, the majority of new units added to the rental universe tend to be two bedroom units. With fewer new one-bedroom units added to the rental universe, the availability rate for these units was lower in 2008, declining to 1.8 per cent from last year’s total of 5.4 per cent. For two bedroom units, the availability rate was also lower, with a moderate decline to 3.5 per cent in 2008 compared to 5.7 per cent last year.

Rental Affordability Indicator

Moishe Alexander says CMHC recently introduced a rental affordability indicator for major centres. However, the indicator is not available for the Moncton CMA due to a lack of required data for that centre.

Rental Market Outlook

Vacancy Rate to Decrease Moderately in 2009

Moishe Alexander says Last year, the vacancy rate in the Moncton CMA declined following an upward trend that dated back to 2001. In 2008, the downward trend has been maintained with a further decline in the area’s overall vacancy rate. Although apartment starts in recent years have remained at historically high levels, they have nonetheless been significantly lower than the peak years of 2002 and 2003. Despite the steady construction activity, the vacancy rate dropped to 2.4 per cent in 2008 as demand, bolstered by positive in-migration, outpaced the increase in supply. Apartment starts are not expected to surpass last year’s total in 2008 and will likely post a modest decline this year and a further decline in 2009. Although employment in Greater Moncton has been at record high levels, inmigration is not expected to show significant growth next year. As a result, demand for rental units will likely remain stable over the course of the next 12 months. With fewer apartment starts and resilient demand for rental units, expect the overall vacancy rate to be between 2.0 and 2.5 per cent by the fall of 2009. Meanwhile, expect an average rent increase between 2.3 and 2.8 per cent.

You can find the entire report in PDF format through the following link:
http://www.cmhc-schl.gc.ca/odpub/esub/64407/64407_2008_A01.pdf

Moishe Alexander’s Review

Highlights

Moishe Alexander says Kingston’s vacancy rate for apartment buildings with at least three units dropped from 3.2 per cent in 2007 to 1.3 per in 2008. As a result the local rate is now at its lowest level since 2002, when the rate was 0.9 per cent. The matched sample average rent for two bedroom apartments in existing structures in Kingston was up 3.1 per cent from last year. Cost gap between owning and renting has widened and along with economic uncertainty is contributing to lower vacancies.

Kingston’s Vacancy Rate Posts Largest Decline Among Ontario Centres

Moishe Alexander says According to the biannual rental market survey conducted in October 2008 by Canada Mortgage and Housing Corporation (CMHC), the Kingston Census Metropolitan Area (CMA) average vacancy rate in privately initiated rental apartments with three or more units dropped from 3.2 per cent in 2007 to 1.3 per cent in 2008. As a result, the local rate is now the lowest vacancy rate since 2002 when the rate was 0.9 per cent.  Of the 15 CMAs surveyed in Ontario, Kingston had the third lowest vacancy rate behind Greater Sudbury (0.9 per cent) and Barrie (1.2 per cent). This tightening rental market in Kingston is primarily due to the fact that while demand has been increasing, the supply of rental units has remained relatively flat.  There was no new rental construction in Kingston this year.

A number of factors have increased rental demand putting downward pressure on vacancy rates. First, according to recent surveys conducted by CMHC on homebuying intentions, fewer renter households have been in the market planning a home purchase in recent years. This story was supported by lower ownership sales in Kingston throughout 2008. In essence, the weaker local economy in Kingston has slowed the movement of renters into homeownership market. In fact, healthy job growth in the lower paying service employment sector helped support demand for rental accommodation.  Generally, lower earning households possess a weaker financial capacity to successfully generate downpayment for a new home.  Another factor is increasing enrolment at both Queen’s University and St. Lawrence College, as students are traditionally a strong driver of rental demand. On the supply side, between January and October 2008, there were only 54 rental units absorbed into the Kingston rental market, down from the 155 units recorded during the same period last year.

Downtown Vacancy Rate Declines

Moishe Alexander says The areas of “old” Kingston (Zone 1) registered the second lowest vacancy rate in 2008, indicating that apartments remain harder to find in the core than in the suburbs. The average vacancy rate in the down-town area dropped from 4.3 per cent in 2007 to 1.2 per cent in 2008.  During the second half of 2008, fulltime employment among youth has been particularly strong. Generally, the youth population tends to occupy entry-level rental accommodation typically closer to shops and schools. Therefore, the decline in vacancies in downtown Kingston, particularly among older rental units (built between 1960 and 1974) and less expensive rental units, is evidence of vibrant youth-driven demand in this zone.

In Zone 2 (which encompasses Polson Park, Calvin Park and Portsmouth Village) the vacancy rate retreated again to 0.9 per cent, down 0.4 percentage points from the previous year. For two consecutive years, this zone has registered the lowest average vacancy rate across the entire Kingston CMA.

Meanwhile, in suburban Zone 3 (Kingscourt, Rideau Heights, Glenarden, and Strathcona Park) the vacancy rate declined 1.6 percentage points to 1.7 per cent from October 2007. A similar drop in average vacancy rate occurred in Zone 4 where the rate fell from 4.4 per cent in 2007 to 1.9 per cent in 2008.

High-End Rental Units Becoming More Popular

Moishe Alexander says An emerging trend in the Kingston CMA rental market is the declining vacancy rates at high-end rental units.

The lower priced units recorded the highest vacancy rates in the CMA.  With strong overall employment growth year-to-date, renters in October showed higher preference for affluent rental units. Furthermore, the proximity to public services tends to support the demand for these up-scale rental units.

Kingston’s Average Rents Trending Up

Moishe Alexander says Tighter Rental Market Conditions translated into average rent increases of between 1.9 and 3.5 per cent across all bedroom types and zones.  This was different from last year’s experience, when some areas recorded small declines. Hence, the average rent for a two-bedroom apartment in existing structures increased by 3.1 per cent, well above the 2.6 per cent increase in the overall cost of living index.

Interestingly, however, the October 2008 survey shows both the rent increases and vacancy rates in Kingston exhibited similar trend among all the zones. Although the area of Zone 4 remains home to the highest rents, there appears little difference between the downtown and outlying areas.

Rental Market Outlook

Moishe Alexander says As a result of increased concern among potential first time home buyers about the Canadian economic outlook, coupled with no new additions of purposed built rental stock , the apartment vacancy rate in Kingston is expected to remain relatively low at 1.5 per cent in October 2009. The average two-bedroom rent is projected to advance by 2.8 per cent. Although an overall slow job market is anticipated for 2009, job creation among the lower paying sectors will remain strong and contribute to additional tightness in the rental market.

You can find the entire report in PDF format through the following link:
http://www.cmhc-schl.gc.ca/odpub/esub/64671/64671_2008_A01.pdf

Moishe Alexander’s Review

Highlights

Moishe Alexander says The average vacancy rate in the Kitchener CMA moved lower to 1.8 per cent. In the Guelph CMA, the average vacancy rate moved higher to 2.3 per cent. A number of factors which include a younger population, immigration, employment and less movement of renters to homeownership contributed to the change in rental demand. Rental housing demand will increase slightly in 2009. The vacancy rate will edge lower to 1.6 per cent in the Kitchener CMA and to two per cent in the Guelph CMA.

Minimal Changes in Rental Demand in Kitchener and Guelph

Vacancy Rate Lower in Kitchener/Higher in Guelph

Moishe Alexander says Demand for rental apartments in the Kitchener and Guelph CMAs moved in opposite directions. A small increase in demand contributed to a decline in the average vacancy rate for privately initiated rental apartments in the Kitchener CMA to 1.8 per cent from 2.7 per cent in 2007.  In the Guelph CMA, demand eased and the vacancy rate increased to 2.3 per cent from 1.9 per cent last year.  Although higher, the vacancy rate this year was still well below the levels seen in the five-year period between 2002 and 2006 when the vacancy rate averaged close to 3.3 per cent.
A number of factors, both demographic and economic, contributed to the changes in rental demand. In both Kitchener and Guelph, these factors include a younger population, strong immigration, youth employment, little employment growth and less movement of renters to homeownership.

Lower First-time Buyer Demand

Moishe Alexander says Many renter households took advantage of low mortgage rates throughout this decade and the longer amortization periods after 2006 and as a result, pent-up demand is largely satisfied and fewer renter households are planning to buy a home. House prices continue to rise and are discouraging some renter households from moving into homeownership. Some renter households may delay their home purchase as a consequence and remain in their rental accommodation for a longer period.

This lower first-time buyer demand is more pronounced in the Kitchener CMA as the difference between owning a home and renting an apartment is higher. In the Guelph CMA, steady job creation coupled with low borrowing costs enabled a lower but steady movement of first-time buyers into home ownership.

Population Characteristics Affect Demand

Moishe Alexander says A young population, a high level of immigration and declining household size contributed to the increased rental demand this year in the Kitchener CMA. These factors also kept demand in the Guelph CMA at a relatively strong level.

According to the 2006 Census, the Kitchener and Guelph CMAs have young populations compared to the Ontario average. Younger households are more likely to rent than older age groups. A large student population and a strong high-tech sector have contributed to the high youth presence and strong demand for rental housing. As well, many young people who gain full-time employment will move out of their parental home into rental accommodation. In the Kitchener CMA, while overall employment for those aged 15-24 has fallen, more than 1,200 full-time jobs in this age group have been created in the CMA in the last year encouraging youth household formation. In the Guelph CMA, while overall employment for those aged 15-24 has declined marginally, full-time jobs in this age group have fallen, limiting the formation of youth rental households.

In the 12 months ending June 30, 2007, more than 3,000 immigrants made their new home in the Kitchener CMA. Due to a high employment rate and relatively more affordable home prices and rents compared to the GTA, immigrants find the Kitchener CMA an attractive place to live. A large proportion of persons new to Canada will initially rent as it takes time to gain employment, establish a credit rating and save for a down payment.

Moishe Alexander says Smaller household size added to the demand for rental housing. According to the 2006 Census, one-person, lone-parent and couples without children households increased at a higher rate than couples with children households. A higher percentage of these smaller-sized households rent. The oldest baby-boomers are now in their sixties and many are looking to downsize. Renting is a viable option.

Resilient Local Economies

Moishe Alexander says The local area economies have remained resilient despite uncertainty in global financial markets and a weak US economy.

Although job growth has slowed in the Kitchener CMA, employment has remained at a high level. Job uncertainty and less confidence in the economy have delayed some renter households’ decision to purchase a home. However, for the first three quarters of 2008, employment in the Kitchener CMA grew by 2.4 per cent compared to the same period in 2007. All of the job gains were in full-time employment. While the goods-producing sector continues to be a drag on the local economy, the services sector continues to add jobs.

In the Guelph CMA, employment has remained at a high level with job growth of more than six per cent in the first ten months of this year compared to the same period in 2007.  With strong job growth in the 25-44 and 45-64 age groups, some renter households in these age groups were able to purchase a home.

Condominium Apartment Completions

Moishe Alexander says Condominiums are a more affordable type of housing compared to single detached homes and are a viable alternative to renting for first-time buyers. More than 80 condominium apartments were completed in the Guelph CMA this year. First-time buyers and empty-nesters, who may otherwise have rented an apartment, are attracted to this type of ownership housing. In the Kitchener CMA, only 50 condominium apartments were completed in the same period.

Rent Growth Below Inflation

Moishe Alexander says The percentage change of average rent from fixed sample is 0.9 per cent for a two-bedroom apartment in the Kitchener CMA and 1.6 per cent in the Guelph CMA. This measure is strictly based on structures that were common to the survey sample for both the 2007 and 2008 surveys. For the Kitchener CMA, this increase was well below the Residential Tenancies Act (RTA) guideline for 2007 of 1.4 per cent.  As well, this increase was below the inflation rate. In the Guelph CMA this increase was slightly above the RTA guideline for 2007, but below the inflation rate.

Rental Supply Declines In Kitchener

Moishe Alexander says At 174, the number of purpose-built rental apartments completed in the Kitchener CMA since June 2007 was somewhat lower than usual. Over the last five years, the number of new rental apartments completed has averaged about 650 annually.  Despite this additional supply, the private rental apartment universe decreased by 184 units because some apartments were converted to other uses. With more than 800 rental apartments under construction currently, completions next year will be more in line with the longerterm average.

No purpose-built rental apartments were completed in the Guelph CMA since June 2007. As a result, the private rental apartment universe remained unchanged this year.

Low Vacancy Rates for One and Two-Bedroom Apartments

Moishe Alexander says The vacancy rate for all bedroom types of rental apartments decreased in the Kitchener CMA The majority of private rental apartments are one and two-bedroom units. These two unit types accounted for 93 per cent of the total apartment rental universe and have the lowest vacancy rate at 1.8 per cent. The one-bedroom apartment vacancy rate edged lower to 1.8 per cent from 2.2 per cent a year ago, while the two-bedroom apartment vacancy rate declined more significantly from 2.9 per cent to 1.8 per continent

Moishe Alexander says A more than 100 unit decline in the supply of two-bedroom apartments combined with increased rental demand pushed the vacancy rate down to this level, the lowest since 2001. The widening gap between the average principal and interest payment for a resale home and the average two-bedroom rent has impacted some renters’ interest in moving into homeownership. With the more diverse financing options available after 2006, many first-time buyers were able to enter the resale market earlier than would normally have been expected, resulting in lower demand for homeownership from current renters.

Affordability Indicator

Moishe Alexander says According to CMHC’s rental affordablility indicator, affordablility in Kitchener’s rental market increased this year. The rental affordability indicator in Kitchener stands at 108 for 2008, up from 101 in 2007. The 2007 indicator was the lowest level of affordability Kitchener has seen in the thirteen years for which the indicator is available. The rental affordability indicator is not available for Guelph due to a lack of required data for that centre.
Rental Market Outlook: 2009

Moishe Alexander says Rental housing demand will increase slightly in 2009. The vacancy rate will edge lower to 1.6 per cent in the Kitchener CMA and to two per cent in the Guelph CMA. In the Kitchener CMA, demand for rental accommodation in 2009 will be boosted by immigration, rental household growth and little movement into homeownership. Migrants will continue to be attracted to the CMA due to its relatively stronger economy compared to other Ontario CMAs.

On balance, population will increase by 2,500 next year due to international migration. Immigrants represent more than 50 per cent of the net population increase due to migration. They tend to rent when they first move to Canada. Due to the expected lower job growth and uncertain economic conditions, more renter households will delay their plans to move into homeownership.  Although the gap between average rent and average mortgage carrying cost will narrow somewhat in 2009, the number of rental households will continue to grow. In the Kitchener CMA, with few new condominium apartments being built, younger, downsizing and aging households have little alternative but to rent.  On the supply side, with more than 800 rental apartments under construction in the Kitchener CMA, rental completions will be more in line with the historical average in 2009. This increased supply will partially offset the higher demand.  In the Guelph CMA, although 177 rental apartments are currently under construction, no new rental apartments will be completed by next October. With higher demand and no new supply, the rental market will tighten. On the other hand, with more new condominium apartment completions next year, some renter households will be able to move to ownership housing in this more affordable type of housing. As well, due to less than optimistic job prospects, some youth will remain in their parental home longer.

Moishe Alexander says With the vacancy rate in both CMAs expected to be below its 20-year average in 2009, there will be slightly more room to raise rents. In both CMAs, rent increases in 2009 will be in line with the Residential Tenancies Act guideline for occupied units of 1.8 per cent.

You can find the entire report in PDF format through the following link:
http://www.cmhc-schl.gc.ca/odpub/esub/64399/64399_2008_A01.pdf

Moishe Alexander’s Review

Single-Detached Starts Remain Resilient in 2008

Moishe Alexander says Single-detached starts should remain relatively flat over the next two years as gains in Kingston City are expected to offset weaknesses in South Frontenac Township. Therefore, construction for this type of dwelling is forecast to reach 570 units in 2008, close to the 600 units recorded in 2007. Year-to-date single starts have exceeded last year’s levels. But in the months ahead, construction activity will moderate amid growing concerns about the economic and job market conditions in Canada.

Next year, however, single-detached starts will ease further by nine per cent to 520 units, as builders react to rising new home inventories and sustained competition from the existing homes market. The recent surge in new listings provides more choice in the market-place and will snare many first-time home buyers away from the new homes market.  Nevertheless, the high end and custom design single-detached homes will maintain market shares as some baby boomers look to build their dream homes. This will help sustain single starts in the coming years.

New Semi-Detached and Row Units Gaining Ground

Moishe Alexander says While single-detached homes are most popular among home buyers in Kingston, many first-time buyers will more likely have to settle for semidetached, since the average prices of new single-detached homes across Kingston appear beyond the reach of less affluent households. As a result, semi-detached starts are predicted to reach 40 units this year over the 16 units posted in 2007. In 2009, however, starts for this type of dwellings are anticipated to decline slightly as the economy slowly recovers.

Meanwhile, row starts will retreat to 25 units in 2008 before climbing to 60 units in 2009. In general, slow economic and job market activity will translate into a shift in consumer demand away from single detached homes to less expensive townhomes and semis.

Expect Low Apartment Starts to Pull Down Total Starts

Moishe Alexander says New apartment starts are expected to fall this year and next. Construction has been inactive year-to-date as the market continues to absorb the high influx of new rental units that were started over the past two years. In addition, weak youth employment growth, low international migration combined with high vacancy rate point toward a decrease in new apartment starts in the next two years.

Although gradual and in line with demographic changes, the decline in apartment starts will prompt total housing starts to moderate from 880 units in 2007 to 635 in 2008 and further to 610 in 2009. In addition, negative net migration in the Kingston CMA is predicted as high youth unemployment encourages many young adults to leave the Kingston area for the bigger cities.  According to its recent publication, Statistics Canada reported that 9.1 per cent and 8.6 per cent of Kingstonians left the Kingston CMA for Montreal and Edmonton respectively – between 2001 and 2006.

Resale Market

Resale Transactions to Mirror Record Set in 2006

Moishe Alexander says Sales of existing homes through the Multiple Listing Service® (MLS) are forecast to ease by 3.9 per cent this year compared to last year’s record level, and then ease an additional 0.8 per cent in 2009.

Despite the moderation in MLS sales, our resale forecast for the next two years suggest more activity than the level recorded in 2006 – which was considered a strong year for existing home market activity. In addition to healthy full-time employment growth, the strong real income gains – as measured by the average weekly earnings – will help sustain the resale market.

More Balanced Market Conditions Will Slow Price Growth

Moishe Alexander says There has been strong price growth in the resale market in recent years, especially during the 2003 to 2005 period when the market saw a double digit increase. With moderating sales activity coupled with an increasing supply of new listings, price increases will not be as brisk in 2009. However, average MLS price increase will remain strong at 4.6 per cent in 2008 before dropping to 1.9 per cent in 2009.

As a leading predictor of future average MLS price increases, the current sales-to-new listings ratio is pointing toward a more balanced market condition in the entire Kingston CMA. Since 2000 the salesto-new listings ratio has been held firmly in the sellers’ territory. However, toward the end of 2008 we anticipate new listings to reach a record high of 6985 units, pulling down the sales-to-new listings ratio to 0.51 from 0.56 in 2007.

A drop in the ratio generally means a slow average MLS price increase ahead – which is in conformity with our forecast for 2008 and 2009.

The Economy

Employment Growth Is Brighter in 2009

Moishe Alexander says Employment growth in Kingston is forecast to slow to 0.6 per cent in 2008, as further manufacturing and accommodation job losses are combined with declining retail trade sector activity. However, the em-ployment outlook is slightly brighter in 2009 for two main reasons. First, both the health care and public administration sectors will boost overall labour market activity and, second, the manufacturing sector will finally begin a gradual recovery due to strengthening U.S. dollar visà-vis the Canadian dollar. The number of people employed in 2009 is expected to increase by 0.9 per cent.

A diversified economy and the expected decline in the Canadian dollar will help protect Kingston from a deep economic slowdown.  Continued economic growth will translate into job gains for Kingstonians and relatively low unemployment rate. Due to the aging population, a shortage of skilled labour in key industries will put upward pressure on wages. The resulting wage gains coupled with declining mortgage rates should have a positive impact on the demand for both existing and new homes.

Construction Sector Growth Solid

Moishe Alexander says Construction sector employment is expected to finish 2008 with positive job gains of 13 per cent. However, growth will be held back in 2009 almost entirely from the residential sector, as the housing market cools off.

Moreover, non-residential investment remains strong due in part to several ongoing projects. For instance, the phase 1 of the $230 million Queen’s Centre construction is still underway and is scheduled for completion in September of 2009.  Notwithstanding the gains from nonresidential activity, the construction sector suffered a setback as a result of the decision to postpone the opening of the Ethanol plant in Kingston later this year. The West Kingston Ethanol plant is not anticipated to open but until the spring of 2010.

Mortgage Rates

Moishe Alexander says Mortgage rates are expected to be relatively stable throughout the last quarter of this year, remaining within 25-50 basis points of their current levels. Posted mortgage rates will decrease slightly in the first half of 2009 as the cost of credit to financial institutions eases. Rising bond yields, however, will nudge mortgage rates marginally higher in the latter half 2009. For the last quarter of 2008 and in 2009, the one year posted mortgage rate will be in the 6.00-6.75 per cent range, while three and five year posted mortgage rates are forecast to be in the 6.50-7.25 per cent range.

You can find the entire report in PDF format through the following link:
http://www.cmhc-schl.gc.ca/odpub/esub/64335/64335_2008_B02.pdf

Moishe Alexander’s Review:

New Home Market

New Construction Set to Slow by 5.5 Per Cent

Ottawa - Credit Abdullahh, Flickr Creative Commons

Moishe Alexander says the new home market is well set to finish the year up by 5.3 per cent from 2007, with a total of 6,850 new starts. This healthy number of starts constitutes the third highest annual record in the past 20 years. Even as the fourth quarter activity slows down, 2008 will end on a strong note. As Ottawa’s economy reacts to the current slowdown, it will prove difficult to maintain such record levels of new construction. Much like in the resale market, the new housing market faced recently a turning point toward slower growth and 6,000 new properties are expected to be built in 2009, down 12 per cent from 2008. The demographic trends in the next ten years are pointing towards slower housing demand numbers, which will run at an average of 5,300 new starts per year. New construction in the last years has been running above household formation as a result of replenishment of the existing stock.

Single-Detached Dwellings Trending Lower

Moishe Alexander says while still strong, the single-detached segment went from representing almost 64 per cent of total starts in 1999 to accounting for just over 45 per cent in 2007. Converging to a projected long term starts shares trend of 40 per cent for single-detached and 60 per cent for other type of dwellings, they are expected to close 2008 with 2,920 new properties built, down only 1.8 per cent from last year. Single-detached starts will likely finish 2009 on a weaker note with 2,350 new units. The growth in price for a new single family home in 2009 will slow to reach $417,500 or a 1.2 per cent increase.

Construction Flourishing in the Outskirts

Moishe Alexander says the top three urban neighborhoods where new construction has year-to date been particularly active are Nepean, Cumberland, and Kanata, where town home construction represented over 40 per cent of the total of new units and single-detached starts covered another 40 per cent.  Of the total new single-detached dwellings built in the Ottawa CMA over 85 per cent broke ground outside the Greenbelt area.

As the Queen City’s housing market grows, new construction of single family homes and town homes will flourish largely in newer areas outside of the Greenbelt. The rapidly increasing numbers of settled immigrants prefer the more affordable dwellings located in the outskirts of the City, even if that means longer commuting times.

New town home construction will add 2,200 new properties to the new home market, the third highest level in 30 years. there will be a decline in new town home construction in 2009 to 2,050 units. Nonetheless, this type of dwelling will lead the growth in new construction in our Nation’s Capital City.

High-Density Construction Will Be Favoured

Moishe Alexander says both economic and demographic trends have been supporting the growing popularity of apartments in Ottawa. On the one hand, the higher price of land at the City’s Core will sustain greater intensification apartment building projects. On the other hand, the expanding pool of young professionals and retiring baby-boomers favours the convenience offered by owning or renting a condominium apartment. Responding to these factors, this year will close with higher levels of condominium construction located at or close to the Downtown Core.

The outlook for new construction of apartments looks very promising. By the end of 2008, new apartment starts will reach the second highest level since 1992 with 1,500 new units built. Looking forward into 2009, new apartment construction will close with 1,400 new dwellings.

Rental Market

Slowdown in Vacancy Rate in 2009

Moishe Alexander says although there is a high demand for Rental Apartment units not only by young adults and financially weaker households, but also by newly arrived immigrants, new rental construction has accounted for less than 3 per cent of the total construction in the last five years.
As Ottawa receives on average around 6,000 new immigrants every year, strong demand for more rental units combined with a slowdown in inventory build-up will lead to a tighter Rental Market. It should be noted that condominium apartments do represent a source of rental supply as investors lease up their units. CMHC’s condo rental survey revealed almost 20 per cent of the almost 20,000 condominium apartment’s universe was rented out in 2007. In addition, the Secondary Rental Market survey conducted last year revealed a significant 4 per cent of the total population of Ottawa renting a dwelling as a secondary household.

Nevertheless, in the next years Ottawa’s Rental Market will be facing additional demand. Home price gains will deter first time home buyers from jumping into the homeownership market, pushing the vacancy rate further down to 1.9 per cent in 2008 and to 1.6 per cent for 2009. Even if there was a higher amount of new rental construction in the near future, it would take it a couple of years to enter the Rental Market.

The average rent for a two bedroom apartment will sit at $980 per month in 2008, up 2 per cent from last year, and will finally reach the $1,000 mark in 2009. Nonetheless, rental affordability has remained healthy and improving since 2006, supporting future rental demand.

Resale Market

Resale Market Trending Towards Balance

Moishe Alexander says after a slow first quarter, impressive resale activity this year in the Ottawa CMA offers further evidence of the local economy’s remarkable resilience to the wider economic uncertainty.  Recent activity is nonetheless leading Ottawa’s housing market towards slower, calmer waters in what constitutes a clear shift from recent growth trends to more sustainable levels.
The total number of resale transactions will retreat by 5 per cent in 2008 to finish with 14,000 transactions.  Such performance is still healthy by historical standards representing the second highest number of sales on record and exceeding by 4.8 per cent the average annual sales levels achieved since the turn of the century.

As Ottawa’s resale market adjusts to the current economic slowdown, the number of transactions in 2009 is anticipated to step back yet again but by a milder 4 per cent to a total of 13,400, thus gradually stabilizing sales activity along a more sustainable long term trend.
Market Trending Towards Balanced Territory

Moishe Alexander says the supply side of the Resale Market, new Listings, rebounded strongly during the second quarter of 2008 and is expected to close the year at a 4 per cent year-over-year increase.  Although a robust increase, resale volume will increase at a healthier pace this year; therefore, sustaining the existing home market in sellers’ territory.

Looking forward into 2009, it is anticipated that the Capital City’s resale market will trend towards a Balanced Territory. With the slight softening of demand and new listings remaining at a healthy level, the Sales to New Listings ratio will fall below the 55 per cent mark. Consequently, resale market conditions will support price increases at approximately the inflation rate.

Average Price Growth Rising Moderately

Moishe Alexander says consistent with a slower progression of average home prices, the average MLS price for residential properties in Ottawa will close 2008 at $288,500, or 5.7 per cent higher than last year. While the Capital City’s housing market adjusts further to the slowing economy, the average resale price will grow by a more moderate 3.6 per cent, reaching almost the $300,000 mark.

The Downtown Core Along with the Outskirts Remain Popular

Moishe Alexander says amid the uncertain prospects of a slower economy, the Core remains strong, complemented by healthy and fast-developing neighborhoods in the Queen City’s outskirts. This trend will continue as the rapidly retiring baby-boomers and young professional’s preferences are better by the convenience of living within closer proximity to the Core.  Accordingly, the price for existing homes in the Downtown Core will increase by over 9 per cent in 2008.  Notwithstanding the widespread year-to-date price gains observed, the increasingly popular neighborhoods of Orleans and Barrhaven have stood out in 2008.  These regions achieved a better position not only by appreciating faster than the average price wise but also in sales as well. Looking into next year’s trends, Ottawa’s outskirts will remain strong as these areas are newer and less expensive than the average in the Capital of Canada.

Economic Overview

Strong Public Sector Sustaining Ottawa’s Economy

Moishe Alexander says Ottawa’s employment growth is expected to finish 2008 on a strong note, increasing by 2.3 per cent over 2007, with an average of 498 thousand people employed. The Capital City’s economy will see a more modest pace of growth in labour market performance of 0.8 per cent, reaching an average of just over 500 thousand people employed in 2009.  While the Canadian economy decelerates, the Queen City has defied both national and provincial trends.  This is mostly due to a large and expanding Public Administration sector, which has more than compensated for the losses in the Manufacturing, Construction and Transportation sectors.

The Service sector, which constitutes almost 50 per cent of total employment, will grow by 4 per cent in 2008. Next year it is anticipated that the rate of growth of this sector will moderate for the whole province, as well as for Ottawa, as a result of a moderation in consumer spending.

Average Weekly Earnings Supporting Housing Demand

Moishe Alexander says the labour force growth in Ottawa is expected to slow down from a fast rate of 2.1 per cent in 2008 to a more sustainable 1 per cent growth in 2009. As the effects of the decelerating economy start to be felt next year, employment opportunities will grow at a slower rate than that of people looking for a job. Consequently, unemployment rate will stay tight increasing marginally to 5.1 per cent in 2009. Average weekly earnings will close this year 5 per cent higher than in 2007, while 2009 will see a more conventional, yet still remarkable, 3 per cent growth in average labour income. This high level of earnings is the backbone of healthy economic activity that is supporting our City’s housing market.

Migration Increasing into Ottawa-Gatineau

Moishe Alexander says with a population of almost 900,000 individuals in Ottawa and more than quarter million in Gatineau, the region posted an increase in migration last year with over 8,500 more individuals.  As Canada’s High Tech Capital, Ottawa’s workforce enjoys one of the highest incomes in Canada. This factor, along with its healthy level of employment, will help support increased migration into 2009.

Mortgage Rates

Moishe Alexander says Mortgage rates are expected to be relatively stable throughout the last quarter of this year, remaining within 25-50 basis points of their current levels. Posted mortgage rates will decrease slightly in the first half of 2009 as the cost of credit to financial institutions eases. Rising bond yields, however, will nudge mortgage rates marginally higher in the latter half 2009. For the last quarter of 2008 and in 2009, the one year posted mortgage rate will be in the 6.00-6.75 per cent range, while three and five year posted mortgage rates are forecast to be in the 6.50-7.25 per cent range.

You can find the entire report in PDF format through the following link:
http://www.cmhc-schl.gc.ca/odpub/esub/64311/64311_2008_B02.pdf

Moishe Alexander’s Review:

Housing Market Starting to Ease

Canada - Credit Rick Harris, Flickr Creative Commons

Housing starts: The multi-family sector will keep residential construction strong this year despite a slow down in single-detached activity.  Housing starts this year will remain above the 200,000 unit mark for a seventh consecutive year before dipping to 177,975 units in 2009.

Resales: Rising house prices in recent years have cooled resale activity. Sales of existing homes through the Multiple Listing Service®1 (MLS®) are forecast to fall 13.6 per cent this year compared to last year’s record level, then ease an additional 4.2 per cent in 2009.

Resale prices: Record levels of new listings this year have reduced the upward price pressures that prevailed over the previous six years. As sales of existing homes moderate and new listing continue to increase, the average MLS® price growth this year is expected to ease to 0.3 per cent and 0.1 per cent increase in 2009.

Saskatchewan: The natural resource sector will sustain economic growth in Saskatchewan. Net migration turned positive in 2007, after 22 years of negative net flows. The economy and shift in migration are key factors driving provincial housing starts in 2009.

British Columbia: Economic expansion and job creation will outperform the national average both this year and next. Despite the province’s growing population and job numbers, a well-supplied resale home market will offer more choice to home shoppers and moderate new home demand. By 2009, housing starts will have moved back toward their long term average.
National Housing Outlook:

In Detail

Moishe Alexander says Housing starts this year will remain above the 200,000 unit mark for a seventh consecutive year as slowing construction of single-detached homes is partially offset by growth in multiples. Housing starts will fall 7.1 per cent to 212,188 units in 2008, then dip an additional 16.1 per cent to 177,975 units in 2009. Even with the slow down, new home construction in 2008-2009 will remain strong in a historical context.
The new home market is moderating due to three key factors. First, strong house price growth over the last six years has tempered home ownership demand particularly in Western Canada. Second, the record high levels of new listings has increased the competition from the existing home market and reduced spillover demand.  Third, pent-up demand that built up during the 1990s is nearly exhausted and new home construction will become more aligned with long run demographic demand.
Housing starts will moderate in seven of the ten provinces in 2008, particularly in Western Canada. In Alberta, housing starts are expected to decline by a third compared to the previous year and be more in line with activity in 2001. Higher housing starts this year in Ontario, Saskatchewan and Newfoundland will partially offset the moderating pace in the other seven provinces.
As for 2009, national housing starts are forecast to dip below the 200,000 unit mark.

Higher prices moderate demand for single detached housing

Moishe Alexander says The rising house prices of previous years will moderate single-detached housing starts where activity is forecast to dip below the 100,000 unit mark. Single-detached starts will decrease 20.7 per cent to 94,263 units in 2008, then drop an additional 11.3 per cent to 83,600 units next year coming off of 10 years of high levels. For 2009, Alberta will post higher single-detached housing starts, increasing 3.4 per cent, while the remaining provinces will see singles move lower. In Saskatchewan, single starts are expected to fall 23.3 per cent next year, closer to the recent historical average. A slowdown in single-detached starts will also occur in Ontario, Prince Edward Island, Nova Scotia, Newfoundland, and New Brunswick. Modest decreases in single-detached activity are forecast in British Columbia, Manitoba, and Quebec in 2009.

Multi-family housing increases in popularity

Moishe Alexander says As house prices have moved higher, less expensive multi-family housing (row, semi-detached, and apartment units) has increased in popularity relative to single-detached housing.  This year and next will see multi-family housing starts out number singledetached activity for the first time since 1982. Furthermore, 2008 marks the fifth consecutive year in which multiple starts have surpassed the 100,000 unit mark. Multi-family housing starts are forecast to rise 7.8 per cent to 117,925 units this year, while they are forecast to drop by 20.0 per cent to 94,375 units in 2009. Apartment construction has been growing for 11 consecutive years since bottoming out at just over 23,000 starts in 1996. The resurgence in apartment construction has been pushing multiple starts higher in recent years. Apartment starts are expected to grow 18.1 per cent to 84,725 units in 2008 before declining 21.4 per cent to 66,550 units in 2009.

MLS® sales will ease

Moishe Alexander says Existing home sales activity will ease 13.6 per cent to 452,225 units this year and an additional 4.2 per cent to 433,375 units in 2009 as rising house prices cool home ownership demand.  While sales have been easing throughout the first half of this year, new listings have continued to rise into record territory. Thus, the strong seller’s market that has existed since 2002 have given way to balanced market conditions in most regions across Canada.

Resale markets move back into balance

Moishe Alexander says The strong sellers’ market conditions in recent years were reflected in strong upward pressure on the average price of homes, which increased in the 9 to 11 per cent range in each of the last six years. The first half of this year has seen an easing in MLS® sales and record high levels of new listings; this has brought balance back to the Canadian resale market.  More balanced markets combined with decreased sales activity in the provinces of British Columbia and Alberta, where the provincial average prices are significantly higher than the Canadian average, will cause growth in the average MLS® price to slow in 2008 and 2009.
As more new listings enter the resale market, and sales begin to ease, future price growth will be well below the price increases seen over the previous 6 years. For 2008 and 2009, the MLS® annual average price will rise 0.3 per cent to $306,500 in 2008 and 0.1 per cent to $306,700 in 2009.

Trends Impacting Housing:

Mortgage Rates

Moishe Alexander says The Bank of Canada has cut the Target for the Overnight Rate by a total of 225 basis points since December 2007, bringing the rate down to 2.25 per cent.
Mortgage rates are expected to be relatively stable throughout the last quarter of this year, remaining within 25-50 basis points of their current levels. Posted mortgage rates will decrease slightly in the first half of 2009 as the cost of credit to financial institutions eases. Rising bond yields, however, will nudge mortgage rates marginally higher in the latter half of 2009. For the last quarter of 2008 and in 2009, the one year posted mortgage rate will be in the 6.00-6.75 per cent range, while three and five year posted mortgage rates are forecast to be in the 6.50-7.25 per cent range.

Migration

Moishe Alexander says Net migration (immigration minus emigration) is forecast to increase by 9.2 per cent this year to just over 261,000 people, then remain essentially unchanged in 2009.  Historically high levels of migration will continue to support housing demand.  The majority of newly arrived immigrants initially settle in rental accommodations then move into home ownership over time. Net interprovincial migration to the West, coming at the expense of central Canada, will continue to boost housing demand in these provinces both this year and next.

Employment and Income

Moishe Alexander says Employment in Canada grew by nearly 194,000 people in the first three quarters of this year and was up 1.1 per cent on a year-over-year basis.  Although there is uncertainty, employment growth is expected to be in the 1.4 per cent to 1.8 per cent range this year and in the 0.5 per cent to 1.5 per cent range in 2009. Tight labour market conditions will continue to drive wages and incomes higher.

You can find the entire report in PDF format through the following link:
http://www.cmhc-schl.gc.ca/odpub/esub/61500/61500_2008_Q04.pdf

Moishe Alexander’s Review

Highlights

Charlotte, PEI - Credit dmealiffe, Flickr Creative Commons

Moishe Alexander says Charlottetown’s vacancy rate in the Fall of 2008 was 2.3 per cent, down from last year’s level of 4.3 per cent. The overall average rent increase in the Charlottetown CA was 2.2 per cent in 2008. Within the CA, the highest average rent was $637 in the Downtown area, while the peripheral area posted an average rent of $613.

Rental Market Survey:

Vacancy Rate Declines in October 2008

Moishe Alexander says the vacancy rate for apartment structures containing three or more units in the Charlottetown CA had risen for five consecutive years, after recording a historic low of 1.8 per cent in 2001. However, beginning last fall this trend was reversed. The momentum has carried through into 2008. In October 2008, the average vacancy rate was almost cut in half to 2.3 per cent, from 4.3 per cent during the same period last year. This trend indicates that the demand for rental accommodations remains healthy in the Capital Region. The October 2008 survey aggregated the rental information for 3,790 rental units in the Charlottetown area, which was essentially unchanged from the 2007 figure of 3,795 units. Of the 3,790 units surveyed, only 86 were vacant, compared to 163 vacant units during the same period last year. The 2008 survey revealed that vacancies among two-bedroom units, which make up the majority of the local rental universe, were down with only 54 vacant units, compared to 107 units last year. As a result, the vacancy rate for two bedroom units dropped to 2.2 per cent from 4.5 per cent last year. Among the other unit types the change was less dramatic. Three bedroom + units recorded the second largest variance, as the vacancy rate for these units fell from 6.5 per cent last year to 3.1 per cent in 2008.
With less than 90 new rental units eligible for the survey this fall, and only about 40 in 2007, a decline in the vacancy rate was anticipated. The reduced level of rental construction over the past two years was the result of a rising vacancy rate from 2001 to 2006. The reason for the aforementioned increase in the vacancy rate was that during this period over 450 rental units were completed in the Capital region. This represents a substantial increase in supply above the annual average of 70 rental starts. As a result of this increase in supply, the vacancy rate rose from the near record low of 1.8 per cent in 2001 to almost 5.0 per cent in the 2006 survey. Despite the decline in rental starts the development community has remained active during the past three years, building multiple unit projects targeted towards the homeownership market.
The most striking change in vacancy rate at the zone level was the fact that Zone 1 (the downtown core) posted a lower vacancy rate than Zone 2 (Peripheral). In recent years Zone 2 has posted a lower vacancy rate than the downtown area, due to limited rental stock in the area. Although the vacancy rate for the peripheral area of Charlottetown fell to 3.0 per cent from 3.9 per cent in 2007, it was not enough to match the decline posted in Zone 1. Zone 1 posted a vacancy rate of 1.9 per cent down from 4.5 per cent last year.

Average Rents Inch Higher in 2008

Moishe Alexander says overall, the average rent in Charlottetown was $629 per month in 2008. For the third year in a row, CMHC is measuring the change in rents for existing structures. Focusing on existing structures excludes the impact of new structures added to the rental universe between surveys and conversions and provides a better indication of the rent increase for existing structures. For the Charlottetown CA, the average rent for all bedroom types in existing structures increased by 2.2 per cent in October 2008 compared to a year ago. This year’s increase of 2.2 per cent is significantly more than the 1.0 per cent increase allowed by the Island Regulatory and Appeals Commission (IRAC), which manages residential rental increases on the Island. The most likely reason for the difference between the recorded and the allowable rental increase is the increased competition among tenants for the most desirable units. Now that all of the projects built over the past five years have been fully absorbed by the market, landlords will have little cause to offer rental incentives or rent reductions. Also, landlords will be looking to increase rents to make up for the high heating costs experienced in the 2007/2008 winter due to the rapid rise in the price of heating oil.
There was a fairly significant difference in the increase in two-bedroom rents recorded in Zone 1 (Downtown) compared to Zone 2 (Peripheral). In Zone 1, the average two-bedroom rent advanced by 4.9 per cent, while in Zone 2 the increase was a more moderate 0.6 per cent, as measured by the fixed sample.

Newest Rental Stock Now Fully Absorbed

Moishe Alexander says according to the 2008 survey, renters again showed a preference for the newer, high-end units. This trend continues to be the norm in most markets. For apartment units built after 2000, the vacancy rate was 0.3 per cent which is well below the overall average of 2.3 per cent. These new units continue to record the lowest vacancy rates despite the fact that they also command the highest average rents at $854 compared to the regional average of $629. It is also interesting to note that most of these new units although unheated, continue to command the highest rents.
Structures built before 1940 were the least popular of all units surveyed this year with a vacancy rate of 3.4 per cent. However, the rents that these units command places them in the third grouping below units built after 1990. These units are able to achieve higher rents than some newer units because the majority of these units are located in the Downtown Core, which continues to be a popular location with renters.
Most Expensive Rents Record Lowest Vacancy Rate

Moishe Alexander says when broken down into rent ranges, the October 2008 Survey showed that like the 2007 results, there was no obvious pattern. This varies from previous years where there was an inverse relationship between average monthly rent and vacancy rate. For the second year in a row, apartment units in the Capital Region that rented for between $700 and $799 per month had the lowest average vacancy rate at 0.9 per cent down from 2.5 per cent last year. It is interesting to note that the highest recorded rent range, $800+, posted the largest decline in vacancy rate, falling from 6.5 per cent last year to 1.7 per cent in 2008. The 2008 result is a more expected outcome, as traditionally the rental demand is strongest for the newest and most expensive apartment units. The vacancy rate for units in the $500-$599 range also posted a significant change, declining from 4.9 per cent last year to 2.3 per cent this year.

Largest Buildings Continue to Remain Popular with Renters

Moishe Alexander says according to the 2008 Rental Market Survey, the largest apartment buildings in the Charlottetown area command the highest average rents and enjoy lowest vacancy rates. In the October survey, apartment buildings in the Charlottetown area, with between 50 and 99 units posted the lowest vacancy rate at 0.4 per cent, which was well below the overall vacancy rate of 2.3 per cent. The second largest buildings in the area, ranging from 20 to 49 units, also fared well in this year’s survey with a vacancy rate of 0.6 per cent. The largest buildings also command a higher average rent than the smaller structures. Buildings with 50 to 99 units had an average rent of $725, while the smallest structures, those with three to five units recorded an average monthly rent of $583. The escalation of rents from smaller to larger buildings is logical given that more amenities are offered to tenants as the building size increases. These features such as elevators, underground parking and common rooms raise the operation costs for the landlord, which in turn are passed on to the tenants.

More Units Available

Moishe Alexander says in addition to the vacancy and rent data that is collected each year as part of the annual Rental Market Survey, landlords and property managers were asked about rental unit availability.  The apartment availability rate in Charlottetown declined this year to 4.0 per cent. This is 1.7 percentage points higher than the apartment vacancy rate. Availability rates by bedroom type are also higher than the vacancy rate with differences ranging from zero to 2.9 percentage points.

Homeownership Remains Attractive

Moishe Alexander says many factors have an impact on rental demand in any given market. This includes, but is not limited to employment growth, migration patterns, interest rates and shelter costs. Employment growth has posted a slight improvement from the 2007 level which is expected to continue to the end of the year. During the first three quarters of 2008, the increase in employment can be attributed mainly to the public service and finance/ insurance sectors. Employment in the construction sector started to decline in 2008 as numerous large non-residential projects came to an end. The main benefit of the elevated employment levels in the Captial Region is that it continues to be the most attractive job market in the province. This has lead to the continued trend of urbanization in the province, as Islanders continue to move to the capital region from more rural parts of the province. Positive net-migration has been one of the main factors contributing to the sustained demand for housing in the capital region. The results from Statistics Canada’s 2006 Census revealed that the Charlottetown CA recorded a population gain of almost 1,400 people or 2.4 per cent, from 2001 to 2006. In addition to the Census, Statistics Canada produces a series of data based on income tax returns (Tax Filer Data) that details the migration patterns by county on an annual basis. The results of this survey reveal that in any given year about 70 per cent of the people moving to the Capital Region are coming from elsewhere in the province. It also shows that of the remaining 30 per cent, the vast majority are coming from another major urban centre in Canada. These results seem to confirm that there are a number of ex-Islanders moving home to either retire or finish their careers. Another benefit this trend provides is that many of the people returning home are coming from much higher priced housing markets, which has resulted in the accumulation of equity. This provides a partial explanation for the increase in the new home price recorded over the past five years.

Interest rates having remained low over the past few years continued to remain fairly steady during the past year. While rates are expected to edge up slightly over the forecast period, this should not be enough to dissuade potential homebuyers.
The strong demand for all forms of housing over the past five years has pushed up the cost of single-detached homes much faster than average rents in Charlottetown. When the most recent expansion in the housing market began in 2001, there was a small difference between renting and owning in terms of monthly payment.  However, due to the aforementioned price increases, the gap between the two is now fairly substantial and as a result many renting households looking to purchase a home will find making the switch more difficult financially.

Vacancy Rates Expected to Decline

Moishe Alexander says as a result of lower levels of rental construction in 2008 and the recent uncertainty in the economic environment the average vacancy rate is expected to fall again in the 2009 survey. The average apartment vacancy rate is expected to decline to the 2.0 per cent range in October 2009, as in-migration continues and the level of new rental construction remains low.

Rental Market Forecast:

Rental Rates to Increase in 2009

Moishe Alexander says with declining levels of rental construction, continued in-migration and a larger than average allowable rent increase in 2009 expect to see an increase in the average rent next fall. The Island Regulatory and Appeals Commission (IRAC) has approved a 9.0 per cent allowable rent increase for heated units in 2009, and many landlords are expected to take advantage of this to make up for increased oil costs experienced during the 2007/2008 winter.  Although fewer new high-end rental units are expected to hit the market in the short-term, compared to the past five years, average rents are still forecast to advance by 4.5 to 5.0 per cent in 2009.

You can find the entire report in PDF format through the following link:
http://www.cmhc-schl.gc.ca/odpub/esub/64375/64375_2008_A01.pdf