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Moishe Alexander’s review of the Moncton Rental Market and CMHC Outlook Report Fall 2008

February 23, 2009 — Moishe Alexander’s review on how the current world economy and Canadian economic turndown is affecting the Moncton Rental Market

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