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

February 24, 2009 – Moishe Alexander’s review on how the current world economy and Canadian economic turndown is affecting the Windsor Rental Market

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

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Moishe Alexander’s review of the Regina CMA 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 Regina CMA Rental Market

Moishe Alexander’s Review

Highlights

Moishe Alexander says the average vacancy rate in Regina’s rental apartments was 0.5 per cent in October 2008, down from the 1.7 per cent in October 2007. Regina tied with Vancouver and Victoria for the second lowest vacancy rate in Canada. Average rent for all types of suites increased $87 monthly between surveys. One-bedroom suites increased $80 monthly and two-bedroom suites went up $95 monthly. Three-bedroom plus apartments increased $116 monthly. The average vacancy rate for Regina will increase to 1.2 per cent in 2009 as in-migration slows because of a slower increase in employment and rising rents.

NATIONAL VACANCY RATE DECREASED IN OCTOBER 2008

Moishe Alexander says The average rental apartment vacancy rate in Canada’s 34 major centres decreased to 2.2 per cent in October 2008 from 2.6 per cent in October 2007. The centres with the highest vacancy rates in 2008 were Windsor (14.6 per cent), St.  Catharines-Niagara (4.3 per cent), and Oshawa (4.2 per cent). On the other hand, the major urban centres with the lowest vacancy rates were Kelowna (0.3 per cent), Victoria (0.5 per cent), Vancouver (0.5 per cent), and Regina (0.5 per cent). Demand for rental housing in Canada increased due to high migration levels, youth employment growth, and the large gap between the cost of homeownership and renting. Rental construction and competition from the condominium market were not enough to offset growing rental demand. The highest average monthly rents for two-bedroom apartments in new and existing structures were in Calgary ($1,148), Vancouver ($1,123), Toronto ($1,095), and Edmonton ($1,034), followed by Ottawa ($995), Kelowna ($967), and Victoria ($965). The lowest average monthly rents for two-bedroom apartments in new and existing structures were in Trois-Rivières ($505), Saguenay ($518), and Sherbrooke ($543). Year-over-year comparison of rents in new and existing structures can be slightly misleading because rents in newly-built structures tend to be higher than in existing buildings. However, by excluding new structures, we can get a better indication of actual rent increases paid by most tenants. The average rent for two bedroom apartments in existing structures increased in all major centres. The largest rent increases in existing structures were recorded in Saskatoon (20.3 per cent), Regina (13.5 per cent), Edmonton (9.2 per cent), and Kelowna (8.4 per cent).  Overall, the average rent for twobedroom apartments in existing structures across Canada’s 34 major centres increased by 2.9 per cent between October 2007 and October 2008.
CMHC’s October 2008 Rental

Moishe Alexander says Market Survey also covers condominium apartments offered for rent in Calgary, Edmonton, Montréal, Ottawa, Québec, Regina, Saskatoon, Toronto, Vancouver, and Victoria. In 2008, vacancy rates for rental condominium apartments were below one per cent in four of the 10 centres surveyed. Rental condominium vacancy rates were the lowest in Regina, Toronto, Ottawa, and Vancouver. However, Calgary and Edmonton registered the highest vacancy rates for condominium apartments at 4.0 per cent and 3.4 per cent in 2008, respectively.  The survey showed that vacancy rates for rental condominium apartments in 2008 were lower than vacancy rates in the conventional rental market in Ottawa, Regina, Saskatoon, and Toronto. The highest average monthly rents for two bedroom condominium apartments were in Toronto ($1,625), Vancouver ($1,507), and Calgary ($1,293). All surveyed centres posted average monthly rents for two-bedroom condominium apartments that were higher than average monthly rents for two-bedroom private apartments in the conventional rental market in 2008.

REGINA RENTAL MARKET SURVEY

Regina average vacancy 0.5 percentage points

Moishe Alexander says Canada Mortgage and Housing Corporation (CMHC) conducted a rental market survey in October 2008 and found the average vacancy rate in Regina’s rental apartments was 0.5 per cent, down 1.2 percentage points from 1.7 per cent in the October 2007 survey. In comparison to other Census Metropolitan Areas, Regina tied with Vancouver and Victoria for the second lowest vacancy rate in Canada. The survey found that no more than 16 vacant suites existed in any rental survey zone. As a whole, the city and surrounding areas had 52 vacant suites in the survey universe at the time the rental market survey took place.

The decline in the average vacancy rate is attributable to increased inmigration stemming from positive job growth. The rising gap between the cost of home ownership and renting through 2007 and the early part of 2008 also kept demand strong for rental accommodation. Most survey zones recorded a decline in the vacancy rate with only the East and Northeast zones experiencing a slight increase in the rate. All survey zones recorded an average vacancy rate less than one per cent. The Central zone recorded a decline of 2.8 percentage points in the average vacancy rate, the largest decline seen in the city comparing the October 2007 results to the 2008 survey. The East and West zones tied for the highest vacancy rate of 0.8 per cent, though this represents less than 10 vacant suites in each of these zones.  The average vacancy rate is up slightly in the East zone and down 1.5 percentage points in the West. Regina South (Wascana and University) recorded an average rate of 0.1 per cent, the lowest average vacancy rate in the city. The survey found one vacant suite in a survey universe of over 1,000 suites. As the name suggests, projects in this zone benefit from the demand created by students attending the university and Saskatchewan Institute of Applied Science and Technology (SIAST). Employees of these two institutions also contribute to rental demand.

Among suite types, the October 2008 survey found that vacancy rates ranged from 0.3 per cent in one-bedroom suites and 1.2 per cent in bachelor and three-bedroom suites. The average vacancy rate is traditionally higher in bachelor suites, as they are less in demand due to their smaller size. One reason for the higher average vacancy for threebedroom suites may be that rent has increased to the point that some rental households have moved to ownership. Notwithstanding the increase in the average vacancy rate, vacant suites are still scarce for these three bedroom suite types.  The survey report features information on the availability of suites within a rental market. A rental unit is available if the unit is vacant, or the existing tenant has given or received official notice to move and a new tenant has not signed a lease. As the definition of availability includes vacant units, the availability rate will always be equal to or greater than the vacancy rate.  Results of the survey indicate that the availability rate was 1.2 per cent, 1.3 percentage points lower than the average availability rate reported in October 2007.

Average rents increase $87 monthly

Moishe Alexander says Average rent for all types of suites increased $87 monthly between survey periods. One-bedroom suites increased $80 resulting in average rent of $634 monthly. Two-bedroom suites escalated $95 to arrive at a monthly average rent of $756.  Three-bedroom plus apartments increased $116 monthly resulting in average monthly rent of $908. The higher than average increase in rent for three-bedroom plus suite types may have contributed to the increase in vacancy. Turning to individual zone results for all types of suites, the largest increase in nominal rent of $137 monthly occurred in East survey zone projects. This zone contains the smallest number of suites in the survey universe. Moreover, it features the largest number of three-bedroom suites, a rare housing form considered desirable by renters due to the size of these suites. These two factors have led to an increase in average rent and resulted in this zone recording the highest average rent for all types of suites.
Regina’s Northwest zone saw the highest average rent for onebedroom apartments at $749 monthly. Projects tend to be newer in this zone and command higher rents. Central Regina recorded the lowest average rent at $587.

Buildings in this zone tend to be older and the suites smaller than in other zones. Census data confirms that household income is the lowest in the city. These suites would appeal to one-person renter households suggesting that household income would be even lower than the average. This limits the potential for higher rental rates.

CMHC’s measure of estimating the growth in rents for a fixed sample of structures is based on structures common to the survey sample for both the 2007 and 2008 surveys.  The measure aims at better understanding rent changes in existing structures by excluding from the calculation the rents of newly built apartment buildings. The methodology section at the end of this report provides detailed information on this measure. For the Regina CMA, the year-over-year gain in average rent from the fixed sample is 13.8 per cent for all types of apartments in all zones. Both onebedroom suites and two-bedroom apartments experienced a 13.5 per cent gain.

Private rental market supply declines

Moishe Alexander says The attraction of homeownership relative to renting in recent years as well as other important factors has had the effect of reducing the size of Regina rental market. According to Census data, rental units declined as a proportion of total dwellings between 2001 and 2006. While the number of private dwellings increased by 4.7 per cent, the number of rental dwellings declined by 1.4 per cent. CMHC’s annual Rental Market Survey shows that the Regina privately initiated rental universe declined by 220 units between 2007 and 2008 because of rental unit conversion to condominiums, closure for renovations or demolition. Furthermore, there have been no additions to the private rental stock in the form of housing starts over the last year.

Rental Affordability Indicator

Moishe Alexander says According to CMHC’s rental affordability indicator, affordability in Regina’s rental market declined this year. The cost of renting a median priced two-bedroom apartment climbed 17 per cent in 2008, while the median income of renter households grew at 5.4 per cent.  The rental affordability indicator in Regina stands at 93 for 2008, the lowest level of affordability on record.

RENTAL MARKET OUTLOOK

Average vacancy rate to rise in 2009

Moishe Alexander says The average vacancy rate for Regina will increase to 1.2 per cent in 2009 as in-migration slows because of a slower increase in employment and rising rents. Renters are doubling up in order to compensate for rising rents thus contributing to the increase in vacancy. In addition, newer, investor-owned condominiums are drawing off demand from existing rental projects Furthermore, Regina’s resale market is experiencing an increase in supply and price increases have slowed. This situation should persist until late 2009 and will lead to more rental households moving to homeownership as the difference in cost between owning and renting slows its rate of increase. Average rents for two bedroom suites in the city will increase to $855 monthly in 2009 due to low vacancies. In addition, rents will increase to compensate for operating and maintenance cost increases experienced in previous years.

CONDOMINIUM AND OTHER SECONDARY RENTAL UNITS – SURVEY RESULTS

Moishe Alexander says Regina’s version of CMHC’s October Rental Market Survey, which covers private row and apartment structures with three or more units, now includes information on rental condominium apartments as well as other types of rental units in the secondary rental market. The additional information should help to provide a more complete overview of all rental markets in the Regina CMA. The methodology section at the end of this report provides more information on this Secondary Rental Market Survey.

Vacancy rate of rental condominium apartments similar to purpose built rental

Moishe Alexander says Table 4.3.1 provides information on the size of the condominium rental apartment market in Regina. Of the 2,590 condominium units sampled, 303 or 11.7 per cent were rental.  The average vacancy rate of 0.3 per cent in Regina’s rental condominium apartments was similar to the vacancy rate of 0.5 per cent for purpose – built rental. At this time, the size of the rental condominium apartment universe does not allow CMHC to determine the average rental rates for such units. The survey found 8,622 households in other secondary rental units of various forms including single and semi-detached, row and other accessory suites. Average rent for all of these types was $764. Average rent for row and semi-detached units was $768. Average rent for single-detached units was $779.

You can find the entire report in PDF format through the following link:
http://www.cmhc-schl.gc.ca/odpub/esub/64431/64431_2008_A01.pdf

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

February 24, 2009 — Moishe Alexander’s review on how the current world economy and Canadian economic turndown is affecting the Kingston Rental Market

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