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Moishe Alexander’s review of the Saskatoon Rental Market and CMHC Outlook Report fall 2008

February 18, 2009 — Moishe Alexander’s review on how the current world economy and Canadian economic turndown is affecting the Saskatoon Rental Market

Moishe Alexander’s Review

Highlights

Saskatoon, Sask. - Credit Marbla123, Flickr Creative Commons

Moishe Alexander says the average vacancy rate in Saskatoon’s private apartment buildings with three or more units increased by 1.3 percentage points to 1.9 per cent in October 2008, up from 0.6 per cent in the 2007 survey. The average monthly rental rate for all types of suites surveyed in October 2008 saw a $129 increase from the October 2007 figure, reaching $761 monthly. Our forecast is for an increase in the average vacancy rate in 2009 to two per cent in October 2009. Expect an increase of $19 in 2009 bringing the average rent for a two-bedroom suite to $860.

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 twobedroom 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 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.

SASKATOON RENTAL MARKET SURVEY

Average vacancy rate in Saskatoon edges higher

Moishe Alexander says Canada Mortgage and Housing Corporation’s rental market survey found the average vacancy rate in Saskatoon’s private apartment buildings with three or more units increased by 1.3 percentage points to 1.9 per cent in October 2008, up from 0.6 per cent in the 2007 survey.

The increase in the average vacancy rate is attributable to the movement of first-time homebuyers to the new and resale ownership market.  Increased selection in the resale and new construction markets has facilitated this move to home ownership. Prospective first-time buyers in 2007 had faced a lack of selection in the resale market due to sellers’ or accelerating market conditions. Through much of 2007 there was less than three months of supply of listings in the resale market.

The number of active listings has increased throughout 2008. Newly constructed townhouses and other units purchased by investors for rental purposes have also provided additional competition for landlords.

This has provided renters with alternatives to the primary rental stock, further contributing to the rise in average vacancy in private apartments.
Lowest vacancy rate found in Lakeview

Moishe Alexander says the average vacancy rate for all types of suites was as high as 4.7 per cent in the Southwest survey zone and as low as 0.9 per cent in the Lakeview survey zone.

Average vacancy was one per cent or less in the Nutana and Lakeview survey zones reflecting, primarily, the desirable locations of these areas.  The neighborhoods in these areas are close to the University of Saskatchewan and have easy access to major employers.

The largest increase in the average vacancy rate occurred in the Southwest and North survey zones.  Historically, the Southwest zone has been the first to experience any general decline in rental demand.

According to Census data, neighborhoods within this zone have some of the oldest rental stock in the city and, though rents are lower than other survey zones,
renters are willing to pay a premium to move to other areas. Further, industry sources have advised that lower income individuals in this area are doubling-up in the face of rising rents.

The North is a desirable area for households finding employment in the many businesses in that sector of the city, yet the average vacancy rate increased by 2.8 percentage points since the 2007 survey.

Industry contacts inform us that many renter households have moved into homeownership or moved to investor-owned rental accommodation.

Looking at average vacancy rate by suite type, the survey found that all suite types, except bachelor suites, experienced similar average vacancy rates ranging from 1.7 per cent in three-bedroom and larger suites to 1.8 per cent for one and twobedroom suites. Bachelor suites saw an average vacancy rate of 2.3 per cent, 0.5 per percentage points higher than one and two-bedroom suites. The average vacancy rate is traditionally higher in bachelor suites.  Bachelor suites are less in demand due to their smaller size. Threebedroom suites are more popular, on average, because they are larger and make it easier to double-up comfortably, thus reducing the rent paid by each household.

Availability rate increases 1.4 percentage points

Moishe Alexander says the survey studied the availability of suites in the Saskatoon CMA in October. 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. Saskatoon rental apartments surveyed saw an increase in availability in this most recent survey. The availability rate in October 2008 was 3.2 per cent, up 1.4 percentage points from the 2007 survey.

Average rents increase $129 monthly

Moishe Alexander says the average monthly rental rate for all types of suites surveyed in October 2008 saw a $129 increase from the October 2007 figure, reaching $761 monthly. These increases have occurred because of the historically low average vacancy in 2007. Record net in-migration was a key factor behind the low vacancy rate in 2007. 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. Bachelor suites experienced an increase of $83 in the average monthly rent. One-bedroom suites in all zones saw their average monthly rent increase by $111 bringing them to $675 monthly.  Two-bedroom average rent grew by $148 to arrive at $841 per month.  The average rent for three-bedroom and larger suites in all zones jumped $128 to $860 monthly.

The largest increase of $158 monthly for all types of suites took place in the Lakeview survey zone.

The West and North zones experienced an increase of about $150 monthly. The Southwest survey zone saw the lowest rental increase of $100 monthly.
The survey zones with the highest monthly average rent for all types of suites were Lakeview and Northeast Saskatoon with average rents of $831 and $824 respectively. Rental housing in these neighborhoods are in high demand due to their close proximity to the University of Saskatchewan and major sources of employment.

Highest one-bedroom rents found in Central zone apartments

Moishe Alexander says at $732 monthly, the mainly highrise apartments of the Central zone featured the highest average rent for one-bedroom apartments. Two bedroom average monthly rent was highest in the Northeast zone with rent of $945 monthly. Average monthly rent of $1,163 for threebedroom suites in the Northeast zone was the highest rent found for this suite type. The lowest overall average rent was in Southwest Saskatoon at $630 monthly. One-bedroom, two bedroom and three-bedroom average monthly rents were the lowest in Saskatoon. As stated previously, the Southwest zone rental housing stock experiences lower demand due to its condition.  Tenants in these neighbourhoods are highly mobile and have lower incomes restricting rent increases, thus contributing to maintenance and quality issues. The October survey included a measure that estimates the growth in rents for a fixed sample of structures and excludes newly built properties. This measure considers structures that were common to the survey sample for both the 2007 and 2008 surveys. The aim is a better understanding of rent changes in existing structures by excluding from the calculation the rents of newly built apartment buildings. Detailed information is contained in the methodology section at the end of this report.

For the Saskatoon CMA, the percentage change of average rent within a fixed sample was close to 20 per cent for all types of suites in all survey zones. Two-bedroom apartment average rents in all areas of the Saskatoon CMA increased 20.3 per cent while the average rent for one-bedroom suites increased 19.4 per cent.

Private rental market supply declines

Moishe Alexander says the attraction of homeownership relative to renting in recent years as well as other important factors have had the effect of reducing the size of Saskatoon rental market stock. 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 2.5 per cent, the number of rental dwellings increased by 1.5 per cent. CMHC’s annual Rental Market Survey shows that the Saskatoon privately initiated rental universe declined by 601 units between 2007 and 2008 because of rental unit conversion to condominiums, closure for renovations or demolition. In addition, there were a number of projects converted to public housing. There have been no additions to the private rental stock in the form of housing starts over the last year although there have been some new public housing and senior’s units added.

Rental Affordability Indicator

Moishe Alexander says CMHC’s rental affordability indicator shows a decline in affordability of Saskatoon’s rental apartments. The cost of renting a median priced twobedroom apartment increased 26 per cent in 2008, while the median income of renter households grew at 5.7 per cent. The rental affordability indicator in Saskatoon stands at 92 for 2008.

RENTAL MARKET OUTLOOK

Vacancy rate forecast to increase in 2009

Moishe Alexander says CMHC is forecasting an increase in the average vacancy rate to two per cent in October 2009. Renters are doubling-up in order to compensate for rising rents thus contributing to the slight increase in vacancy. In addition, newer investorowned condominiums are drawing off demand from existing rental projects. Saskatoon’s resale market is softening and price increases have slowed. This should lead to more rental households moving to homeownership. Notwithstanding the influence of the above factors that will reduce demand, Saskatoon’s employment continues to grow encouraging inmigration and supporting rental demand. CMHC is forecasting employment gains of 2,300 jobs in 2008 followed by 1,800 in 2009.  These increases are considerably more subdued than the surge in employment seen in 2007 that saw 7,500 jobs created but the rental market will nonetheless benefit from this growth.

Rents rise at a slower pace in 2009

Moishe Alexander says competition from the home ownership market and condominium rental units will slow the pace of increase in average rents over the forecast period. Our forecast calls for an increase of $19 monthly in 2009, bringing the average rent for a two-bedroom suite to $860 by October 2009. The need to compensate for operating and maintenance cost increases experienced in previous years will be a factor behind the increase in average rents.

Condominium and other secondary rental units – Survey Results:

Moishe Alexander says the Saskatoon version of CMHC’s October Rental Market Survey, which covers private row and apartment structures with three or more units, now includes information on the secondary rental market. The additional information should help to provide a more complete overview of all rental markets in the Saskatoon CMA.

The survey considers the following types of units: rented single detached houses, rented double (semi-detached) houses, rented freehold row/town houses, rented duplex apartments, rented accessory apartments, and rented apartments that are part of a commercial or other type of structure containing one or two dwelling units. The methodology section at the end of this report provides more information on the Secondary Rental Market Survey.

The Province of Saskatchewan has recently initiated a program to encourage the creation of these types of units in private households.

Vacancy rate of rental condo apartments similar to purpose built rental

Moishe Alexander says table 4.3.1 provides information on the size of Saskatoon’s condominium rental apartment market. Of the 7,260 units condominium units sampled, 834 or 11.5 per cent were rental units. The average vacancy rate of 1.8 per cent in Saskatoon’s rental condominium apartments was similar to the vacancy rate of 1.9 per cent for purpose built rental apartments. 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 11,766 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 $888. Average rents varied from $869 for accessory suites and $895 for row and semi-detached units. Average rent for single detached units was $890.

You can find the entire report in PDF format through the following link:
http://www.cmhc-schl.gc.ca/odpub/esub/64443/64443_2008_A01.pdf

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Moishe Alexander’s review of the Charlottetown CA Rental Market and CMHC Outlook Report fall 2008

February 18, 2009 — Moishe Alexander’s review on how the current world economy and Canadian economic turndown is affecting the Charlottetown CA Rental Market

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