Is No News, Good News?
Highlights from CMHC’s Annual Market Report

Article by Domenic Cosentino

I had the opportunity to attend the Canada Mortgage and Housing Corporation Rental Market Outlook Conference at The Old Mill Inn, in Toronto on January 23, 2008. This year's conference was hosted by the Federation of Rental-Housing Providers of Ontario (FRPO) and the Greater Toronto Apartment Association (GTAA). Our presenter was Ted Tsiakopoulos, a Regional Economist with CMHC. According to Ted, it seems that not much has changed from 2006 to 2007. Ontario vacancy rates have dropped from 3.4 per cent in 2006, to 3.3 per cent in 2007. Notably, vacancy rates have declined for bachelor and one bedroom apartments, while rising for three bedroom apartments.

Vacancy rates varied across the province, with most urban centres registering at or below last year's level. Vacancy rates dropped most in Thunder Bay, Guelph and Hamilton, while increasing the most in Windsor, Kingston and Brantford. Greater Sudbury has been experiencing a lower than average vacancy rate, due to the rise of commodity prices, which in turn has increased the mining activity and boosted employment growth and in-migration. Areas like Windsor, St. Catharines, Niagara, and Thunder Bay, which are goods producing centres are experiencing higher than average vacancy rates, due to the strong Canadian Dollar, and a slower US economic growth. Toronto, Ottawa and 
London have experienced no change in vacancy rates in 2007.

There are two main factors that equate to the decrease in vacancy rates for Ontario. First, young adults aged 24 and under, are typically more likely to rent, due to the fact that there is less of a financial resource available to them. Also, an increase in youth employment has sprouted in the services sector, which has increased the demand for apartment rentals in 2007. Secondly, there have been fewer completed condominiums in 2007, which relates to fewer renters vacating to occupy their new ownerships.

A factor relating to the increase in vacancy rates in some urban centres across the province is the demand for home ownership, which has increased significantly. With the option of having a longer amortization period on a mortgage, buyers can reduce their monthly mortgage payments, which can be a relative drop versus the costs of renting. Secondly, Ontario has seen less international migration over the past few years. Typically, a new immigrant will more likely rent upon arrival, which boosts the demand for rental accommodation.

Moving forward, there are some key indicators to look for. First, it looks that vacancy rates are to remain elevated and at a variable. Second, average rent growth should run shy of inflation. Third, a benefit to landlords is the rising costs of home ownership. And lastly, multi-residential investments yield a more stable and predictable return in the long run, than most other real estate investments.

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Domenic Cosentino
Skyview Realty Ltd, Brokerage

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