by Cliff Ford
On January 24th, 2012, hundreds of individuals gathered for FRPO and GTAA’s Annual CMHC Rental Market Survey Breakfast. The presenters from CMHC, Ted Tsiakopoulos and Shaun Hildebrand, each took their turn drawing on information from the Fall 2011 Rental Market Report and expanding with future projections of where our industry may be heading. Some of the key highlights of their presentations included:
1) Economic Impact on Multi-Unit Residential Sector.
While the economy has taken a beating over the past few years, our industry has remained fairly stable. Ted Tsiakopoulos expanded on how these economic factors have helped to bolster the apartment rental industry. With the economic uncertainty witnessed in the global and Canadian market, multi-family investments remained a solid alternative to other popular options. Comparing residential-based investments to traditional investments, CMHC’s representatives assert that our industry has proved to be less volatile in the past few years than the stock market, gold, or bonds.
2) Ontario’s Rental Market Surpasses Expectations.
Over the past two years, despite increasing regulations and limited ability to increase rents, the apartment class of investments has beat the odds to remain one of the best investment opportunities available. What CMHC has found in recent history is that despite low rental increase guidelines, average rents in Ontario - and primarily in the GTA/Golden Horseshoe - have risen beyond the said guidelines and they are forecasting rents exceeding inflation in 2012. CMHC credits a limited supply of rental stock as well as a higher turnover rate for the increase in average rents.
In addition to higher rents, Ontario landlords are also experiencing lower vacancy rates than previous years. As an example, the City of Toronto has a vacancy rate of approximately 1.4% and CMHC believes it may remain at that level or decline slightly in 2012.
3) New Generation Emerge as Renters.
Both presenters at the CMHC breakfast indicated the key growth factor in our industry will be centered around people aged 25-34. Their statistics are showing that this age group, more than any other at this time, are choosing to be long-term renters. Some of the greatest growth in population over the next 5 years, especially in the GTA, will be from this age group. The difference between this generation and previous generations is the lack of options available for home ownership. This generation is experiencing slower job growth and therefore the costs of owning their own residence is becoming increasingly more difficult. The gap between their actual incomes and the amount required to buy has begun to flip on its axis. In the past few years, the actual income of a potential buyer was higher than what financial institutions would require in order to qualify for financing. CMHC is now suggesting that the required income has surpassed the actual income for many people aged 25-34. With consumer spending becoming more and more cautious, and salary requirements tightening, many people in this age range are opting out of home ownership and choosing the simple alternative of renting their accommodations long-term.
4) Where Do We Go From Here?
What does this mean for owners and potential investors of apartment buildings? There is still much optimism ahead for the multi-unit residential sector. With rents continuing to increase, vacancy rates remaining low or moving lower, a limited rental supply in the market, and a new and growing generation opting to rent vs. own, the signs all point to a strong future ahead for apartment building owners.
As we would all agree, there is no certainty in future forecasting, but the signs seem to indicate that over the next few years, the wise investor will look to multi-unit residential investments, versus other traditional means such as stocks and commodities, for more stable returns on their money.