Rental vacancy rate drops to `catastrophic' 2.1% as home buyers wait out real estate market slump
December 12, 2008
Economic worries and a declining real estate market has some would-be home buyers staying put in rental housing, resulting in sharply declining rental apartment vacancy rates in Toronto.
The Canada Mortgage and Housing Corp. reported yesterday the city's vacancy rate fell to 2.1 per cent this year, compared with 3.2 per cent last year. The drop comes on the heels of a Bank of Canada warning yesterday that some Canadians may lose their homes if the economic crisis gets worse.
"Rising home ownership costs combined with growing economic uncertainty has dampened Ontario home buying activity during 2008, particularly among first-time buyers," said Ted Tsiakopoulos, CMHC regional economist.
Vacancy rates between 2 per cent and 3 per cent are considered to be a balanced market. With competition from newly built condos over the past several years, some landlords have had to renovate their buildings and offer incentives such as a free television to lure tenants.
But CMHC's latest data show the tighter rates are now moving firmly toward a landlord's market.
The cost of renting an average two-bedroom rose 1.7 per cent this year to $1,095, as more would-be buyers sought rental housing. The Toronto Real Estate Board reported last week sales of existing homes fell 50 per cent in November compared with a year ago.
Higher rents and tighter vacancy rates put more pressure on tenants, especially in an economic downturn, renter advocates says. Almost a third of all homes in Canada are rented with shelter costs the biggest expense for rental households.
"There has been a catastrophic drop in rental vacancy rates in the city of Toronto," said Michael Shapcott of the non-profit community research group the Wellesley Institute, who called on Ottawa to commit to targeting the affordable housing issue. "As the economic tsunami crashes over the country, the federal government needs to follow the lead of a growing number of countries around the world and include affordable housing investments as part of an economic stimulus package."
Still, the CMHC does not see vacancy rates declining significantly next year, since thousands of new condos are still in the pipeline in Toronto. "Increased movement of renter households into newly completed condominium apartments next year will keep vacancy rates from dipping further," said CMHC senior market analyst Jason Mercer.
The CMHC expects vacancy rates to remain flat for 2009. Another mitigating factor is realtors are reporting that some homeowners who have been unable to sell their homes are putting them up for rent because of the slow market.
The Bank of Canada said yesterday the situation for owners could get worse depending on economic conditions.
"A severe economic downturn could result in a substantial increase in default rates on household debt," the bank said in its December review. "Household indebtedness could act as a channel of contagion spreading losses through the Canadian financial system and cause a further tightening of credit conditions."
The bank said a stronger moderation in house prices could also result in "a significant increase" in mortgage defaults.
The centres that recorded the highest vacancy rates included Windsor, at 14.6 per cent, St. Catharines-Niagara at 4.3 per cent and Oshawa at 4.2 per cent.
That compares with urban centres in Western Canada that have seen tight housing markets, such as Vancouver and Regina, both at 0.5 per cent.
Calgary has the most expensive rents for a two-bedroom apartment at $1,148, followed by Vancouver at $1,124 and then Toronto.
While buyers have been sitting on the sidelines, housing is becoming modestly more affordable.
New home prices fell by 0.4 per cent, Statistics Canada said yesterday. That was greater than the anticipated drop of 0.1 per cent and the biggest monthly decline since 1996.