Rental market tight despite rise in Vancouver vacancies; apartment sales projected to hit record-breaking pace

Greater vacancies, greater demand

Greater vacancies, greater demand

Vancouver apartment vacancies increased in 2012, according to the latest Canada Mortgage and Housing Corp. (CMHC) report issued last month with figures compiled in October.

The development would be good news if vacancies weren’t still so low compared with demand. CMHC pegs vacancies in purpose-built rental apartments in the Vancouver CMA – the census area approximately the same as Metro Vancouver – at 1.8% in October 2012, up from 1.4% in October 2011. (For condos, the vacancy rate edged up to a mere 1%.)

The increase happened even as the demand for rental housing increased, according to CHMC’s analysis.

“Approximately 3,606 more rental apartment units were occupied in October 2012 than a year earlier,” the report stated, an increase that was nearly 10 times that of the increase in the overall stock of rental apartments during the same period.

Between October 2011 and October 2012, the number of apartment units in the Vancouver CMA increased by a mere 386 units.

“Most of the supply increase was in the secondary rental market,” the report noted. “For the purpose-built rental market, some of this increased supply was new-construction units, but most were units that were added back into the rental pool after renovation and/or repurposing.” (CMHC noted that repurposing could mean the unit was converted to a condo and then redesignated for rental use.)

The steady demand translated into a rise in average rental rates across the region.

Rents for three-bedroom units typically dropped more than those for smaller, less expensive units (save for Mount Pleasant, where CMHC reports a stunning 18.7% increase in average rents for units with three bedrooms or more, as well as Marpole and South Granville, where increases were in the 10% range).

Overall, however, average monthly rents reported by CMHC increased to $1,047 from $1,027, a rise of approximately 2% between October 2011 and October 2012.

Record sales volume

Tenant demand buoyed investor demand for multifamily properties, with preliminary figures from veteran apartment broker David Goodman indicating a record-breaking year for apartment property sales.

The aggregate dollar volume for 2012 approached $662.7 million, sweeping aside the previous record of $648.5 million set in 2005. The tally was made possible by three major sales in excess of $55 million each, which helped boost transaction values despite a drop in transaction volume to 92 deals. By contrast, 111 deals completed in 2011 and, in 2005, 162 deals closed – 76% more than in 2012.

Goodman noted that low interest rates continue to play a role in spurring investor interest. Ongoing low vacancy rates and limited new supply – a fact borne out by the recent CMHC rental market report – also buoy investor demand.

On the other hand, Goodman is cautious regarding the prolonged period of low interest rates and run-up in prices. Neither phenomenon can last, and combined with the possibility of the BC NDP assuming power in May’s provincial election, might herald a plateau in the market.

Buy or rent?

This columnist jumped into the property market three years ago with a two-bedroom apartment in Mount Pleasant. The mortgage payments at the time were on a par with where rent was heading, so the move made sense. Despite increases in strata fees and property taxes since, the move continues to make sense – perhaps more sense than ever.

Tallying mortgage interest, property taxes, strata fees and assessments, as well as home insurance paid in each of the past four years versus rent and home insurance paid in 2008 (the last full year in which rent was paid) shows that home ownership has steadily cut household expenses. Preliminary figures for 2012 indicate savings on housing costs of more than 20% versus 2008.

Poor affordability tends to give first-time buyers in Vancouver fewer options than those in other cities, but the pay-off – for those who can manage it – is significant.

So long as mortgage costs remain in check, the payoff seems set to continue, but low interest rates and increases in rental costs have so far put accounts in this buyer’s favour.

(The exit strategy and ultimate return on investment is a significant risk factor, of course, but we’ll leave that matter for another column.)

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