Thursday, July 31, 2014

Vancouver’s high house costs heat up rental market

VANCOUVER — A spate of new, relatively affordable rentals in Vancouver is doing little to ease the vacancy rate in one of Canada’s meanest residential markets.
In its latest forecast, Canada Mortgage and Housing projected Greater Vancouver’s vacancy rate for purpose-built rental apartments will be 1.9 per cent this year, tightening to 1.8 per cent next.
Only Calgary and Edmonton have tighter rental markets.
A healthy market has a vacancy rate between three and five per cent.
In Vancouver, rental availability is particularly crucial because ownership costs are so wild.
The city recognizes this, moving earlier this month to create a Vancouver Affordable Housing Agency, geared to increasing rental options for middle-income families. Specifically, the agency will oversee provision of 2,500 “affordable” rental units by 2021.
Back in 2012, Vancouver announced policies to incentivize new-rental construction, awarding density bonuses and waiving development-related charges. The city also sanctioned suites as tiny as 320 square feet.
City planners say, by 2021, 16,000 new rental units will be needed, of which 5,000 will come from purpose-built market rental units. A recent report to council states the city is nearly 60 per cent there.
“With a growing population, limited increases in income and limited new purpose-built rental housing in recent decades,” declared the policy, “the need for suitable housing choices for low and moderate-income households has grown dramatically.”
Indeed, more than half of Vancouverites are renters — unusually high for Canadian cities. They earn median incomes of $34,000, compared to homeowner incomes of $66,000.
Yearly rent increases are limited to two per cent plus inflation. Average rent in Vancouver is roughly $1,100. Condo rental rates are higher.
Renters are so numerous because renting is much cheaper than buying. Vancouver also sees a steady influx of newcomers who initially prefer renting.
Another factor: Young wannabe buyers take longer than elsewhere to save a down payment; many rent while saving.
While rental unit numbers lately have been increasing at a good clip across Greater Vancouver, an expanding population means the market has remained tight.
The impact of the new units, says CMHC, “will likely be negligible.”
Vancouver, providing nearly half of all rental units in the Lower Mainland, is home to an estimated 110,000 units in purpose-built rental buildings. Another 51,224 condo suites — 26.3 per cent — are tenanted.
City Hall reports 63 new rental buildings are being developed and another 20 are being considered, with city planners encouraging developers to build family-friendly two- and three-bedroom units.
The new rentals may not significantly ease the region’s vacancy rate but are affecting the rental market.
According to The Goodman Report, a newsletter on multi-family investment property, the new supply is leaving some units empty in the newer buildings.
That’s because rents are lower in buildings constructed before 2000, which don’t offer the amenities of the newer buildings, like in-suite laundry facilities. Also, there’s more competition out there from an increased number of condo suites being let.
The new competition is lowering prices for condo suite rentals, says the report, pointing out the usual rent premium over traditional apartment units — 32 per cent — has dropped to 23 per cent.
The latest issue of the Goodman report cites a need to replace Vancouver’s “aging, increasingly inefficient rental stock.”
It says the average age of Vancouver’s purpose-built apartment buildings is 58, nearing their 60-year lifespan; and 95 per cent are pre-1974.
The city’s incentives for new rental development are “still not quite adequate,” says realtor Mark Goodman, criticizing Vancouver’s seven-year-old policy of effectively barring demolition of apartment buildings