Rising employment among young, house price increases key factors
Fiona Anderson
Sun
Rising house prices, and increasing employment rates among the young, are having a spinoff effect on rental apartments, according to an economic forecast by Credit Union Central B.C.
“Rental demand is growing owing to higher employment in the young prime renter-age group, more in-migration, and fewer renters opting for home-ownership,” the Credit Union Central’s B.C. Housing Market Forecast 2008-2009 said.
Rental vacancy rates in the province was 1.0 per cent in October, and are predicted to drop to 0.5 per cent by October 2009. In some areas of the province — like Cranbrook, Salmon Arm and Parksville-Qualicum — vacancy rates are already down to 0.2 per cent or lower.
It’s the tightest rental market since the early 1990s, said Helmut Pastrick, chief economist with the Credit Union Central BC.
Ideally, apartment vacancies should be between two to three per cent, Pastrick said. But that really depends on what rent is doing. If vacancies are at two to three per cent and rents are only rising by one per cent, then there is too much supply. But if rents are going up five or six per cent, then there is probably not enough units for rent, he said.
Credit Union Central B.C. expects rents to rise by more than three per cent this year and next.
“Overall, the market is under-supplied.”
But while more apartments are needed to catch up with the growing demand, that’s not likely to happen for some time, Pastrick said.
Other than some government-sponsored social housing, construction of purpose-built rentals is “quite rare,” Pastrick said.
“The rental market is at the bottom of the investment ladder,” he said. “Ownership housing is just more profitable.”
Pastrick believes there will not be a shift toward building new rentals until the condominium market is weak again, which will happen eventually.
David Goodman, of MacDonald Commercial Real Estate Services, said even if land were free, building rental units would be uneconomic.
With high construction costs, landlords need to charge about $3.50 a foot — or $2,100 for a 600-square-foot apartment — to make a profit, he said.
As a result, the only increase in rental supply is from investors who are buying condos to rent out, he said.
“Without those condos in the rental market people would be sleeping on the streets,” Goodman said.
“I don’t see any light at the end of the tunnel and I do see sharp increases in rents over the next two or three years,” Goodman added.
Brenda Binnie, CEO of the B.C. Apartment Owners and Managers Association, believes one reason vacancy rates are low is because when people find a good deal they stay put.
Landlords can only raise rents by 3.7 per cent a year for existing tenants. When the tenants move out then they can charge more.
So many landlords have tenants who are paying $800 for a really good apartment, when the average rental rate in Vancouver is about $1,400, Binnie said.
