It’s theoretically easier to find an apartment in Halifax than it was a year ago, according to the latest data from the Canada Mortgage and Housing Corporation (CMHC), but the Crown corporation says the city still needs more units to meet demand.
CMHC released its annual Rental Market Report for major Canadian centres on Thursday. The report is based on a sample survey of rental buildings with more than three units, conducted in October 2020.
The findings for Halifax this year: the rental vacancy rate is up from last year’s record low of 1% to 1.9%. Average rents are also up, however, to $1,170 this year — an increase of 4.1%, according to CMHC. According to CMHC’s data last year, average rents were $1,113, meaning the actual increase would be 5.1%.
By unit type, according to CMHC:
- Bachelor: vacancy 1.8%, average rent $865 (up 6.5%)
- One-bedroom: vacancy 1.9%, average rent $1,016 (up 5.9%)
- Two-bedroom: vacancy 1.9%, average rent $1,255 (up 4.4%)
- Three- or more bedroom: vacancy 1.8%, average rent $1,455 (up 4.7%)
“The rental market, though easing, is still tight and in need of increased supply,” Kelvin Ndoro, CMHC senior analyst of economics, is quoted in the report.
Demand was lower in 2020 due to a drop in international immigration numbers and virtual classes at the city’s universities, CMHC said. But that lower demand was partially offset by “Record low inventory of homes for sale” and increased interprovincial migration.
“COVID-19 measures significantly affected key rental market drivers. Year-to-date, international immigration was down 55% between January and June of 2020,” the report said. “Full-time student enrolment was down in four of the six Halifax universities with more students enrolling part-time instead.”
At 3.7%, vacancy was highest in the south end of the peninsula — “an area with a high concentration of students.”
“This highlights the impact of the major universities offering their programs online,” the report said.
On the peninsula generally, vacancy was 2.2%.
“Vacancy rates also increased significantly for structures with 100+ units, most of which are on the Peninsula,” CMHC said. “Ditching the daily commute because of remote work arrangements and higher average rents on the Peninsula are all possible contributory factors.”
Despite the increased vacancy, rents went up, and CMHC attributes that phenomenon to COVID-19 as well.
“There likely was reduced mobility due to Covid-19 and an increased likelihood for tenants to accept rent increases, aided by income supports from the government,” the report said.
The survey was completed before the provincial government instated its retroactive, temporary 2% annual cap on rent increases.
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Some context for this article is helpful. First off, you have to understand how the “average rent” metric is calculated. CMHC calls owners of large apartment buildings and asks them “what is your average 1 bedroom rent?, 2 bedroom rent?, etc. As new buildings are constructed and opened, these figures are added to the average. This naturally increases the average rent disproportionately, as rents on new construction (at least $1,700 per unit) reflect increased costs as well as the current price of debt. The more new construction in play, the greater the potential for new units to skew the “average rent” number.
So her is the analogy. If you drove a new BMW into the Walmart parking lot, the average value of the cars in that parking lot would increase, but that doesn’t mean the value of your 2015 Chev Cobalt changed. Does the average value of a car in the Walmart parking lot really mean anything? Does it impact your decision to buy a car?
This data also has to be taken with a grain of salt. Ideally, the only true number to look at is “same store sales”, which tracks the year of year increase of rental rates in a consistent universe of apartments (i.e., you track the same 50,000 apartments and dont add in the results from new construction). CMHC can do this, but for some reason doesnt offer this data up. Perhaps its not as sexy?
Past data has shown that same store sales increases have averaged 1.0 to 1.5% a year, although there is no question rates have accelerated over the past year or two. And why not? My “affordable” rental apartment building in North Dartmouth just got hit with a 25% increase in the property tax assessment. Add to that HRM’s 1.9% increase in tax rates, and the taxes for this building are slated to increase 27% in 2021. Of course I will stimulate the economy and retain property tax consultants to beat this assessment value down, but it dont think it will be possible to keep it under 10%.
So the provincial cap on rent increases is going to have several impacts. First, tenants will lose mobility, as they fear leaving a rent controlled apartment – as the new apartment will be listed at market. This is kind of the same as the property tax cap, which has distorted single family tax bills and has forced new residents to pay drastically more tax than older residents living next door in a house that has the same market value. Second, landlords will stop renovating and repairing cosmetic things (fire and safety should always been addressed) so the quality of the housing stock will slowly start to degrade over time. I dont see a major change in new housing starts as long as rent controls dont apply to new construction (unless immigration falls off a cliff or interest rates spike). Landlords will set rents for new construction as high as they can initially, as they won’t know how long the cap will be in place – this will further skew average rent increases in the future (fun fact, the 4,900 apartments currently under construction represent almost 10% of the total stock of apartments in this market – Halifax is hitting it out of the park in terms of housing production per capita, and is the NUMBER ONE market in Canada for new purpose built rental housing.
For older apartments, its virtually guaranteed that the new maximum rent increase of 2% will be the new minimum, as landlords worry that not increasing rent will allow you to get left behind over time – a growing risk as taxes, insurance, etc all increase at rates way beyond inflation or the 2% cap. This is a form of induced rental increases, as many landlords (myself included) had not increased rents on some tenants for years. Now, we have to.
The 2% cap for an old building is reasonable. I’ve rented in an old building since 2014 and my rent has increased by 20% as of my 2020 rent increase. A 2% compounding increase every year would be 14%.