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(Visual: Government of Canada logo, and CMHC logo fade in together. A series of images featuring rental housing across Canada.)
(Visual: Two people are shown in conversation. They sit across from one another at a boardroom table. The two individuals are Charles Sauriol, Communications & Marketing, CMHC, and Kevin Hughes, Deputy Chief Economist, CMHC.)
00:00:03
CHARLES: The rental housing market in Canada significantly impacts individuals, communities, and the broader economy in our country. As per the 2021 census, there were 5 million renter households which means roughly one-third of Canadians are renters. CMHC’s Rental Market Report provides in-depth analysis for major centers across Canada. It provides the most comprehensive analysis and insights into the primary and secondary rental markets. Hello and welcome. My name is Charles Sauriol and I’m pleased to be hosting this discussion on the results of CMHC’s 2024 Rental Market Report. Joining me today is our deputy chief economist, Kevin Hughes. Kevin, bonjour and welcome.
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00:00:47
KEVIN: Thank you.
00:00:49
CHARLES: So, let’s start with the numbers. 1.5% national vacancy rate, 8% year-over-year rent increases across Canada. These are significant, these are impactful numbers. Can you walk us through a little bit to what this all means in the broader picture for renters?
00:01:07
KEVIN: Yes, of course. They are staggering but they should be in no way surprising and we have been, as you know, we have an annual report and we have been giving our assessment of this market for many decades and in recent history, we’ve been pointing to many factors converging to a very strong demand and a supply that is growing but not as fast and this year 2023 was no exception so it’s staggering but it shouldn’t be a surprise. And you’re right, I mean the vacancy rate is very low. We have demand that is coming from several sources so there is for example the affordability question so people you know, can afford a rental house, rental lodging more than they can afford a home or house rather and you know, so that’s one source of demand.
Then you have the whole demographic picture which is yes immigration on one hand but it’s also the natural increase so you see you know, we have an age pyramid in Canada and it’s normal for younger people to then leave their family and then you know, try and look for, seek rental lodging when they have jobs, the job market has been relatively favorable for that so you have demand coming from several sources and I would also add in the demographic side is that we have an aging population in Canada and you are seeing Canadians who are owners and going downsizing and also seeking rental lodging because it’s more appropriate for their needs so it’s coming from many sources. Now on the supply side, we have seen some increases but certainly not to the measure that will be necessary to keep things stable or to have let’s say a more balanced situation.
00:02:46
CHARLES: And how is that, so we’re looking at this and we’re looking at we’re building supply but it’s not meeting demand and how does that overall impact affordability, can you expand on that?
00:03:01
KEVIN: Well in so far as incomes are not growing at the same rate as you know, you alluded to you know, the general average but in some cities it’s actually much higher…
00:03:11
CHARLES: Right.
00:03:12
KEVIN: …than 8%.
00:03:13
CHARLES: Right.
00:03:14
KEVIN: So, these are very you know, that in itself is the general context and we see it also you know, in the arrears rate you know, which has also gone up which is you know, the percentage of you know, people who are behind in their rents so that’s also another indicator as well. And of course the affordability issue impacts people who are already renters who have to face you know, an increase in their existing rent but also people who are new to the rental market as well and they’re facing you know, much steeper rental rates for you know, for units that have been turned over or vacant rates.
00:03:49
CHARLES: Ok and so if we could quickly look at the major markets, what do you see there happening, what are the dynamics of those let’s say the big 6 or these highlights of these big 6 markets?
00:04:04
KEVIN: So, you know, when you look at the vacancy rates according to the major markets last year which is you know, you had you know, some that were 2%, 3% exceptionally one or 2 maybe closer to 4, now it’s between like across the board it’s more around 1 to 2% and several are below 1% in some of those big cities.
00:04:24
CHARLES: Right.
00:04:25
KEVIN: And so, what’s going on is you know, you’re seeing what I was talking about before like several of these rental pressures that are converging especially in the major centers, that’s where the problem is the most acute actually. It doesn’t mean that it hasn’t touched like centers of lower population but it’s especially touching the major centers.
00:04:48
CHARLES: Most of the major centers, other markets are also feeling the crunch.
00:04:52
KEVIN: But, but yeah and I mean, yeah, and just to elaborate on that you know, it’s especially there you know, because of the numbers.
00:04:58
CHARLES: Right.
00:04:58
KEVIN: But it’s happening across Canada, and you know, as economists you know, we always want to distinguish especially housing economists between national numbers that can sometimes hide you know, regional differences.
00:05:09
CHARLES: Right.
00:05:10
KEVIN: In this case, things are much more uniform you know, so it’s happening not just in the big centers but also elsewhere but it’s obviously you know, especially acute.
00:05:18
CHARLES: And we talk about a balanced rental market, this 3%, is that something that the market should be thriving for?
00:05:28
KEVIN: Well, 3% is like you know, the historical average of the vacancy rent so if you say that you know, on average things go back-and-forth around the equilibrium point, 3% is a reference point but you know, what happens too is that when markets stay at a very low rate you know, people say ok, I can’t afford to move in this city and so they look elsewhere and so what the research on this topic is that the equilibrium rate is not necessarily the same technically from center to center and it also changes in time.
00:06:03
CHARLES: Right.
00:06:03
KEVIN: So, 3% is like you know, a historical benchmark but there are differences and right now the equilibrium point is kind of you know, definitely seeing a lot of stresses.
00:06:14
CHARLES: Right, because we’re not, we’re really not seeing that 3% in some of these markets.
00:06:18
KEVIN: And one of the indications is you know, when you’re not at the equilibrium you know, you see those rents especially in tight markets which is what we’re seeing in Canada.
00:06:27
CHARLES: Right.
00:06:27
KEVIN: You’re seeing other rents go up significantly which is what’s happening.
00:06:30
CHARLES: And if someone turns over a rental unit which we’ve talked about in the past…
00:06:35
KEVIN: Right.
00:06:35
CHARLES: …some of that data so can you talk a bit more about that aspect?
00:06:39
KEVIN: Right. So for the longest of times, we have published the total average rent and compared that from the previous year and I’d say about 10 years ago we started to look at what we call the same sample rent to eliminate compositional effects and to say ok, if you took the same sample last year, compare those units to this year, what’s the difference and we generated that one and then we went further to say well ok, that’s also occupied units. What if we look at just units that have just been turned over…
00:07:10
CHARLES: Right.
00:07:10
KEVIN: …and that are vacant because when you’re new to the market, those are the units that you’re going to be looking you know, not occupied units obviously and so there we see quite a big difference. It’s not surprising because you know, in a lot of cases rents will move more gradually you know, in the case of occupied units because owners and tenants are like if they have a renter you know, who is timely in their payments you know, they like that better than you know, having to turn over a unit…
00:07:41
CHARLES: Right.
00:07:41
KEVIN: …because turning over a unit there are costs for an owner as well. So when let’s say for example a unit hasn’t been turned over in 10 years and then suddenly it becomes vacant, well it’s going to go at the going rate, right…
00:07:55
CHARLES: Right.
00:07:56
KEVIN: …like any good, right? And so that’s where we see that very big difference.
00:08:00
CHARLES: And then you see in different markets that the rate of turnover varies. How does that, how do you explain that where a market where Ottawa would have a specific turnover rate which would be quite significantly different from another market?
00:08:17
KEVIN: Right. It’s a good question. We’ve started looking at it last year, it’s a measure that’s only been in our survey for a few years now so I’d say that we’re still looking at trying to interpret this as carefully and exactly as we can. There’s a few explanations that we could look at. One is for example in a given year for example if our sample of turned over units ok, happen to be held previously for a very long period, that would explain that that group has a much higher rate as opposed to let’s say the sample in another city where they were just turned over you know, more recently then it will be closer to the going rate so it won’t be as different as the non-turnover rent so the duration of occupancy has an impact. Another area we’re looking at is you know, the impact of rent controls in cities where there are rent controls.
00:09:18
CHARLES: Uh-huh, uh-huh.
00:09:19
KEVIN: So obviously rent controls in the short run you know, is seen as an insurance for renters you know so that their rent doesn’t go up so in the short run that is definitely you know, a benefit for them.
00:09:28
CHARLES: Right.
00:09:29
KEVIN: However, you know, as time goes by and those rent increases are only incremental when the unit does become vacant…
00:09:30
CHARLES: Right.
00:09:40
KEVIN: …you know, then you see the big difference so that’s another explanation but I’d say that we’re continuing to look at that but there’s no doubt that there are you know, big differences and there big differences in some cities you know, in some of the cities it’s maybe less than 10% difference, others it’s more you know, it’s more pronounced.
00:09:59
CHARLES: And how do you explain that? How do you explain that?
00:10:01
KEVIN: Well again, it can be the duration of the occupancy. We’ve seen like last year’s results that there was quite a correlation between the centers where the difference was large and those where they had rent controls. It is somewhat the same this year but there are some exceptions so that other explanation that I was talking about that is that the sample is comprised of units that hadn’t been turned over for a long period, that could be playing as well. So I think we have to be careful but we’re looking at it for sure but what we need to remember as a bottom line here is that you know, if you’re new to the rental market and you’re comparing the rents that you’re facing as a new renter compared to you know, the market you know, the people who are, there’s a big difference.
00:10:51
CHARLES: We talked about renters. What does it also mean for rental apartment owners? Can you share some of those insights as well?
00:11:01
KEVIN: Well, rental apartment owners, landlords have always been very interested in this report to compare themselves as to what’s going on you know, in their city, in their zones because we have information that goes all the way to the neighborhood level so it’s important for them for you know, their operations and I think you know, getting back to the question of the turnover rent you know, I mean I think you know, if you take an example someone wanting to sell their car you know, they’re going to sell their car at the going rate you know.
I think that that is also the case for you know, for owners you know, this is their livelihood for many people or their business and it’s normal that that occurs. I think that you know, the impacts obviously on renters you know, of the present situation you know, is extremely important because it affects so many people. You said it yourself you know, the amount of renters in Canada has increased quite a lot in the last decade. So owners are part of the solution you know, for supply increase in Canada so you know, we definitely need the private sector to be you know, to be participating.
This is the major actor in this and I think that you know, the challenge going forward is going to be to have the incentives, sufficient incentives for the private sector to be interested in to entering the market but also having you know, the safeguards for renters for them to be able to simply afford the rent and that is I think you know, which is the really difficult nut to crack at the moment.
00:12:36
CHARLES: Right, right, right. So, looking at this report overall, what can we expect down the road? What you know, this is an annual publication that takes a few months to produce, the survey is being done in October, we’re releasing it today in January. We see others reporting on rental data so where do we see this report going down the road?
00:13:03
KEVIN: Well as I said, I mentioned before you know, we’ve already about 10 years ago started to look at this survey in-depth and to say where are the blind spots basically and we started I think you know, we have many more affordability measures in the report, I encourage people to look at that, those measures as well. I think where we’re trying to go maybe is look at alternative you know, measures of the rental market that are between surveys so maybe a higher frequency…
00:13:36
CHARLES: Right.
00:13:37
KEVIN: …looking at you know, more very precise measures and also, I would say as the survey continues with these new measures is to gain and acquire, I’d say a good basis for interpreting the results especially that we talked about the turnover rate as well. I think that’s something it’s early days for us, we have some you know, some paths, some analytical paths but that’s something definitely we’re going to be looking at and also you know, we didn’t talk about the secondary market, but you know, the condominiums that are rented I mean that’s another market that’s extremely tight.
00:14:14
CHARLES: Right.
00:14:15
KEVIN: And in some cases in the country you know, it used to be the case that you know, a rented condominium unit was much more expensive than you know, a traditional rental market. In some markets in Canada, it’s nearly the same so that’s another indication of how tight the market is. So, it’s looking broad but also looking more in-depth, I’d say those 2 things and maybe increasing the frequency but as you mentioned, it’s a big report, it’s a costly report but a very necessary one for sure.
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00:14:43
CHARLES: Absolutely. So, thank you again for taking the time to providing your insights and your knowledge and sharing these results with us. And thank you to our viewers. We want to hear from you. Feel free to leave a comment with your feedback on this discussion and stay tuned for more conversations with our housing experts and be sure to subscribe to our newsletters and our YouTube channel and be sure to follow us on Twitter-X, LinkedIn and all of our social platforms. Thank you and have a great day.
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