The terrible {not so} secret about TOs condo rental market is now out?

7 Replies

There have been a small group of folks warning of the GTA's runway condominium market for a few years, but we are now seeing more concern being voiced in the places once cheerleaders for Toronto the infallible.

Just last month, Jason Kirby penned this article in MacLeans. 

Benjamin Tal, though acknowledging vacancies are likely to grow, was singing "Don't Worry, Be Happy" when interviewed by the Globe and Mail back in February.  {Note: there has been some skepticism about the 1.7% vacancy rate quoted in the article}

When you do a little more digging around, it appears that Mr. Tal and, perhaps even the CMHC itself, are not defining the vacancy rate the same for the condominium market as that tow which we are accustomed.

When we talk about vacancy rate in 2-bedroom apartments it is defined to be:

number of empty units  / total number of 2-bedroom apartments available for rent

Naturally, the vacancy rate is 1 - occupancy rate.

However, in the TO condominium market  - and likely others in the country - the reported vacancy rate is being determined  something along the lines of:

number of empty condominiums / total number of condominiums 

At first blush that looks like the above example for 2-bedroom apartments .. so what's the big deal you ask.   The problem is "total number of condominiums" is not "all condominiums available for rent", but literally all condominiums that exist in the GTA - including those which are owner occupied.

That's akin to saying the vacancy rate of Single Family Homes is equal to the number of empty single family homes / all the single family homes in Toronto.

With the above alternative definition for condo vacancy, the reported rate of 1.7% is worse than meaningless, it is blatantly misleading.   Say only 17% of condominiums are being offered for rent, then the 1.7% vacancy, among all condominiums - owner occupied and those being offered for rent - is really 10% of those condominiums being rented.

Big difference between a 10% vacancy rate and 1.7%.

Maybe I'm just late coming to this realization, but its the only way I can make the oft quoted vacancy rate jive with the numbers produced in CMHC's Condominium Owner's Survey (COS) report and other sources.

Perhaps those of you in the Big Smoke might be able to shed a little light on the above measurement of vacancy for condominiums ... @Gary McGowan your on the ground daily, what are you seeing for real world vacancies in the condominium space?

Lots to digest here @Roy N. I will come back to this. Some good points here.

Thanks for sharing that enlightening Macleans article @Roy N. .  I've been pondering CMHC's claim on vacancy rates vs. housing starts vs. population growth in Canada for the past few weeks now, and couldn't make sense of it all.  Now it does, the shadow vacancy rate, or whatever you want to call it, appears to actually be much higher than stated.  Glad I'm not the only one scratching my head here.  

Consider this: 

Canada's population growth has increased on average 383K people since 2010.  http://www.statcan.gc.ca/tables-tableaux/sum-som/l...

Canada's housing starts have averaged 195,000 over past 5 years.  http://www.statcan.gc.ca/tables-tableaux/sum-som/l...

Canada's average persons per household = 2.5 in 2011. http://www.stats.gov.nl.ca/statistics/Census2011/P...

Given the above stats, there appears to be an over supply of building across Canada: 195,000 x 2.5 = 487,500 is the number of people that builder's are currently supplying for, which is ~100K more than population growth.  

I think it may be fair to say that this excess in supply is being pent up in vacancies with the over built condo markets, such as Toronto's, as is pointed out in the Maclean's article.  

@Chad Urbshott

The buried vacancy in the condominium market may be part of it.  In our area the parade of housing starts over the past years is unbelievable, especially in the context that the population of the province is declining ... and aging.   Part of the phenomenon can be attributed to urbanization.  NB is traditionally a very rural province, but you are now seeing more folk move into towns and cities - where the services remain.   Behind many of these new houses in the suburbs are old, vacant, houses in the country.

It's not just in TO. There is a ridiculous number of condos and student apartments being built in Kitchener-Waterloo. Everyone I talk to says the same thing: "Who do they think are going to live in all these buildings?"

Within a couple of miles of the University of Waterloo there are at least 10 buildings of 10-20 stories coming on line, and another 10 breaking ground. That's on top of the 100+ 5-10 story buildings that have been built over the last 3 or 4 years.

The city did change rooming house laws to try to force all of the students out of people's basements and into these high rises, but unless they're expecting to double the student population, I foresee a soaring vacancy rate here as well.

@Roy N.

 Some talking points. Not to dispute any info but just providing the facts as I see them here in Toronto. 

RE: vacancy rates. Anyone can find out what CMHC rates are for any size unit. Here is a link to Central Toronto. CMHC RATES

As of today there are currently 3415 condos on TREB for lease. 1,000 have condos have been tenanted since the article came out. 

Her Kijiji point is useless, as you know many Advertisers will advertise the same unit multiple times. Agents will advertise other Agents units multiple times. Which is to say the same unit may be listed on kijiji 20-100 times. 

Rent Controls don't apply to units built after 1991. True, Why are people not using this? They simply do not know,... Sad but true. Their agents do not know to tell them. 

Now for my thoughts,,,,

Still many units are being bought by International Investors. I was in the Bank last week talking with a VP and he mentioned "You have know idea how much money we move into Canada everyday" Of course this is just hearsay with no factual data, however there must be a good amount of truth to it. When I asked another source about HST tax about International Investors he said Yep. They are still buying by the tens to twenty's and more. They are looking for safe place to store their money (compared to where they live). They don't care about quick appreciation, they want to know that it will be valued the same in 5-10 yrs when they look to sell. 

Now about the vacancy, Units are still being rented and made available. Investors are still buying and finding tenants. Is there a HUGE supply of units, YES. Do I think values will drop no. Level of Yes. Yes indeed. 

Being an owner of both condo and single family in Waterloo and throughout the GTA, I can chime in on what I'm seeing on the ground.

1) Rental in Waterloo has become exceedingly difficult. I've gone from renting out my properties months in advance, to having some of my properties 50% vacant. It's been brutal. I've had to spend a lot more money and time on marketing. I'd strongly suggest staying out of this market. I'm pretty heavily invested in this area, so it doesn't make much sense for me to get out at this point. 

2) GTA - By far, the easiest property for me to rent is my condo on the subway line. Last September I placed an ad on Kijiji and had over 30 showings over three days. It was rented in one week to AAA tenants. However, this property isn't cash flow positive, so I'm looking to offload now.

The problem is, everyone says they are a long term investors until prices start dropping they suddenly want to sell or have to sell.  We wouldn't have housing bubbles or stock market bubbles if everyone actually stayed rational in times of price drops and price increases.  

Buy low, sell high.  Seems like the most easiest financial advice but the most difficult for a majority of people to actually execute.  

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