Rental market slowly improving as more tenants search for homes

Gerry Baxter of the Calgary Residential Rental Association talks about weathering the recession

Gerry Baxter is executive director of the Calgary Residential Rental Association.

Gerry Baxter
Gerry Baxter

Can you give me a sense of how many members there are in the association and the association’s purpose?

Baxter: The Calgary Residential Rental Association (CRRA) is almost 60 years old. It was founded in 1959 by a group of committed professional business individuals and registered as a society in October of that year.

The association’s purpose is to provide a vehicle through which the owners and managers of residential rental property could network, exchange ideas and improve their knowledge though industry-related education. The association has always strived to be an advocate for its members and the industry when dealing with the government and the public.

The association is membership based. It started small and all of its activities were handled by member volunteers until the mid-1990s, when two staff members were hired: an executive director to guide and grow the association and an administrator to co-ordinate its activities. Since that time, the association has grown to almost 1,000 members, who are located in Calgary and throughout Alberta. Membership categories include:

  • Owners and property managers of residential rental property.
  • Service members who provide a product or service to owners and property managers.
  • Not-for-profit organizations that work with people in need of affordable housing.

Our owners and property managers represent almost 72,000 rental units – 70 per cent of these members are moms and pops who have less than 10 rental units; and, the majority of these have less than five units. They rent out a house, basement suite or a condo. The income from these properties is generally used as a supplement to either employment or retirement income.

Many of our members work closely with not-for-profit organizations to provide people who are in need with affordable housing.

The CRRA is truly well-rounded in who we represent.

What’s the current apartment rental vacancy rate and how does it compare to last year? Is it trending up or down in recent months?

Baxter: CMHC conducts an in-depth annual rental market survey and releases a report in the fall of each year. The report details information in a variety of areas, including vacancies and rental rates. The last report was released in 2017, at which time the vacancy rate was pegged at 6.3 per cent, a decrease from the seven per cent reported in 2016.

In speaking with many of our members it appears that they have seen a very slight improvement in the rental market. This is based on more calls from prospective tenants in response to ads and more showings of rental units to people looking to move.

The CMHC 2018 fall rental market report will be released before the end of the year and this will be helpful in determining what 2019 may look like for the residential rental industry. We are hopeful that the downward vacancy trend continues this year.

What’s the biggest issue and challenge facing landlords these days?

Baxter: Rental housing in Alberta is influenced by things such as the cyclical resource-based economy, population growth, construction costs, and demand in both urban and rural centres. These factors have an impact on vacancies and rents.

Alberta has been in the depths of a recession for the past several years and this has had a significant impact on the economy, including the housing industry and the rental market. Vacancies have been at very high levels the last four years.

Rents are determined by the balance between supply and demand. The supply of rental housing and vacancy rates tend to move in tandem and opposite to the level of growth in market rents, i.e. when supply increases so does vacancy and the growth in rental rates decreases, as has been evidenced in the past few years. Increases in new supply often occur after periods of higher rent growth and decreasing vacancy rates, such as in 2007 and 2012, i.e. increasing demand supports the creation of new supply.

The recession coupled with the increase in the supply of purpose-built rental housing and condominiums, of which one-third become rentals, has resulted in higher vacancies and a decrease in rents. This has made it very challenging for landlords, while tenants have had the advantage of lower rents. Most of this increased supply was approved and construction started before the recession was well entrenched.

There can be a perception that over the years rental rates have grown at unsustainable and unreasonable levels. But analysis of Statistics Canada’s consumer price index (CPI) metrics for overall inflation and rental inflation from 2002 to 2016 indicates that over the long term, in Alberta, rent growth typically matches the overall rate of inflation. CPI growth for the province, over this period, averaged 2.35 per cent per year while rental rates in the province were actually lower than the CPI, growing only 2.15 per cent. Given the rent reduction that has taken place over the last few years, current rental rates are probably falling behind the CPI index.

There’s intense competition in the residential rental market thanks to Alberta’s reputation as a fairly regulated market with no rent control. This investor confidence has added thousands of new units over the past four years – even though the economy has been underperforming. The additional rental stock has driven prices down across the rental market.

This once again underlines the importance of the investors in our industry, mostly families who invest for the future, the moms and pops. In doing so, they’re taking a long-term view and trust that the regulatory stability remains as the economy turns positive again.

How is the inventory of new, unoccupied condos affecting the rental market?

Baxter: The significant addition in new purpose-built rental inventory and condos that have become part of the rental market have had an impact by keeping vacancies high.

The economic recession has reduced the demand as many people moved from Alberta to other parts of the Canada. This has placed pressure on the existing owners and managers of older stock and has caused them to increase service and increase capital expenditures at a time of stagnant or reduced rents.

What are tenants looking for these days in an apartment?

Baxter: This is a great time to be a tenant. The rental market fluctuates and although there are some years where rental increases are higher than inflation, this is balanced by years of below-average inflation rental rate increases.

When tenants are looking for a new home to rent, whether it’s an apartment, condo, house, etc., they’re usually focused on price, location and fit. This means they’re looking for something that they can afford. They want the convenience of living in an area that has the amenities that are meaningful to them, such as schools, shopping, nightlife, or close to work.

Is the rental property a good fit for them and is it suited to their needs, for example: is it big enough; does it have the in-suite amenities that they desire, such as dishwasher, microwave, modern appliances; is there on-site storage, parking – surface or underground.

– Mario Toneguzzi

rental market

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