Cheerleading the Decline
Happy Monday Morning!
We couldn’t help but chuckle at the comments from Premier David Eby this past week, who took credit for the precipitous decline in the rental housing market.
Yes, rents are down big time, but let’s give credit where credit is due. The Federal government, despite its sins of the past and its incredible fumble of the housing and immigration file, is finally on the right track. Rents are falling for two primary reasons,
Immigration is back under control. After allowing the population to inflate by a record 1.2M people per year, the feds have aggressively tightened immigration to the point where Canada and BC’s population are outright contracting. This has never happened before.
CMHC has insured a record amount of new rental construction financing, creating a record boom in new apartment supply.
Cities like Vancouver are now sitting on the highest vacancy rate in 31 years and there’s still a record supply of rental construction in the pipeline completing soon.
Yes, rents are heading lower from here, which will keep Eby happy. One last hurrah before the wheels fall off the rental construction market too.
At some point, developers and REITs are going to pull back in a meaningful way. They are cannibalizing themselves with new supply.
All you have to do is look at the latest financials from CAPREIT, Canada’s largest Residential Investment Trust, who owns a significant footprint in Ontario and BC. Overall turnover rents are down 2.1%, but turnover rent for tenants who have been in place for less than two years is down 10.8%. First flagged by my good friend Ben Rabidoux.
The oversupply in the rental market is already forcing governments to walk back certain bull market policies. Kelowna recently lifted their AirBnB ban after vacancy rates jumped from 1% to 6% (we think they could touch double digits before this cycle bottoms).
At some point Eby might think twice about cheerleading the decline.
Speaking of cheerleading the decline, despite the Canadian Real Estate blungeoned by the sharpest price decline in more than three decades, Canadians say it hasn’t gone far enough!
About 55% of Canadians want home prices to fall further, with that figure jumping to 69% among 18- to 34-year-olds, according to a Nanos Research Group poll for Bloomberg News.
Even among homeowners, two-thirds told Nanos the price decline to date was a positive or somewhat positive development for the housing market.
It’s not often you see the majority of Canadians cheering for home prices to fall, yet here we are.
It’s understandable, considering affordability issues. Yet we aren’t convinced these same voters will be willing to endure the pain required to bring meaningful affordability. After all, it’s all fun and games until someone loses an eye (or a job).
Until then, the cheerleading shall continue.
Let’s watch.
Well written article with meaningful statistics. I do wonder what happens when some of the new built rentals can not carry their mortgage payments when faced when faced with increased taxes, insurance and skyrocketing maintance costs and declining rents. what is CHMC going to do with buildings it reposes?
Interesting times are upon us.
Again thanks Steve for the insightful and accurate articles.
Housing ought to be abundant and affordable.
In a functioning housing market, the median 24-35 year old couple (in Canada that means earning $50,000 per year per person) ought to be able to afford a home that is suitable for a family of 2 children.
Canada’s fertility rate is extraordinarily low. Last year Canada reached 1.25 children per woman.
Our country will slowly disappear, like Japan currently is with their 1.15 fertility rate, if housing prices remain prohibitively high for the young.