Vacancy rates are a key driver of the cost of rental housing in Canada. Newcomers to Canada often rent their homes for a while before buying. As a newcomer, the cost of housing can take up a large portion of your budget. When you are aware of the costs of housing, you can decide where you want to live and how much you can afford.
Besides the location and size of housing, other factors like occupancy and vacancy rates affect housing costs in a city.
What are Occupancy and Vacancy Rates?
The occupancy rate refers to the demand for housing, while the vacancy rate refers to housing supply.
A high vacancy rate in the city means a greater supply of housing available. This, in turn, can reduce the cost of rental housing. A low vacancy rate in the city will contribute to higher housing costs.
As a newcomer looking to save money, lower rent can definitely help you financially.
Vacancy Rates Provide an Idea of Housing Costs in a City
The vacancy rate is the percentage of all vacant or unoccupied units available for rent at a particular time. Though the answer is subjective, a healthy vacancy rate is considered to be around 3% in general.
The Canada Mortgage and Housing Corporation (CMHC) conducts the Rental Market Survey (RMS) every year in October in urban areas with populations of 10,000 and more. The RMS estimates the strength in the rental market. The survey targets privately rented structures with at least three rental units, which have been on the market for at least three months.
The CMHC also conducts the Condominium Apartment Survey (CAS) every year in September to estimate the strength in the condo apartment rental market. The cities covered in this survey are Calgary, Edmonton, Gatineau, Halifax, Hamilton, Kelowna, Kitchener, London, Montréal, Ottawa, Regina, Saskatoon, Toronto, Vancouver, Victoria, and Winnipeg.
What Does a High Vacancy Rate Mean for Newcomers?
Vacancy rates influence the cost of rental housing in Canada, thereby affecting the cost of living. High vacancy rates can work in your favour.
Landlords compete with one another to lease their properties. Because of this, you have more vacant properties to choose from. When vacancy rates are high, landlords may offer incentives to prospective tenants to make the property more attractive. For example, landlords may:
lower the rentoffer one month’s free rent, parking, or internetoffer upgrades.Landlords are eager to find a tenant and might even agree to rent their properties to newcomers who have a lower credit score.
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How COVID-19 has Affected Rental Markets in Canada
Due to COVID-19, many renters lost their jobs and had their work hours reduced. The Government of Canada responded immediately by providing income support to help Canadians cover expenses. Provinces stepped up to suspend eviction due to non-payment of rent and freeze rent increases for a certain period. Banks offered mortgage payment deferrals to landlords who could not keep up with tenants’ non-payment of rents.
According to Urbanation, a Toronto-based real estate consulting firm, vacancy rates surpassed 2% in the Greater Toronto Area for the first time in 10 years. Renters from downtown Toronto reevaluated the costs of living and moved to suburban areas as most offices, post-secondary schools, and entertainment venues remained closed.
According to a report from Rentals.ca, the average rent in Vancouver in 2020 fell by 12% compared to 2019, while Calgary witnessed a drop of 5%.
How Decreased Immigration Levels Increased the Vacancy Rate
According to the Housing Market Assessment by the CMHC, immigration has been a key driver of rental demand in Canada’s major housing markets. Due to the closure of international borders, immigration has slowed significantly, and the number of permanent residents coming into Canada declined. As a result, this is contributing to higher vacancy rates in some housing markets.
How Government Policies Increase the Housing Supply
The Empty Homes Tax put more houses in the rental market in Vancouver. Property owners who did not use their property as their principal residence or, if it is not rented for at least six months of the year, were taxed at 1.25% of the property’s assessed value. The Empty Homes Tax in Vancouver has been increased to 3% in 2021.
The City of Toronto has proposed a Vacant Home Tax at 1% of the property’s assessed value. If approved, it will bring more homes to the rental market. A crackdown on short-term rentals in the City of Toronto increased the supply of rental housing on the market.
What Happens if Vacancy Rates Drop to Pre-COVID Levels
If the vacancy rates are low, there is greater competition between tenants as they vie for the fewer vacant rental properties. Stiff competition often leads to a bidding war and pushes rental prices up. Increased demand for rental properties reduces the bargaining power for newcomers as landlords can fill their properties easily.
The vacancy rate is a key factor that influences the cost of rental housing in Canada. With this in mind, you can consider the city’s vacancy rate to understand rental costs and how much you can afford.
Anjali has worked in journalism and corporate communications in the UK and in India. Working across geographies in an international environment has taught her to find unique opportunities to create content for a diverse range of audiences. Pushing herself out of her comfort zone to move to the UK and Canada helped her adapt and thrive in new environments.
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