Rental Forecast: Toronto Rents On The Way Up!

Canadian Real Estate Magazine
Rents are inevitably on their way up, and at a much more rapid pace than they should be, according to a leading housing economist, laying blame at the foot of a land shortage in key Canadian markets.
“Vacancy rates in the residential rental market are lower than they should be and rent increases are more rapid than they should be,” writes Will Dunning, a specialist in Canadian housing markets. “The increased rents (about $25 per month as of the fall of 2011) are being paid by tenants and, to the extent that costs increase for rent supplements and social assistance, by government.  The excess level of rents will escalate.”

Landlords may be less than sorry to hear that assessment, which supports the observations of many property investors in Toronto and Vancouver.

Dunning’s report “Constrained Land Supply for New Housing is Hampering the Recovery” comes as the government introduces new, tighter mortgage rules. Those changes are specifically focused on cooling the condo markets in Toronto and Vancouver, both of which had already begun to cool even before the new rules came into effect.

Part of the reason for the decline in volume sales has been the shortage of land to build on, said Dunning.

He pegs the shortfall on three factors, none of which are in danger of a quick resolution, say analysts.

“Growth management will have a much bigger impact on future low-density development, says Dunning. “Expectations of future shortages may already be influencing expectations and prices in
the land market.

Although, he outlines in the report,  “More pertinent at present are delays in finalizing approvals for new subdivisions and in installing hard services (including water and sewer).

BCREA Housing Forecast: Second quarter 2012

BCREA Housing Forecast: Second quarter 2012

Economic outlook
Incoming data from the first quarter of 2012 shows that the BC economy is sustaining, and even building on, the momentum it gained towards the end of 2011. Growth in consumer spending has been buoyed by an improving labour market and residential and non-residential investment continues to be supported by historically low interest rates.

While BC’s economic growth has been steady to start the year, uncertainty in the global economy continues to loom over 2012. A Eurozone recession and the significant risk of a Greek exit from the Euro have rattled financial markets. First quarter growth in BC exports to the United States and Japan softened as have sales to Asian markets outside of China. Indeed, China is the only major market in which BC exports grew year-over-year, and even that growth will slow if the Chinese economy falters as some analysts expect. On a positive note, economic growth in the United States is very likely to improve on last year’s anemic pace which should help to support BC exports.

While elevated household debt remains the principal domestic risk to the provincial economy, historically low interest rates mean that BC households are more than able to meet their current debt obligations. As a result we do not view the debt being carried by consumers as a cause for alarm.

However, a high level of household debt does have medium-run implications for growth and financial vulnerability that cannot be ignored. An increasing debt burden magnifies the vulnerability of BC households to economic shocks such as loss of employment.

Moreover, as interest rates normalize, the cost of servicing debt will consume a growing share of household disposable income. As a result, consumers may cut back on other expend-itures thereby creating a drag on economic growth until their debt level becomes less onerous.

Source: BCREA Housing Forecast, Second Quarter 2012