The real cost of housing?

Our last few blogs have talked about the decrease in rental prices. What we did not discuss is why are the rental rates so high. Prior to covid rents were considered high, then covid hit. At a time when many people around the world were being asked to stay home, learning to work from home and then being laid off from their jobs, the housing sales market in Canada took off. 

Housing sales and prices rapidly increased. How did this increase the rental market?. 

In Canada and especially the Vancouver area a majority of rental properties are individual units owed by investors. What we saw were many owners electing to sell their rented properties to new buyers who were moving into the units.This created a large number of renters seeking a new place to live.  Now that we are seeing a decline due to over supply will this trend solve the cost of renting and housing. The answer is no. 

Why are rental properties so expensive?. It is our opinion it is the type of product being built.

Here are a few items we feel have increased the cost of rentals in BC. 

One of the biggest factors increasing costs of properties in Vancouver are the amenities in the buildings. Many condos build various amenities including fitness rooms, pools, common rooms and guest suites. In recent years we have seen newer strata buildings adding more and more amenities to entice the owners to purchase the condos. Many buildings have added larger fitness rooms, common areas with BBQ’s, shared working spaces, basketball and or sport courts. The increasing quality of ammentines increases strata fees to maintain the building's amenities. With higher strata fees individual landlords need to have a higher rental price to make the renting of their property manageable.          

Over the past few years we have also noticed purpose built rental buildings adding more higher end amenities similar to those found in strata buildings. The difference with rental buildings that have amenities and the strata building is that the income from the rent is the only source to pay for these amenities. In a condo building the strata can demand levies from the owners to pay for short falls. This creates a situation where the rental building needs to keep their rental prices higher to cover the costs of maintenance to these. 

Another increased costs for rentals are the amenities within the units. Many units have high end appliances including laundry and kitchen appliances. With the increased demand for electric cars by governments, new buildings are being required to install electric charging stations in the parking garages including at each parking stall. This creates increased costs for developers when building new projects.

There was a time when rental buildings were built with shared laundry facilities, and many young people today have grown up with all the modern amenities and the same conveniences they had at home. Anytime we add more amenities to the unit and or building it increases the cost of building and maintaining the property.      

This is not likely to change as long as developers have the decision to build what they want instead of what the market needs. The downturn we are in now is going to hurt many small investors over the next few years as prices decline to levels they are nto able to sustain for long periods of time.  Municipalities should demand more affordable properties be built by developers, or not approve the development. 

Need help managing your investment properties. Cartref Properties can assist you, call today to discuss your needs. You can find more information about us at: www.cartrefproperties.com 

Limiting Immigrants

The last issue we will talk about on why rental prices are declining is immigration. 

In 2024 the federal government due to political pressure changed the number of immigrants they were allowing to enter the country annually moving forward. In recent years the federal government has increased targets with most of these new immigrants being students. 

When new people are entering the country they also need basic needs including housing. This is another factor that assisted in the increase in housing costs due to the increase in population. With the reduction in immigration numbers this decreased the number of people looking for places to rent particularly in the fully furnished market. The new immigrants coming from other locations, especially students, often look for furnished properties until they can secure employment and status in their new country. Combined with the restrictions on short term rentals the lesser number of students entering the market has had an effect on the furnished rental properties. 

When the furnished properties are not able to rent to the short term or student market they move their products to the regular rental market increasing supply of product being offered for rent or they elect to sell their properties. Both of these factors create greater supply in the rental and sales markets compared to the current demand.    

Many schools across the country have seen reductions in new foreign students which means areas near schools now have increased properties for rent creating downward pressure on rental prices in those markets. The lack of immigration and foreign students is just another factor pushing down the rental prices in BC.  

Canada has always and will in the future have immigration in the country, it is just reducing the numbers back to amounts that allow the economy to absorb them effectively into society and is going back to a need based immigration system that was used effectively for many years.  The reduction in the immigration will have an impact on the economy in many ways, not just in the rental housing market. 

When will the reduction in rental prices slow or stop? This is a question no one can answer clearly. In the lower mainland of BC there are lots of developments still under construction and nearing completion. With each of these buildings completing they are adding more rental properties to the market. We are hearing many developers who were planning other projects have elected to delay future developments due to the current economic future. Developers are laying people off due to slow downs in developments. We anticipate the current developments will take two to three years to be completed. After the majority of these developments are completed we will see low numbers of new housing starts which at that time will have an effect on increasing the housing sales and rental market prices. When the sales market begins to increase in sales again then the rental rate decline will begin to settle. We anticipate we are going to see declining rental rates for another two or three years.   

Need help managing your investment properties. Cartref Properties can assist you, call today to discuss your needs. You can find more information about us at: www.cartrefproperties.com  

Short Term Rental Ban

Another factor slowing down the rental market is short term rentals. In May 2024 the BC Government introduced restrictions on short term rental properties. It effectively eliminated short term rentals in specific types of properties, those that are not part of a primary residence. How has this affected the rental market?.

Many of these short term rental properties that are now considered illegal have re-entered the regular rental market or they have entered the sales market. This has created a greater supply of product in both of these markets. When supply increases over the demand there is pressure on the prices to be reduced. We have not seen a significant decrease in sales prices yet which is still keeping some buyers away from the market, and forcing many of these products to the rental market. 

The short term market is made up of furnished products and these are often geared towards the tourist and student markets. Both of these markets have also been affected as the economy has slowed, the trade issues with the US and the Federal Government’s change to immigration especially students, has affected this market greatly. With less foreign students allowed into the country the areas near schools are being affected dramatically. In tourist areas the ban has had an effect of increased hotel prices reducing the tourism in those areas which has an effect on other businesses in those regions as well.   

The owners of the short term rental products are not happy as they had purchased and planned on renting out their properties in that market which is often more lucrative than the regular rental market. Any investment has risk and one needs to assess the risk of that investment. One key factor that can affect any investment is the change in laws that can happen at any time. Prior to the BC Government making this change cities around the world were making the same decision due to rising housing costs and therefore was not an unexpected change.  

This is an example of when the government’s change in laws significantly changed the investment of short term rental properties.         

Need help managing your investment properties. Cartref Properties can assist you, call today to discuss your needs. You can find more information about us at: www.cartrefproperties.com  

Foreign Buyers

We have talked over the past two weeks about reasons why rental rates are decreasing. Another factor is the restriction on foreign buyers. 

In January 2023 the Federal government elected to put their feet in the water of how they can help reduce or control the fast rising housing prices. The federal government doesn’t control many factors related to housing so they looked at one area they can control and that is who is legally allowed to buy housing in Canada. The federal government chose to implement restrictions on the foreign buyers buying housing in Canada to prevent anyone who is not living in Canada and people who are living here but are not citizens or permanent residents you are prohibited from buying a property in Canada.  

This was the beginning of the slow down in the new development sales construction. New developments are often sold to foreign buyers especially the Vancouver market to help with the building of the large towers. The slow down quickly transitioned to the pre-sales that were completing slowing as the previously built market started to slow down. 

When the sales market starts to slow the rental market also slows. We first started to see an increase in rental inquiries from people who were in Canada and not permanent residents who were now prohibited from buying housing in Canada. That trend slowed down as the housing market started to slow even more and we found the potential tenants who were now looking for a place were just upgrading from where they currently lived. Maybe larger spaces and or closer to work. This was the first sign we were heading back to a “traditional” rental market. 

A traditional rental market is when people are currently renting a place and then find a new place to live before they give notice to vacate where they live. Since January of 2023 the people we have been renting tow are not new to the country, have to give notice and are not in a hurry to move. All of these indicators show a market that has an over supply compared to the demand. When the market has less demand then supply the rental rates decrease. 

The ban on foreign buyers helped contribute to the supply as it removed a segment of buyers the developers or the pre-sale buyers would sell to, the investor. 

A ban on foreign buyers across the country may not be the best policy decision as it affects each region differently. In some areas there are no foreign buyers and it will not affect the market, in larger markets like Vancouver and Toronto where investor demand is higher it has a very negative effect on the housing and rental prices. In fact any federal policy will have different effects in each market place and maybe the housing policies should be more regionalized.  Inthe end the Federal Government wanted to be seen doing something to help reduce the rising housing costs for sles and rental and the foreign buyers ban contributed to this effect in the markets.           

Need help managing your investment properties. Cartref Properties can assist you, call today to discuss your needs. You can find more information about us at: www.cartrefproperties.com     

Who can rent their condo?

Another reason rental rates are declining is related to who has the right to rent their condo. 

In 2010 the strata property act was changed requiring all new developments to indicate a time frame of how long a newly built strata lot could be a rental unit. Developers were first indicating units could be rented for 25 or 50 years, then they started indicating 100 and 200 years. Effectively meaning units will be a rental for as long as the building exists. 

Prior to January of 2010 buildings were not required to identify a specific time frame and a unit purchased directly from the developer would be permitted to be rented as long as that owner owned the unit. These buildings were permitted to create bylaws restricting the number of rentals in their building. Once the original owner sold the property to a new owner that unit was no longer permitted to be rented if the building had a rental bylaw restriction. In November of 2022 the BC government changed the strata property act removing the ability for strata built before 2010 to have a rental restrictions bylaws. The intention of this change at the time was to add supply to a very tight rental market.  

When this was first enacted it had no effect on the market, we are now seeing it affect the market due to a slower sales market. Prior to this change, if a person who needs to relocate for work would request special permission from the strata to rent their unit and if not granted would be forced to sell their property. Since 2010 there have been two different products in the rental market. Most of the new products were purchased by investors with the intention to rent the units for as long as they owned the property. 

For units in buildings built before 2010 they were often rented for shorter terms of one or two years until the owner returned or then sold the unit. We are now seeing more of these units enter the market increasing the supply in the rental market. A major difference with these products is they are larger in size compared to newer products. Many of these products have also been owned longer and may have less costs involved to make the rental numbers affordable which is putting pressure on new products to lower their prices. 

When you increase the supply of products compared to demand it has a direct effect on the prices in the market place. We don’t anticipate this downward pressure will stop for about two more years until the current development has completed and there is a gap in new products being developed.      

Need help managing your investment properties. Cartref Properties can assist you, call today to discuss your needs. You can find more information about us at: www.cartrefproperties.com