Why are rental prices declining?
I am often asked why are rental prices declining in BC?. People ask if it is the Air BNB Ban, higher interest rates, the removal of the rental restriction law in stratas, foreign buyers ban, immigration reductions, the slower economy, the answer to all these questions is yes.
What I mean by saying yes to all of these is that the decline in the rental prices are not affected by one factor, many factors that different levels of governments have taken have affected the rental housing prices. Let’s look at when these occurred and how they affected the market.
In April of 2022 the bank of Canada introduced its first interest rate increase in many years and this would be the first of many to follow in the next two years. There would not be rate reduction until the summer of 2024. How does this affect the rental market?. The interest rate increase slows the selling of properties which in turn causes owners who don’t want to reduce the selling price to turn to the rental market to rent their property hoping that the market will recover and then sell it during the next up swing. This causes more rental products to be added to the market which decreases the demand by increasing the supply for rental properties.
In November of 2022 the BC provincial government removed the ability of some strata corporations in BC to have a rental restriction bylaw. There was the ability for strata properties built before 2010 to have a bylaw preventing rentals or limiting the amount of rentals in their building. At the time the government was trying to add more products to the rental market as the demand outweighed the supply at that time. It didn’t automatically cause many units to enter the market but as the sales market slowed it allowed owners who resided in one of these buildings the option of adding their property to the rental supply. Over time this has done what the government expected and added more products to the rental market.
In January 2023 the federal government banned foreign buyers from buying property in Canada. This was not only for people who live outside the country but even for people who are living in the country but are only on temporary visas. You were prohibited from buying property if you were not a citizen or a permanent resident. The intention of this was to decrease the demand for the ever increasing housing market, which by the time this was implemented was already slowing down.
This did reduce the number of buyers for properties for sale, which then caused some owners who are not willing to sell at a lower price move their product to the rental market, again increasing the supply of rental products.
In May 2024 the BC government banned short term rentals in non primary residences, except in smaller tourist communities. This meant that if you owned a house and were renting the entire property you were unable to now rent that through short term rental platforms. The idea of this is that housing should be used for living in and not for tourists.
The ban caused many furnished properties to enter the rental market again increasing the supply of rental stock.
In 2024 the federal government changes the limits for the amount of immigrants coming into the country annually, especially for students. This reduced the need for short term rental mostly furnished properties. The student and new immigrant market often rent furnished properties until they find themselves on their feet in their new country. This was implemented due to the public reaction that too much immigration was causing part of the increase in house prices. The effect here is that it once again reduced the number of people seeking rental properties creating less demand for rental properties.
All of the above actions have either increased the supply of rental products or reduced the demand for rental products. Basic economics says when you increase supply demand weakens. When you increase supply and reduce demand there is going to be movement on the prices and in this case the movement is downward rental rates. The rental rates rapidly increased during covid which is why these actions were taken by the Provincial and Federal governments.
One other factor that we have not mentioned is that many new developments were approved to be built and a number of these projects are now finishing with many units entering the sales and or rental market. In BC, especially the lower mainland, most of the new development is purchased by investors who either sell the product when it is finally finished or they add it to the rental market.
With the slower sales market we are seeing more products entering the rental market again increasing the supply compared to the demand. Many developments that were planned but not started have now chosen to delay building which eventually will reduce the number of products added to the selling and rental market.
All of these factors have resulted in a slower rental market and rapidly decreasing rental rates in BC especially in the greater Vancouver area market. We are not expecting a change to this market for at least two years until all the current development has completed and no new buildings are being built. At that time we will see a slower increase in the amount of rental products added to the market which should stabilize the market. When that occurs we will then again hear the cry that we are not building enough rental products for what the demand in the market is.
The housing market is probably the hardest thing for the Federal, Provincial and local government to control to meet the demand of the market. Housing takes time to approve and time to build. As often happens the Federal and Provincial governments were late to the party with their actions and one action had some effect and then the next action had similar action to the market. We are now seeing all the effects of these actions implemented along with a global slow down in the economy.
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