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.
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
Annual Rent Increase Limit
Annually in September the BC Provincial Government identifies an allowable rate that rents can be increased for the following year. They have announced the maximum allowable rent increase rate for 2026 will be 2.3% which is down from the 2025 rate of 3%.
Why do they announce this is September?. There is a requirement for landlords to provide three months notice to inscrease rent and the notice must be sent prior to the start of the month. By doing this in September it means any increase sent in September is effective in January and would be at the new rate. In this case the new rate is lower than the 2025 rate.
At this time we are not recommending any of our clients raise the rent. The current market has more supply than demand and is pusing rents downward rapidly. A rent increase often causes tenants to consider moving.
During covid we experienced the “work from home” effect of people moving further away from their work location and out of the downtown part of the city paying higher rents than the local market. We are seeing the rents revert back to the more pre covid traditional rates of the further away from the city the lower the rents. This is giving tenants the opportunity to move from their current location to other parts of the city and save significantly on their rent.
With the excessive supply of products we are also experiencing longer times to locate a suitable tenant. Almost all potential renters viewing properties in today’s market are in a tenancy which means they must give one month notice to vacate their property. If they are applying in September then they are looking to rent for November 1st. We are finding it is taking three to six months at the moment to find the right tenants. For these reasons we are not recommending our clients increase the rent as this could create a vacant situation at your property for multiple months.
We are unsure how long ths market will continue though we don’t see this changing for at least one or maybe two more years.
There are lots of construction products nearing completion and in various stages of the development process. Some of these are full rental buildings, most are condos that owners may have sold upon completion except the sales market has slowed tremendously and the owners are looking to rent the unit instead of selling which is adding more product to the market.
We are not seeing the government showing any willingness to change or revert some of the changes they implemented in the past few years to help slow the downturn in sales and rental rates. The federal government is developing plans to build more homes across the country to help alleviate the cost of housing which may also have an effect on the renta rates.
We won’t see a change in the downward trend of rents until there is an increase in housing sales.
Need help managing your rental properties. Cartref Properties can assist you, call today to discuss your needs. You can find more information about us at: www.cartrefproperties.com
Swim with the sharks - or a tortoise?
One of my favorite books is called Swim With the Sharks Without Being Eaton Alive by Harvey McKay. I picked the book up in a store and remembered opening to one page where it said “second place in an interview is last place”. I loved it and bought the book.
It’s a book about how business is cut throat and how to survive in this world. Sharks are an agressive animal often on the attack and dominate the space they live in. The business world is often described as being full of competitive sharks. My experience is different.
What I found interesting in reading the book and subsequent books by Harvey McKay is that you don’t have to be loud, obnoxious and always on the attack like a shark to succeed in business and life. Some businesses try to be very aggressive like a shark and may have some success though over the long term struggle to keep that aggressive nature or spirit moving forward. I have worked in sales where it is all about making the sale, and we don’t care about the customer after the sale. I found this a hard environment to work in, It’s not my personality.
In 2020 when I started my own business I thought how am I going to grow the business that works for me. Am I going to run it like a shark or would another animal fit the business I want to build. Many years ago when visiting the San Diego Zoo I encountered tortoises. When we asked how old they were the reply was we are not sure, they are older than the Zoo which had been around for 100 years. The average life span of a shark is 20-30 years. Many tortoises can live up to 150 years. Sharks live a strong violent life compared to a tortoise. Tortoises have a shell and when life is attacking them they protect themselves with their shell. This reminds me of what Warrent Buffet looks for in investments. He looks for companies that have a “moat” around them. A moat, or maybe a shell, isn’t that the same thing?. Even in his 90’s Warren Buffet says he makes decisions for the long term.
When Cartref Properties started I decided I wanted it to be like a tortoise. What does that mean in business?. To grow methodically, building a shell around the business ensures it lasts a long time. Making decisions that are designed for the long term and not short term gain which may affect the long term health of the business. It takes time to build a business and they can collapse rather quickly when short term thinking is applied.
Long term thinking doesn’t mean buying all the new tools for the business, it means adjusting and adapting along the way to meet the needs of the growth occurring. Rapid growth has ruined many businesses before they reach their potential.
Cartref Properties is looking forward to serving your needs for rental property management in the lower mainland of BC for many years to come.
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
Is there a rental crisis?
We keep hearing the term we are in a rental crisis in Canada. First, what is a rental crisis?
I think what it means is that we don’t have enough housing or enough affordable housing for people to live in. Governments are saying we need to build more to meet the need to eliminate the rental crisis.
This confuses me a little. Even during covid when you looked at the number of properties for rent there were lots of properties for rent. Now that the economy has slowed, the number of rentals has exploded, so why do we need more? It is now taking at least three months to find a tenant in the best case scenarios for our clients. Tenants have the time to take a look for the right fit for them and to negotiate the rental rates. These factors are quickly reducing the rate of rental prices.
As the economy slows developers slow the amount of product they build which eventually will also catch up to the market and there will be a reduction of the amount of new product entering the market. If this is going to happen then why do we need more rental properties?
Maybe we don’t need more rental properties, maybe we have been building the wrong properties. For the past thirty years in Canada. The majority of properties built in the lower mainland of BC have been condos for ownership. The number of purpose built rentals has been far and few between. In other parts of the county like southern Ontario many properties being built are still single family homes.
In both of these markets we have missed what the needs of today are. Vancouver is a very transient market meaning people come here then move on elsewhere. This means we need more rental propeperties than owned properties. Ontario building mostly single family homes except in downtown Toronto is not understanding that the household has changed. Families are not as large as they were before and people are living on their own for longer which means the product needs to change to meet the demand of the current market. In both markets we are missing what the market needs and building what the seller wants to make and feels they can make the most profit selling.
In the Vancouver market developers have built many rental buildings in recent years, but are they meeting the market needs?. Many of the new rental buildings look very similar to new condo buildings with, in unit laundry, high end appliances, and many building amenities we find in condo buildings. All of these items increase the cost of maintaining the buildings, which makes it difficult to reduce the rental rates to meet the tenants demand to have lower rental prices. It is difficult to have quality and lower prices at the same time. In those scenarios something must give, if you want better quality it will cost more money. If you want something less expensive you must concede something of quality in exchange. That can be less features in the unit or less amenities in the building. In Ontario people are trying to find less expensive and the only way to do that is move further away to less expensive property, instead of a smaller property.
In both markets we have not built enough purpose built rental properties which leads to cases like covid where when the sales market takes off many investors take the opportunity to sell their property for a profit and this takes needed rental properties out of the market. Other government controlled factors affect the market including the amount of immigration entering the country, the people allowed to buy products like foriegn buyers and how houseing is used including short term rentals. When governments change the laws affecting these factors they eventually have effects on the rental market.
What a rental, and housing market needs is stability. The interesting thing is that all the issues that people complain about in today’s market have occurred before, and will happen again in the future.
Building more housing may not solve the “rental crisis” if we continue to build the wrong product for the market.
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
What price can I get for my rental property? Can I always be at the top of the market? No.
What price can I get for my rental property? Can you always be at the top of the market? No.
Clients are always asking, what price can I get for my rental property?.
The only true answer is “what the market will pay for it”.
With rental prices landlords are limited to what the current rental market conditions are and what the market will pay for your property. Every landlord want’s as much renta for their property as they can obtain. The problem with this scenario is it may not match what the current rental market conditions are. If a landlord wants to rent their unit for $2000 and renters are not willing to pay these prices the unit will sit vacant until either the landord adjusts their expectations or the market conditions change.
The rental market rates often take a long time to adjust either up or down. When there is a shortage of supply compared to demand the rates wil increase. When there is an abundance of supply compared to demand the prices will decrease. Covid created a market of less supply of product rapidly increasing rental rates. In the past two years due to manuy factors the supply has increased compared to the demand creating a decrease in rental rates.
A landlord and tenant relationship has a built in conflict for what the rent should be. Landlords want the highest payable rent and tenants want the lowest rent possible.
Both of these options are not possible at the same time. If the tenant rents a property and the economy causes rents to increase while the landlord is in a lease agreement which restricts their ability to raise the rent, the tenant would be in a market where they are paying below market rent. In this situation we see tenants stay in the properties they are renting as moving would cause an increase in their rent being paid. If the market declines after a tenant signs an agreement they may be in a situation where they are paying more than the current market rent. When the rental market rates decrease this will cause tenants to seek new places to live for various reasons. Tenants move to decrease their costs, improve the quality of property or change the location due to work or other reasons.
When rents are increasing landlords prefer tenants to vacate the property with the intention of re-renting the property at a higher rate. When rents are decreasing, landlords want the tenants to stay to prevent vacancies. Both parties have opposing veiw points to the benefits of their situation.
If the landlord is not able to have their property always rented for the maximum the market will pay for it, what can they do?.
What is the average length of tenancy? Rental properties have and always will be a transitional type of housing, meaning that most people renting stay for short periods of time in one location before moving. Cartref Properties tenancies have an average of 27.6 months per tenancy. This means that most people move somewhere between two and three years when renting a property.
Turnover offers the landlord the opportunity to re-rent the property at the higher rent when the rents are increasing or decreasing. When rent is decreasing sometimes this is a good time to take it off the market temporarily and renovate the property. During this time renovation costs generally are less expensive as it oftens coincides with a slower time in the economy. For these reasons turnover can be a good thing for landlords especially in BC where there are restrictions on the rent increase amounts permitted. When tenants stay in properties longer than three years you will find the rent is often lower than the current market rent. This creates the illusion landlords are losing money. When they rented the property it was acceptable though outside factors including taxes, utiliitites and other costs may have increased making it less profitable for the landlord.
When rents are increased it also makes it less affordable for tenants if they need to move. When rent are on a decline tenant willtake advantage of this opportunit to improve their financial situation. Often in times of rental rate decre3ases tenant will ask for the rent to be decreased and landlord will decline. Landlords only want to increase rents, not decrease them. It may be in the landlord’s best interest to consider a tenant’s request to reduce the rent. When rents are declining it means there is greater supply. This often leads to multiple months of vacancy only for the unit to be rented at the rate the current tenant requested. Isit better to have one two or five months of vacancy instead of a $200 rent reduction.
The rental rate is always what the market will pay.
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