We hear a lot about the Vancouver rental vacancy rate being very low but what is this metric and what does it really mean? In this post, we shed some light on the matter and its implications for renters and landlords alike.
What Is Rental Vacancy Rate?
The vacancy rate refers to the percentage of units that are vacant or unoccupied in a city, region or a given property.
What is the Vancouver Rental Vacancy Rate?
The Vancouver Rental Vacancy Rate has been low for years. Latest figures from the Canadian Mortgage and Housing Corporation indicate the rate in Metro Vancouver rose from 1.0% to 1.1% in 2019 thanks to an increase in supply in some suburban municipalities.
Vancouver Neighbourhood Breakdown
In Vancouver, specifically, the average vacancy rate is 1.0% for a one bedroom rental and 1.5% for a two bedroom unit.
Even though housing sales and prices went down in 2019, the upward pressure on the rental market boosted average rents by 6% over 2018 – well over the rate of inflation. So why didn’t rental rates follow housing prices? House prices, despite the drop, remain high relative to local income keeping people in the rental market for longer and sustaining the upward pressure on the rental market – both rates and availability. As a result, Vancouver maintains the dubious honour of lowest vacancy rate and some of the highest rental rates in the country (January 2020 Vancouver Rent Report).
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Rental Rates Across Canada
How does Vancouver Vacancy Rate Compare across Canada?
As mentioned, Vancouver has the lowest residential vacancy rate across Canada while Calgary has the most availability.
Why Rental Vacancy Rate matters?
The rental vacancy rate should be of interest to both landlords and tenants. For landlords it is a key indicator of whether or not a property or overall market is a good investment. For tenants, it provides some indication of how easy or difficult it will be to find rental housing. It will also drive rental rates as it is a metric that indicates the supply and demand situation in any given area.
How is Rental Vacancy Rate Calculated?
Determining the vacancy rate formula is fairly straightforward. You simply multiply the number of vacant units by 100 and then divide that result with the total number of units. The vacancy rate plus occupancy rate should add up to 100%.
Vacancy Rate Formula
To illustrate the formula, let’s look at a sample apartment building with 50 rental units, 5 of them unoccupied.
5 x 100 = 500
500/50 = 10% vacancy rate
For the renter, this building is a good place to look for a home.
For the landlord, however, this building’s higher than average vacancy rate suggests this may not be the best investment property. Alternatively, it may signal to the landlord that:
- rental rates are too high;
- building is poorly managed;
- or it is in need of improvements.
The landlord should take steps to remedy the situation in order to fill the empty units and ensure a good return.
This same formula is scaled and applied to all available rental units in Vancouver to derive the 1.1% vacancy rate.
What is considered a good Vacancy Rate?
The answer to this is somewhat subjective and answers vary depending on your source. In general, a healthy vacancy rate is considered to be around 3%. At this rate, tenants will have sufficient options available and rental rates are held at reasonable levels that do not impact housing affordability.
Looking ahead to 2020
A housing rental report issued by the Royal Bank of Canada in 2019 suggests renters will get a break in 2020. Strong construction activity in recent months and years – specifically, of purpose-built rental apartment projects – suggests a release of new rental units to the market is imminent.
The bank calculated that Metro Vancouver has a deficit of 3,800 rental units if achieving a 3% vacancy rate is the goal (what RBC considers a healthy rate) and, fingers crossed, we should see this gap closing in 2020 relieving some of the pressure on renters.
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