Why Vancouver rents spiked in 2016
Vancouver rents rose at the same inflated pace as home prices between 2015 and 2016, a reversal of a previous trend that saw rents remain comparatively affordable
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A huge spike in Vancouver rents likely started one year ago, according to a Vancouver realtor who specialized in selling apartment buildings.
“We were the first out of the gate to say something’s happening, and it’s not just a trend, it’s something very significant in the marketplace,” said Mark Goodman.
“Rents are finally catching up to housing market.”
Metro reported Wednesday that data compiled from Craigslist listings by Tom Davidoff, an economic professor at the University of British Columbia, showed that Vancouver rents rose a steep 15 per cent between April and August, and were on track to rise 20 per cent this year.
That comes as no surprise to Goodman. In July 2015, he noted increases of between 10 and 20 per cent when new tenants moved in. It’s a new phenomenon in Vancouver, where rents used to be the affordable alternative to ever-increasing real estate.
A combination of factors could be pushing up rents. A number of tenants could be staying in the rental market because, with home prices rising 32 per cent this year, they’ve been priced out of homeownership, Davidoff said.
Building owners are facing increasing maintenance costs as many purpose built rental buildings age, Goodman said. And as in the residential market, prices for apartment buildings have skyrocketed. That means that the capitalization rate, or income that can be derived from a property asset, has fallen to 2 per cent compared to 6 per cent that was common 15 years ago.
“They must get that yield up over time,” Goodman said. “With the multi-family asset class, you can do that on turnover.”
The solution, Goodman said, is to build more rental supply: he believes the province’s new 15% property transfer tax on foreign buyers, the City of Vancouver’s proposed vacancy tax, and the requirements built into several of the city’s recent rental building incentive programs are all making it harder to build new rental in Vancouver.
He also thinks it should be open season on knocking down lower-density rental buildings and replacing them with higher towers to increase supply.
However, research has shown that building new rental doesn’t translate to more affordable rents, said Andy Yan, an urban planner and acting director of Simon Fraser University’s City Program.
“The new stock of market rental isn’t going to fit the needs or security of those who are facing these significant rent increases,” Yan said.
In Vancouver’s volatile rental market, where long-term renters are increasingly being pushed out, strengthening renter’s rights might be one solution, Yan said. Another is to make new rental actually affordable to renters, who have much lower median incomes than homeowners.
Metro Vancouver’s strong job growth, interprovincial migration and demographic factors, like a “bulge” in Millennials forming households, may also be factors in rent growth, Davidoff said.
Metro Vancouver and Victoria have seen strong job growth compared to the rest of B.C. and Canada, with many of those jobs coming from sectors like construction and tourism. But wages in B.C. have remained flat, surprising economists who expected wages to rise along with job creation.
“You either have the jobs filled or leave them empty or you’re going to have to increase your wages,” Yan said. “The quality of jobs is not only wages, but in certain sectors, the precariousness of employment is really going to determine what forms of housing tenure you’re able to enter."