The vacancy rate for rental apartments has plummeted since 2016 in Quebec.
Always weaker in the Montreal area, the recent decline in available housing applies to all of Quebec, where the overall average has reached a low of 2.3% in the fourth quarter of 2018. The market is moving away from 3%, considered as the equilibrium rate and leaving fears of a possible housing crisis.
The rental rush
It should be noted that this decline in vacancy occurs despite an exceptional rise in rental housing start of construction since 2017. This sector has become the hottest in Quebec real estate by outperforming single-family homes and condominiums in number of units under construction per year. In addition to placing traditional rental housing on the market, the sector also receives injections through the leasing of homes and condominiums by investor buyers.
The strong increase in supply, however, is not enough to meet the growing demand. This increase in demand can be explained by several demographic and economic factors that are both structural and cyclical.
An outstanding demand
First, there is the excellent health of the Quebec economy, which encourages job creation and an increase in purchasing power that weighs on the demand for housing space and therefore pushes for an increase in households. In addition to the impact on the resident population, the economic situation also encourages an increase in the population in a rarely seen proportion.
Since 2016, Quebec’s population growth has accelerated, mainly motivated by a substantial increase in the balance of non-permanent residents. Stimulated by economic vitality and the current labor shortage, more than 110,000 residents were added over an 18-month period between January 2017 and June 2018. Considering that immigrants (and even more non-permanent residents) tend to opt for rental housing at first glance, it is understandable that the market has been under exceptional pressure.
Apart from the economic context, the higher demand for rental housing is also due to a rise in the proportion of tenants under age 34 and the aging of the population. The Canada Mortgage and Housing Corporation (CMHC) indeed points out that the proportion of renter households among youth was decreasing between 1996 and 2011, but that it has since begun to grow again and suggests a return towards rental for the millenials.
The aging of the population also has an impact on demand for rental housing, as the proportion of tenants generally increases after age 70. This is due in part to the workload of ownership, but also to a greater proportion of people living alone in this age group. Note that 48% of tenants in the Montreal Census Metropolitan Area (CMA) are people living alone.
Saved by investors
The loss in rental housing inventories caused by the conversion of rental plexes into condominiums in recent years seems to be canceled out by the phenomenon of rental of condominiums by investors. According to the CMHC, the number of condominiums available for rent has increased from 8,800 in 2008 to 32,200 in 2017. In the Montreal CMA, most of these units are located in downtown Montreal and Nuns’ Island where 25% of the condominiums for rent are concentrated.
The recent increase in foreign investors, supported by the growth of Chinese buyers in the Montreal market following special taxes in British Columbia in 2016 and in Ontario in 2017, has boosted the supply of rental housing. However the contribution of foreign investors is still marginal. There were 688 transactions made by non-Canadian buyers in 2017, representing 1.5% of total transactions in the Montreal CMA.