Newly released data from Canada Mortgage and Housing Corporation (CMHC) shows the scale of the role that condominiums play in increasing Metro Vancouver’s rental housing supply.
According to CMHC, a record 11,118 condominiums were added to the rental housing supply in the region in 2019, representing an 18.9% increase over 2018. This includes 8,824 rental homes converted from existing condominiums, and 2,294 rental homes from new condominiums completed between 2018 and 2019.
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In fact, the conversion of condominiums into rental homes was the single largest contributor to rental housing supply — exceeding the supply created by new purpose-built rental housing developments, and exceeding the total number of new condominiums reaching completion during the year for the first time.
CMHC analysts believe the various new interventionist housing policies by the provincial and municipal governments over the past two years are driving factors, specifically the provincial government’s Speculation and Vacancy Tax, and the City of Vancouver’s Empty Homes Tax and business licence requirements for short-term vacation rentals such as Airbnb listings.
Vancouver accounts for 58% or 5,097 of the 8,824 condominiums converted into rental housing last year. In contrast, the city is home to only 37% of Metro Vancouver’s condominium housing.
However, this strong growth also follows three consecutive years — 2016 to 2018 — when thousands of existing rental condominiums were converted to other uses.
Analysts warn additional future surges of converted condominiums to rental homes are highly unlikely, as this shift is now largely spent.
“Any impact of the recently introduced housing policy measures on the long-term rental supply is likely to be one-time, as opposed to ongoing. We can hypothesize that most condominium owners who were incentivized to rent or sell their units have likely now done so. Additionally, so long as the policies remain in place, we would not expect the units brought to the rental market to be further repurposed,” reads the report.
“The combination of housing policies applicable in the City of Vancouver meant that the potential impact on the provision of long-term rental supply was highest there.”
In addition to the condominium-to-rentals shift, Vancouver has also been the region’s most popular location for short-term vacation rentals.
Other factors that contributed to the shift include Vancouver’s continued strong rental demand, with purpose-built rental vacancy rates hovering at or below 1% for the past six years. Condominium investors saw this as an opportunity to rent out their units to long-term tenants. Even with the surge in conversions in 2019, condominium vacancy rates remained unchanged at 0.3%.
Another factor may have been an increase in condominiums entering the for-sale market, given the strong price appreciation in the condominium market in recent years. The new owners may have added to the long-term rental market units that were previously owner-occupied, vacant, or rented short-term.
While average rents for purpose-built secured units increased by 4.7% in 2019 compared to the previous year, rents for condominium units were unchanged, which may be the result of the increased competition between landlords as a result of the higher rise in supply for this type of unsecured rental housing.
CMHC states more purpose-built secured rental housing needs to be constructed to increase overall supply and reduce the dependence on unsecured rental condominiums for overall supply.
“While condominium units are an important source of rental supply for the region, that supply is volatile, owing to the flow of units into and out of the rental market. This volatility poses challenges to security of tenure for long-term tenants,” reads the report.
“In addition to greater participation by condominium investors, the Vancouver CMA therefore needs a greater supply of purpose-built rental units to provide stable, long-term housing options for tenants, along with the associated economic and societal benefits. As a result, we view a growing rental supply as central to providing more choices and promoting housing affordability in the region.”
Last week, Vancouver City Council used the CMHC report’s findings on the impact of the Empty Homes Tax on generating rental housing supply as their basis for tripling the tax on the assessed value of vacant properties to 3% starting in 2021.