Next year promises to be a year of rising vacancy rates and less construction for Greater Victoria.
The region’s vacancy rate is heading towards 1.6 per cent by October 2020, according to the Canada Mortgage and Housing Corporation (CMHC)’s analysis of the local market. That would be up from 1.5 per cent during the same period in 2019 and up from 1.2 per cent in 2018, 0.7 per cent in 2017 and 0.5 per cent in 2016. The report predicts that regional vacancy rate will hit 1.8 per cent by October 2021, based on current available figures.
“The primary driver of the increase will come from the introduction of new supply [now under construction],” said CMHC in an accompanying report. “As projects currently under construction enter the market, it will expand available housing for renters.”
Rising vacancy rates, however, do not inevitably lead to lower rents. The average rent for a two-bedroom apartment will rise from $1,535 in October 2019 to $1,675 in October 2020 to $1,829 in October 2021. The average rent for a one-bedroom apartment will respectively rise from $1,175 (2019) to $1,282 (2020) to $1,400 (2021).
So what accounts for the increase?
“For one, a significant share of new units will enter the market, they will command higher rents, and this effect will pull the average rents up,” notes the report. “Second, as current renters exit their units, the rents paid for those units will likely increase as current market rents exceed the reported averages.”
The report also predicts fewer housing starts in the future, with demand for new housing resuming towards the end of 2021.
Reasons include changing demographics as fewer people, especially young people, are moving to the region from elsewhere. CMHC lists the regional population at 399,672 for 2019, 403,989 for 2020, and 408,405 for 2021.
The report predicts that real estate sales will normalize with population trends.
“Sales will level out over the forecast horizon, halting the decline in total sales experienced in 2018,” it reads. “Sales will adjust to be more in line with population growth. Slower price growth will aid first-time homebuyers saving for a down payment, and this will limit further sales decline to some degree.”
In other words, buyers will have some choices in the future, which they may have lacked in the past. In fact, some buyers might be able to move up, as the price gap between apartment and single detached units has fallen.
This said, the report also predicts mortgage rates to increase which may dampen sales.
Overall, the report predicts the average sales price will range between $665,881 on the low end and $779,871 on the high end for 2020. For 2021, the low end will be $700,289, the high end $820,170.
“Over the forecast horizon, demand for housing will grow more slowly while new supply will be introduced in the market,” said Braden Batch, senior analyst, economics with CMHC, in summing up the market. “Compared to the last few years, this will mean fewer starts, sales, and slower price growth, but also a more balanced market and a rising vacancy rate.”
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