CMHC reports increase in overall vacancy rate in Kingston rental market

The Canadian Mortgage and Housing Corporation (CMHC) is reporting that the overall vacancy rate in Kingston increased to 1.9 per cent in 2019.

CMHC released its annual rental market reports on Wednesday, Jan. 15, 2020, and the report for the Kingston Census Metropolitan Area (CMA) points to “robust growth in the rental supply” for this increase.

“New rental supply exerted an upward pressure on vacancy rate. The number of vacant units more than tripled compared to 2018,” Olga Golozub, a senior analyst in economics, said in the report.

CMHC’s Rental Market Survey was conducted in October of 2019, and found that the increase in the rental apartment vacancy rate was the first such increase in five years after the vacancy rate reached a 29-year low of 0.6 per cent in 2018.

While the report states that demand for rental accommodations “held steady and strong,” it also notes that both supply and demand growth was almost exclusively in Zone 4 of the four zones outlined in the report – Zone 1 is Downtown Kingston, Zone 2 is Southwestern Kingston, Zone 3 is Northern Kingston, and Zone 4 is the Remainder of the CMA (which covers everything outside the other three zones and spreads well into South Frontenac Township).

With regard to the new rental supply bringing “more balance to the market,” the report states that the ‘primary rental market universe’ grew by 192 units, or 1.4 per cent. The primary rental market universe accounts for demolitions, renovations, and conversions of existing stock, but excludes seniors and student residences, and the 1.4 per cent increase of units is the fastest growth rate in that area in the last three years, according to the report. The report also notes that, after the 2019 Rental Market Survey cut-off date, nearly 300 new purpose-built rental apartment units were completed, “potentially adding to the upward pressure on this year’s vacancy rates.”

“This strong growth brought more balance to the market, alleviating some of the downward pressure on vacancy rates seen in the last few years,” the report states.

“The number of vacant units more than tripled, generating the softest market conditions in the last three years.”

At the same time, CMHC reports that the average rent is $1,237, a rate that increased by 7.9 per cent over the average rent in 2018. The report outlines the Primary Rental Market by bedroom type as follows:

• The bachelor apartment vacancy rate is 1.4 per cent, with an average rent rate of $814/month
• The one bedroom apartment vacancy rate is 2.1 per cent, with an average rent rate of $1,101/month
• The two bedroom apartment vacancy rate is 1.9 per cent, with an average rent rate of $1,289/month
• The three or more bedroom apartment vacancy rate is not stated, but has an average rent rate of $1,805/month

The report states that the vacancy rate increased across all Kingston submarkets (“albeit for different reasons”), and that greater softening of rental market conditions occurred in Zones 1, 2, and 3. In all of those zones, demand for rental accommodations declined, while the supply remained virtually unchanged over 2018. This resulted in a 2.3 per cent vacancy rate in Zones 1 and 2, and a 1.7 per cent vacancy rate in Zone 3.

“Since growth in both new rental supply and demand was almost exclusively concentrated in Zone 4, it seems that these newer units were attractive to tenants. Possibly some tenants vacated their units in Zones 1, 2 or 3 (consequently lowering demand there), and relocated to Zone 4 in search for newer rental units,” the report reads.

“Alternatively, in some instances, international students studying at Queen’s University or St. Lawrence College could have absorbed some of these newer units. According to the Queen’s Enrolment Projections Report for 2019-2022, in the first three months of 2019, first-year visa student applications for 2019-2020 increased by 5.9 per cent over the same period a year ago.”

The report also looks at the “strong rent growth” in Kingston, stating that the average fixed sample rent for all bedroom types in the Kingston CMA increased by 7.9 per cent between 2018 and 2019 – significantly above the 2019 Ontario rent guideline of 1.8 per cent.

“The 7.9 per cent increase was the highest rate of growth since we started collecting rent data,” the report states.

And, at 17.4 per cent, the overall turnover rate in the Kingston CMA was the fourth highest in the province after Sudbury, London, and Ottawa.

“Since rent controls do not apply at turnover, it is most likely that all new tenants and tenants who moved units during 2019 faced higher rents than those who remained put,” the report says. “It should be noted, that in October 2019 the overall asking rent for vacant units was not statistically higher than for occupied units, implying that significant rent increases occurred prior to the month of October.”