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Canada’s rental apartment vacancy rate fell last year to its lowest level since 2002, reflecting a supply shortage during a time of record-setting population growth, which is leaving many young families and newcomers to big cities with increasingly onerous rental bills.

The national vacancy rate for purpose-built apartments dropped to 2.2 per cent in 2019, from 2.4 per cent in 2018, according to an annual survey from Canada Mortgage and Housing Corp. The market is even tighter for condos, with the vacancy rate declining to 1 per cent in 2019 from 1.4 per cent in 2018.

The situation is particularly severe in major cities such as Toronto and Vancouver, where many residents are priced out of the ownership market, but must compete for a limited supply of suitable rental units.

“Low vacancy rates in major centres over the past year underline the need for increased rental supply to ensure people in Canada have access to affordable housing,” CMHC said in a release.

The federal housing agency noted new demand for rental housing is being driven by younger people forming new tenant households and by newcomers. “Generally, high levels of international migration continue to support rental demand in larger markets,” it said.

Indeed, conditions remain tight in Canada’s largest cities.

In the Vancouver area, the apartment vacancy rate increased to 1.1 per cent from 1 per cent, and the condo vacancy rate remained at 0.3 per cent. The cost of an average two-bedroom apartment rose 6 per cent to $1,748 a month.

Meanwhile, in the Toronto area, the apartment vacancy rate increased to 1.5 per cent from 1.1 per cent, while condo vacancies remained below 1 per cent. The cost of an average two-bedroom apartment rose 6.5 per cent to $1,562 a month.

Although B.C. and Ontario have rules that tie rent hikes to inflation for most existing tenants, landlords can set the price where they wish when a unit is vacated, putting upward pressure on overall rent inflation.

While Toronto’s vacancy rate moved higher, “I think the story remains the same – there’s not enough supply to match demand,” said Shaun Hildebrand, president at research firm Urbanation. “If you look at other indicators, such as rent inflation, it suggests the market continues to be quite tight, with rents rising by their fastest rate in almost 20 years.”

Not all markets are facing challenging conditions, however. In Saskatchewan, the apartment vacancy rate was 8.1 per cent last year, while it was 7 per cent in Newfoundland and Labrador and 5.4 per cent in Alberta.

In virtually every market, there was one constant: rising rents. In new and existing structures, the national average rent for a two-bedroom apartment increased 5.1 per cent last year to $1,077 a month. The largest increase occurred in the Abbotsford-Mission area of B.C., at 11.3 per cent, followed by the Guelph area and the Quebec portion of Ottawa-Gatineau, both of which topped 10 per cent.

“That’s well above the rate of inflation, which is about 2 per cent,” said David Macdonald, senior economist at the Canadian Centre for Policy Alternatives, who noted that condo rent inflation can run even higher than apartments.

On that front, rent on the average two-bedroom condo increased a whopping 40 per cent in the Hamilton area, to about $1,900 a month. Among major areas tracked by CMHC, Hamilton had the third-highest two-bedroom condo rates, behind Toronto ($2,476) and Vancouver ($2,045).

Given how tight the rental market has become, and the potential for collecting larger returns, developers are starting to embrace purpose-built construction to a degree unseen in decades. In 2019, more than 53,000 rental units were completed across the country. That marked the first time since 1992 that rental completions outpaced those of condos.

However, in both the Toronto and Vancouver markets, condo completions are still considerably higher than for purpose-built apartments, and plenty of those condos wind up on the rental market as mom-and-pop investors become overnight landlords.

CMHC noted the number of condos in long-term rental in the Vancouver area increased by more than 11,000 units (18.9 per cent) last year. The proportion of condos being rented was 28 per cent in 2019, up from 24.5 per cent in 2018.

In the Toronto area, close to 138,000 condo units are rented out, or 33.9 per cent of all condos; in 2007, 19 per cent of area condos were rented.

“We need more dedicated, traditional purpose-built rental to help solve the problem,” Mr. Hildebrand said.

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