Saturday, April 08, 2006

Landlord Seems to Be on the Verge of Getting Revenge

In the relationship between owners and tenants, the balance has mostly shifted in favour of the latter over the past five years.

Watch out, though: The landlord seems to be on the verge of getting revenge.

In 1995, tenants were jubilant. The national vacancy rate was above 4%. By 2001, it was the owners' turn to smile: The rate was down to 1%.

The vacancy rate is now about 2.7%. Are we heading for a new victory for the tenants? Blackmont Capital reckons it's unlikely, based on an interesting study. Analyst Brad Cutsey lists a number of factors that seem to point in favour of owners. Let's take a closer look.

- home prices: One of the things that caused a deterioration of the fundamentals of the rental industry is big hype for home ownership, courtesy of falling interest rates. The hype is so strong that, over the past four years, home prices have skyrocketed. The average price of a home should soar another 4.9% in 2006, to $261,500, according to the Canadian Mortgage and Housing and Corp.

With interest rates now on the rise, it's likely fewer buyers will be able to afford home ownership.

- employment: The labour market should slow, without necessarily becoming sluggish. That's exactly what the rental market needs. While an overheated labour market favours home ownership, a moderate one doesn't have such an impact, but still inspires young adults to leave their parents' homes.

- demographics: According to Urban Futures, the trend toward living in apartments is higher among 20- to 34-year-olds and those over 65. While baby boomers are aging, a pattern is beginning to appear. According to Statistics Canada, the 65-and-over group should increase by 3.2% per year until 2016. Seniors should increase from 13% of the population now to 15% in 2016, and 21% in 2026.

- divorces: Marriage breakups usually end with one partner living in an apartment and divorce seems to be on the rise. The percentage of divorced people living in an apartment jumped 13.6% over five years, according to Statistics Canada.

- immigration: A key element of the demand for rental units. Approximately 60% of new immigrants rent instead of buying. The federal government recently announced it wants to raise to more than 300,000 the number of immigrants a year within five years.

So, the perfect landscape for an owner?

No. While on the decline, housing starts continue to be important, and so is the desire for home ownership. But as we have seen, these two factors should have a lesser influence than in the past. Consequently, the ability to increase the rents of vacant dwellings should improve.

Time to invest in landlord corporations? Maybe. Here are a few names: Boardwalk REIT, Cap REIT, Killam Properties, Lanesborough REIT and Northern Property REIT.

But each one is concentrated in sub-markets with fundamentals that can differ. One must also try to see to what extent the stock's price already anticipates an improvement.

1 Comments:

Anonymous Ottawa apartments said...

Who needs landlords to get revenge on tenants when the professional tenant activists do a good enough job of selling out tenants in return for government grants.

Check out the Federation of Metro Tenants Associations history page and in particular the story Tenant organizations sell out tenants.

4:33 PM  

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