Surge in Condo Vacancies Concerning…

June 13th, 2015 · Property Management, Rental Property

Construction buildings

Almost every day, I see more real estate reporting that props up the existing real estate market.  I read this troubling article on BNN essentially dismissing the statistics.

Here’s the problem if you read their article “National Bank says more than 2,800 condos were available last month to be sold or rented based on information collected from the Canada Mortgage and Housing Corporation and the Toronto Real Estate Board.”

When I looked at last month I saw that there was 4600 condos for RENT alone, and another 20,000 vacancies on kijiji. So some of those may be duplicates, and some may be still occupied and my numbers may be slightly skewed but if I was a vacant apartment counter for CMHC right now, I’d be putting in extra shifts to cover my ass right about now. Reported numbers are ridiculously, outlandishly, outrageously wrong.

As we head into July there are 12,000 rental listings on alone and another 10,000 for sale. Now not all of those 12,000 rentals is a condo but a whack of them are.

Just for today 919 rental vacancies were posted on toronto’s craiglist. Not all of these are condos either. a site that deals only in mobile listings has 1993 listing in the city of Toronto. Not all of these are condos. What is the percentage of condos for rent vs. purpose built? I don’t know but I’m not the appointed condo counter outer either.

Visual Evidence of Condo Market Saturation

The real issue is now that as I travel around the city renting condos and working harder to get less rent with more intense competition, I see site after site in the process of being built and even more developers trying to sell more and more sites. But I don’t see the influx in people, or the increase in wages or the housing required to house families being built.  It’s a good thing Finance Minister Joe Oliver is in denial not worried.

But my favourite of all is this graph by Ben Rabidoux on twitter Ben’s Graph which shows the most recent numbers on unsold condos by developers. You can follow him @BenRabidoux or even better hire his company to give you insight into the Canadian Housing Market.

Urbancorp Works In Mysterious Ways

Which explains why Urbancorp is selling off its condo sites as rental apartments and also having a hard time issuing checks to buyers that bought townhouses but backed out when the project changed.

Driving around Toronto, anyone can observe the vast proliferation of condo sites for sale. It seems like every street corner has a building under construction or a site being advertised for sale or advertisement for a condo for rent.  This entire city is a mad hatter’s dream of construction and street closures.

A few weeks ago, I spoke to a guy who bought one of those ubiquitous one bedroom condos with a view of the lake, if he had made any money at all, I would have told him to sell, but between the HST (13%) and realtor fees of 5% he would take almost $50,000 loss on his $300,000 “investment.” It went up about $10,000 in value since he bought it 4 years ago.

The rental market seems to be a little slower than usual for this time of year, but I’m renting condos within 30 days but only if they are priced properly.

As Torontonians, we are like goldfish who cannot see the water we swim in. Our current condo market is shocking and unsustainable. I cannot imagine a future that doesn’t include a giant catastrophe for the condo industry that will cripple our economy and make my friends and clients suffer tremendous hardship and pain.

Download A Free Cap Rate Spreadsheet

In 2010 I wrote a post on Million Dollar Journey called Landlord Math – Cap Rate and Return on Investment and a few friends and I created a simple spreadsheet you can use to plug in the expenses and price and estimated rents of your investments.  In this way you can evaluate the fundamental strength of your income property. A property creates income by charging rent. A part of that spreadsheet is a field where you can reverse the numbers to find out what purchase price you should offer using your stated return. I was shocked to see that a condo I had used as a sample was worth only about 30% of it’s purchase price.

For more about what happens to the market when this all goes sour, have a look at this evaluation of our unsold inventory by Wolf Richter.

Finally I’m really impressed with Maclean’s magazine. A cornerstone of our family reading since I was a child, it does not disappoint, with it’s latest issue sounding the alarm about housing.

Happy Saturday???

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Renting Condos – Undercutting the competition edition

May 26th, 2015 · Rental Property


I love managing condos. The tenants tend to be very good and not too much usually goes wrong. The outside of the building maintenance is not my responsibility, and the building is usually managed by professionals. We have great tenant selection skills, so we tend to be boring and problem free.

Unfortunately, condo vacancy has gone up from 6.9% to 7.6% to from 2013 to 2014 according to the new Condo Owner’s Survey from May 2015 May 2015 Condo Owner’s Survey

I see vacancy at much higher than that amount in my work, I’m renting and managing a whack of new condos.

Rent Prices Are Dropping

9 months ago I rented a unit on King Street W. right across from Brad Lamb’s head office, today that same apartment is worth $150 to $200 less per month than it was before and there are 10 or so one bedrooms available right now.

If you price a unit wrong you will get crickets. No one will call you. Silence.

I had to drop the price $50 on a place I’m renting out in Sherway Garden’s area in Etobicoke. Plus that place was marketed for 2 months after we got notice.  I’ve been renting that place for over 5 years now and the rent has gone up $50 in five years and the maintenance fees have gone up over $100 in the first year alone. The owners are not really making any money.

Differentiating Your Unit

One of the main problems is the boring sameness of most condos. It’s a blur. 500 square feet, with laundry and amenities, now you’re lucky to get a pool but you get a gym, party room and maybe a BBQ pit. In an effort to reduce the selling price of their units, developers don’t even offer you parking or locker, features that came with 10 years ago. That parking is now renting to people who need it from about $200 to $50  and even more downtown. Lockers are the same.

I cannot emphasize this enough… get a parking and a locker with your unit when buying. It will hurt your rent and your selling price if you don’t have it.

Condos are a commodity and for renters who are a lot less sensitive to area and building than owners are, your condo or the one across the street are virtually identical.  Condo’s used to be the bee knees, but they are just the new standard in rentals now.

Doing a Market Survey

Check all the rental websites and look at your building and what’s around you. There will be a range, from very low to medium to average. Try and see if some of the ads are old. In that King Street building there were a number of old listings that had been around for more than a month. The trick with rentals is that the ads you see are the apartments that are left over or passed over. They may have something wrong or there may be a brand new building across the street with 100’s of units for rent.

Pick your price and adjust. If it doesn’t work, reduce and reduce quickly. Once you hit the magic number you’ll know because people will call you.

I don’t like it but month after month of vacancy is not better. Reacting quickly to changing market conditions is going to minimize your losses.

Let’s hope the summer works these kinks out.

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The End is Nigh…

April 30th, 2015 · Rental Property

Dead End City - Dark Urban Dead End (215, 211, 43) - AdultI read this complete farce of an article from the Financial Post. Non-Permanent Residents Might Be The Secret Ingredient in The Canadian Housing Market As I discovered a month or so ago, Benjamin Tal will pretty much say anything to support the fallacy that the Canadian Real Estate Lottery is still on steady ground. Last month he denied CMHC’s own Condo Owner’s Survey and suggested that I replace the term vacancy rate with the Landlord Failure To Rent Rate. This time his musing are even further reaching. “It is fair to assume that non-permanent residents play an important role in demand for rental units in both provinces – a factor that contributed to the recent boom in the condo market in centres such as Toronto and Vancouver.”

I’m sorry this is not correct, first of all there is no such large significant “demand”. The vacancy rate for condos was already at 6.9% overall in the GTA and Vancouver in 2013 before the record number of building completions in 2014.  CMHC is using a nonsensical calculation to calculate condo vacancy and actually thinks that there are only 1200 vacant condo units in the Toronto area according to what they said to Macleans’ Jason Kirby, I just don’t believe any of their figures.

I don’t even want to think about what is going to happen with the additional buildings completing this year.

One thing is clear. Non Permanent Residents have close to nil impact on anything but the affordable housing market. By definition they have no status and are non permanent. They cannot get a mortgage or even a credit card. Why would they even consider buying a condo? Will they rent a few apartments ? Sure, but like most younger people they are likely to find a few fellows and share a spot.

In my activities renting downtown, I very rarely see this demographic and I do not think they are driving the “condo rental market”. Of the bunch of apartments I manage I think I have one occupied by this demographic. So less than 1%. I rented to more economic migrants from Quebec last month than I have Non Permanent Residents in my entire portfolio and rented over a period of years. If this was a significant demographic I would know it.

Young people who are just starting out are the occupants of these condos. They cannot afford to buy and they don’t want to rent old sad apartments and so they rent condos. They make good money and have good credit.

And frankly I just want to strangle the people who genuinely believe that grandma and grandpa are going to move out of their large spacious paid off homes, selling all their furniture, moving away from their friends to go live in a sterile, rule happy, maintenance fee charging condo. I would like for it to happen, but it just isn’t. Back when condo developers still built condos for the end user/buyer this idea had a chance. Current developers are selling to investors, with promises of great wealth and lucre. Unfortunately the condo’s primary purpose is housing, not investment. The person who will end up living in this “product” is nowhere in sight. The developer doesn’t care because he has his money. One thing is for sure, Grandma will not like it, she will not rent it and she will not live in it.

There are real cracks showing in the condo market and still we keep building like crazy crazy canadian beavers. Let’s kick the can down the road, there’s nothing to look at here.

The landlord’s core business revenue is rental income. In Toronto that rental income is not sufficient to cover the expenses of the condo. Landlords are losing money. The condo rental business is not sustainable and now that the vacancy rate is rising precipitously and raising more with every completion, it’s only a matter a matter of time before the talk at the water cooler turns grim.

Notice how all the talk is of “houses” raising in price… but what about condos? Not so much. But are we building more houses? No. What are we building thousands and thousands of? Condos.

I’m pretty sure I’m not the crazy one.



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My Search For The Truth About Current Vacancy Rates

April 9th, 2015 · Personal House, Property Management, Rental Property

vacancy 03.09.09 [68]Today I ended up in an article in Macleans magazine The Vacant Truth About Rental Condos for speaking out about vacancy rates.

I have known for quite a while that published vacancy numbers were complete balderdash but I had no idea how the mysterious 1% number came about. So I asked.

Initial Inquiry Email

I have a question for Benjamin Tal.  I was reading in the Globe that the vacancy rate in Toronto is 1.7% and my calculations using all the properties I lease/manage end up with a vacancy rate of 7% or if I correct my sample by removing all new units that must inevitably be vacant in the beginning I still get a vacancy rate of 3.26% using my 100% accurate but admittedly small sample size.

So my question is… how exactly is Benjamin Tal coming up with a figure of 1.7% for the vacancy rate?

1% vacancy for one single condo is 3.65 days of vacancy, and 1.7% vacancy leaves me with an average of 6.21 days of vacancy per condo in Toronto. This calculation traditionally included repairs, renovations, painting and obviously leasing of the suite. Of course not every condo becomes vacant and many stay occupied for several years. In fact in my sample, a full 50% of condos sampled had 0% vacancy.

I thank you kindly for your time and eagerly await your response to my question.

What methodology is being used to calculate this 1.7% vacancy rate?

Response 1


Mr. Tal  took these numbers from the latest CMHC quarterly, so he is only reporting the numbers. You would need to contact CMHC directly on the methodology for these rates.

Please let me know how your conversation with them goes.


Kevin Dove


CMHC sent me the Condo Owner’s Survey which I discussed in What is Toronto’s Vacancy Rate? and the vacancy rate ranges from 10.1% in the first three years to 6.9% overall rate.

This made me even more curious. Because 10.1% or 6.9% is different from 1.3% or 1.7%. And this is CMHC who are ostensibly, part of the government and who also are responsible for publishing statistics that matter.

So I sent this email.

Hi Karine,

Here’s another recent article from the Post. Rental vacancy rates across the country remain very tight with Toronto under 2%, according to Canada Mortgage and Housing Corp. “We’re not hitting the highs we saw in the 1960s and 1970,” said Ted Tsiakopoulos, regional economist for Ontario for CMHC. “What’s driving this is rental vacancy rates [not including units from condo investors], they peaked in 2004 and they’ve been trending down.”

I have speculated about why all of a sudden developers (Who are not known for their altruism) are selling prime condo building sites to Pension Funds and I can only come up with a a few answers.

  1. They need cash to finish building out other sites.
  2. Condos are no longer selling.

Again what is driving this move is the ultra low low vacancy rate. Under 2%. Wow that sure is low. Really super duper low. Amazing. It’s too bad it’s a fabrication but oh well.

Email sent to CIBC Media Inquiry

Hi Kevin,

I’m sure Mr Tal would love to update the real condo vacancy rate. Here’s the CMHC report in question,d.aWw


At this point I’m really thinking that a legitimate error has been made. It’s not hard to make but it should be corrected. Benjamin Tal is the Deputy Chief Economist of CIBC World Markets Inc. in case you don’t know he’s a VIP. Unlike me who is a smelly, ignorant property manager.

Benjamin Tal’s  Email 1

Rachelle, thanks for your comments – the report stated clearly that the vacancy rate is for purpose-built  privately initiated apartment structures of three units and over– and the source is CMHC just go to their web site.  The report does not quote vacancy rates in the condo space . in that space my estimate is that the vacancy rate is between 3-4%.   Newspaper quotes might be misleading—when in doubt I suggest to read the actual  report. Thanks again

And then…

Rachelle, the 10.1% is out of COS (Condo Owner Survey) investors which is  17.1% of the market so 10% x 17.1% gives you 1.7% —I think the number is higher than that –but it is not 10% .

Bad Math Response

It’s 10.1 percent of the representative sample. It’s just bad math to then divide that by the population.

For example if you call 100 people and 20 percent eat chocolate you can then use that data to extrapolate that 20000 of 100000 people eat chocolate but if you say only 20 of 100000 or .02 percent eat chocolate you have missed the entire point.

Benjamin Tal’s  Email 2

Sorry but I must disagree. The following is the situation: say they called 100 people and asked if they are investors. 17 of them said yes. That is the number that CMHC reports 17.1 percent. Then they take those 17 people and ask them if they have a vacant unit. 10 percent of those 17 people say yes. So it is 10 percent of those 17. That is the way it was done. As a footnote I was one of the people that helped to design the survey and vetted it so I know that that is the way it was done.

My Email Back…

Dear Benjamin,

You’re correct. Actually according to the methodology in the report 42,426 people were surveyed. 17.1 percent owned another condo. That’s 7212 investors with a second condo. Roughly 50% rent out their condos to tenants or 3606 people Additionally, 6.9 per cent of COS investors or 248 people  indicated that their last purchased unit was vacant (for sale, for rent or for other reasons such as renovations) This is the overall vacancy rate for condos according to the sample.

For new owners the vacancy rate is higher 10.1 % according to page 9 table 19 which has a vacancy rate of 10.1 % for condos purchased in the previous three years and around 5% for the rest. This is quite possible as new condos suffer from competition, and some blinds and light need to be installed. 100% of them are vacant and this increases the percentage of vacancy. Also new owners may be inexperienced and this may affect the percentage as well.

These numbers actually correlate with my own internal vacancy statistics, of 3.6 for management clients and 11% for new condos and all condos. However there is a bias, because people sometimes hire me specifically because of my skill with problem tenants. So that skews my number upward in the new clients segment. I am quite pleased with my managed properties vacancy rate though.

The point is that the vacancy rate for condos is high, much higher than the 1.6 % often quoted for much more affordable purpose built housing. Unfortunately that number is misused to convey to small investors  that the rental market is great, that rental prices are higher than they can get and that people are falling over themselves to rent their 500 square feet in the sky. That really is what I want to stop.

I have already sent a copy of this ignored report to the Toronto Star, The Globe & Mail and the Financial Post to get them to correct the numbers on several recent articles.

As a person of influence you have a responsibility to help spread proper information, and I hope that in the future you will be super clear about the vacancy rate for condos.

Many Thanks,

Rachelle Berube

CEO Landlord Rescue Inc.

Back To Benjamin Tal

I am with you. I think that the actual vacancy rate is higher and more importantly  will go higher.

But on this note in case you are going to quote their number from table 19 you have to look at table 4 and table 19 together . Table 4 gives you the distribution less than 3 years , four to five and so on. So for example  according to them 33.1%  bought the condo in the past three years.  Now you go to table 19, and you look at how many of this group say that they have a vacant unit. The number is 10.1%    . SO IT IS 10.1% OF THE 33.1%  OR AROUND 3%.  And so on…..the numbers on table 19 are not vacancy rates but the percentage of people out of each sub group that say they have a vacant unit.

Again in case you are thinking of using those numbers I just want to make sure that you use them correctly.  Best BT

Now I’m Kind Of Mad

Hi Benjamin

10.1 % is the correct vacancy rate. The subgroup is people who own condos and rent them out. You cannot go back and include people who own condos and live in them. That statistic just gives you the vacancy rate for all condos, not rental ones.  Why would anyone even care about the vacancy rate on owner occupied condos. Maybe people offering house sitting service?
What I care about and any investor cares about is the vacancy rate for condos that people are attempting to rent out. We don’t care about owner occupied ones because they don’t form part of that market so there is no point in adding back the greater sample size. That particular vacancy rate for condos being rented out is 6.9% overall, 10.1% for the first three years and around 5% thereafter.Also I’m not sure you realize this but the CMHC condo owner survey did not come out in time for your article in the Globe and Mail.  The last time I emailed Kevin, he told me to get back to you about what I found out.

However it appears that CMHC is still using that statistic in their rental market report even though it (hopefully) erroneously includes the owner occupied statistics. I will also be contacting CMHC next week and asking them to explain and or correct their figures. I wouldn’t want to suggest that a government agency is misleading the public because that would be awful.

Frankly, now that I think of it, I hope to heck CMHC is not using the same flawed formula for purpose built housing. Actually they probably are because I was just talking to my friend who manages Greenwin Properties and she told me that she too is noticing the vacancy rate is high.

A one percent vacancy rate is almost impossible, it means that if one hundred tenants give notice, the day they move out ninety nine new tenants move in.  Using a daily calculation, one percent is 3.65 days of vacancy for each condo in Toronto. If you figure out that a most tenants will stay on for more than a year, say 2 years, then you get 7.3 days for the old tenant to move out, repairs to be done, renting/advertising/showing to be done, and the leases signed, in one week. for every condo in Toronto/Vancouver.

A ten percent vacancy rate is not so bad if you think of the flow of the rental market. First this is for the new condos, they get the keys to their condo, they have to order and put in window coverings and light fixtures, they have to take pictures, place ads, deal with an unfinished/dirty building and the competition, It’s not unusual to have 20-30 other mostly identical suites available in the same building. Using a daily calculation that’s 36.5 days on average before the new tenant moves in.

Or for the suites that are from the 3 year and on mark, 5% is also pretty good. We get 60 days notice and as long as we have a clean cooperative tenant we are able to show the place and possibly rent it with no days vacancy. Or if the incoming tenant is flexible a few days or 15 days after the 1st. Some suites may well need repairs and painting in which case it might be longer depending on what the repairs are. 5% equates to 18.25 days on the market, or if suites churn ever two years or 18 months, it’ll translate to more days empty when the suite does turn over. The most common scenario is that the old tenant moves out, the owner cleans and paints and the new people move in the following month. I’d wager that most owners prefer it that way, back to back rentals (old tenant leaves and new tenant arrives the same day) are stressful as heck.

Thank you for your time, I know this might seem pedantic, but the vacancy rate is a very important number. As someone who has advocated very heavily for small investors before I would prefer it if developers and their associates in the media and finance not use this inaccurate vacancy rate as a merchandising ploy.

I work very hard for small investors and I am alarmed that they are currently the prey in this unsustainable game. If they are misled to the amount of rent they can get, and the vacancy rate, and the purchase price is unlinked from the rent like it has been for the last 10 years it cannot end well. Currently most of these small investors are paying in monthly to cover the expenses. Call me a skeptic but I do not see that 50% of investors with no mortgage on their condos. I have one among my clientele but he’s a foreign investor. The vast majority are using leverage to play this game and many are using a HELOC for their downpayment and possibly the whole purchase (Smith Manoeuvre)

Many Thanks,

Back To Benjamin

Thanks for that. I respect your  commitment  to that cause. And I think I now understand where you are coming from. The issue  is that when CMHC or economists like me use the term vacancy rate the focus is the entire market. That is if say it is 10 percent of total units then it means that we should expect a significant increase in supply (as those disappointed investors sell) and lower prices and that’s why the size is important  here. The focus is on the potential impact of such situation on the stability of the market as a whole and not on the likelihood of a potential investor to successfully rent his or her unit. But I think that the later is your focus which I think is a legitimate focus. Therefore  I think the best thing is not to use the term vacancy rate but another  term (like likelihood of failure to rent) and then I think most people would  agree that in the condo space it can approach 10 percent for new condos. To the extent that a potential investor looks at a vacancy rate as the likelihood  of failure  then you are absolutely  right that they are wrong to do so. And here I think that what you do in terms of educating people about that is important.

I don’t really go along to get along

Dear Mr Tal,

The problem is that the term “vacancy rate” has had the same definition since long before we were born. What CMHC calls “vacancy rate” is not a vacancy rate.  This term were defined long before you or I were born as a measure of building and hotel performance.

Vacancy rate does not include all the residences in a city. It only includes those that are for rent.

“Likelihood of failure to rent” is a meaningless term and my colleagues would wonder if I suffered from aphasia if I used it to describe the vacancy rate.

This definition is from from Investipedia

Vacancy rate is the ratio of rental units not rented versus the total number in the building, city, state, etc.

How it works/Example:

The formula for vacancy rate is:

Vacancy rate = Units not rented out / Total units

For example, let’s assume that Company XYZ owns an apartment building that has 300 units. Of those units, 25 are not rented out. Using this information and the formula above, we can calculate that Company XYZ’s vacancy rate is:

Vacancy rate = 25/300 = 8.33%

Though our example uses units as the basis for calculating vacancy rate, it is possible to use square feet or rent dollars instead.

Why it Matters:

The vacancy rate is equal to 1 – Occupancy rate. In our example, the occupancy rate would equal 1 – 0.0833 = 91.67%.

I did not invent this, CMHC invented another calculation that is completely irrelevant and called it “vacancy rate” I would love to think this is in error but its hard to believe that not one person at CMHC’s entire department in charge of providing these statistics to the general public knows how to calculate a vacancy rate.

It’s very embarrassing for CMHC that’s for sure to have some lowly property manager bring to their attention how to calculate vacancy rate.

Many Thanks,
Rachelle Berube

Back To Benjamin Tal

We are talking about the same thing. In a purpose built apartment building it is true because everything is for rent and thus “total units” is by definition all units and that is the 1.7 percent that CMHC reports for purpose built. The issue is that you cannot apply the same to the condo market since only part of it is for rent. Again from a macro perspective we care about the absolute level to see to what extent this excess supply can lead to a massive increase in supply in the resale market.  For example if the vacancy rate as you measure it is 50 percent but the rental market is only one percent of all units this is hardly a macro issue that will lead to a massive sell off. I think it is a question of definition. If you want we can discuss it over the phone tomorrow.

My Final Email

Dear Benjamin,

That’s no problem we can talk. While drinking my Sunday coffee, I looked into the definition used by the US Census bureau and they too seem to agree with my definition and even New York has a vacancy rate of 5.9% (In housing New York is famous for their tight rental market) and many areas have double digit vacancy rates.

You certainly can apply this definition to the condo market. The ones for rent are part of the condo rental market. The others are not. It’s very simple. That is the 10.1 percent vacancy rate. I own a management company and this agrees with my own internal review of the Toronto condos I manage. Of course the sample size is very small.

Just like when looking at purpose built rentals you don’t include retirement homes, hospitals, police stations or office buildings when determining the vacancy rate. Actually this number looks really low too maybe they do.

The issue with the vacancy rate is that it includes all Toronto areas, Jane & Finch and Bayview & Bloor and even Scarborough so the numbers have to reflect that.

As for your concern, about a sell off,  I think that there is a very real possibility. I have been disseminating a cap rate spread sheet for the use of small investors for years and it does include such things as maintenance and vacancy. What you find when evaluating real estate in Toronto is that it makes no financial sense at all unless capital appreciation is relied upon to make the investment.

If there is one single act that would cause these condo investors to sell off as a group and cause significant problems, I would say that would be if the rent increase laws were changed. Currently any rental properties built after 1991 are exempt from the rent increase guideline. If maintenance fees go up and the rental market goes up a few $$$ the landlord is able to increase the rent above the measly guideline.


In Conclusion

The latest condo owner’s survey was taken in 2013, we are almost 2 years later. Since then about 20,000 units were completed in 2014 with apparently another 478 active projects on the go. Every single patch of grass in Toronto has become a condo project with a condo billboard on every street corner.

As someone who is renting these units out and dealing with the competition, unfinished state of the buildings, lack of cash flow for investors etc. I think we can finish what we have started and stop building. The condo vacancy rate is high. We don’t need more condos. We don’t need more high end rentals. What we need are affordable places for average people and families to live. There is no “trickle down effect” when you are dealing with condos because the costs are fixed and owners are already not making any money.

I took pictures of the Ice Building notices and there was floor after floor with obvious vacancies and what can only be described as an auction atmosphere for savvy tenants. The Ice building is not alone or an isolated case. I also rented a unit at 8 Mercer during the same time period, and 33 Singer Court, and I’m still renting a unit at 66 Forest Manor Drive. The owners haven’t reduced the price on that unit yet and so it sits, unloved and abandoned.

It is not acceptable that CMHC is not using the standard calculation for vacancy rate. I did not invent this number. It is used by countries all over the world.

“The truth may be puzzling. It may take some work to grapple with. It may be counter intuitive. It may contradict deeply held prejudices. It may not be consonant with what we desperately want to be true. But our preferences do not determine what’s true.” Carl Sagan.

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What Is Toronto’s Condominium Vacancy Rate ? (Not 1% That’s For Sure)

March 12th, 2015 · Property Management, Rental Property

vertical limitThe Emperor Has No Clothes. I’m not sure where the myth started that the condo vacancy rate was 1% (Give or take a few decimal points).  I have calculated the vacancy rate according to properties under my management and dug up a CMHC Condo Owner’s Survey so keep reading to the very end.

How To Calculate Vacancy Rate for your Condo

I calculated using time for each condo I manage.  1% of a year would be 3.65 days of vacancy. For a true rate though each condo in Toronto would be vacant for 3.65 days. As a measure of individual condo performance to calculate your vacancy percentage through the years, Take the number of days vacant and divide by 3.65. It’s quite common for the first tenant to move out on the 30th of the month and the new tenant to move in after a lick of paint and minor repairs 30 days later.  That’s an 8.22% vacancy rate.

Another methodology used to calculate a vacancy rate is to call hundreds of thousands of people who own condos and ask them if their condo is empty. For a 1% one person in 100 would have an empty condo.  This is the CMHC way.

My methodology

I manage quite a few properties, so I decided to calculate my own vacancy rate using properties I manage. I wanted a proper calculation so I removed all the houses, I removed all the condos that are outside Toronto. Most of the condos I get are vacant when the owner hires me, so I removed them too.  I only used condos that I have been managing for 2 or more years, that had been rented before 2104 to get an idea of the turn over.

Frankly, I think our rental process is one of the best in the business, once we get 60 day notice, we do a vacate inspection and use the photos we keep on file to put ads up and try to rent the place. We actively try to rent the unit for a day or so after the tenant moves out. That is our goal. We often succeed. I would not expect that this aggressive strategy is used as a general market condition.

I also removed all the new condos and non management properties from the calculation.

An exact 50% of these condos did not have any turnover and so their effective vacancy rate was 0%.  This obviously lowered the average percentage. With these strict criteria, my internal vacancy rate was 3.26% or an average of 11.89 days vacant. This is a best case scenario.

Adding in New Condos

When I added in new condominiums the rate jumped to 11.26% or 112 days on the market. This number also includes one condo that had two vacate periods during the year. The tenant moved out early and then we needed to rerent the condo and another condo where we had a bad tenant who moved out but didn’t turn in the keys, we eventually had to get a locksmith.  These are current market conditions and must be included in any calculation. The rental market does have tenants that are awful.

Market Conditions with a 1% Vacancy Rate

Once you realize how impossibly low a 1% vacancy rate is, you can quickly infer that there must be certain signs to a low rate. I actually know what they are because I’ve been in this business for 20 years and I’ve experienced these conditions as a professional and as a tenant. Here are some of the signs.

  1. As a tenant you would not give notice until you secured a place. The effect of of this was that you were quite likely to pay double rent for 30-60 days.
  2. Tenants were afraid their place would get rented before they found a new place.
  3. As a tenant you would take a place as is and fix it up yourself
  4. Intense competition, I’ve had 80 people show up for a showing
  5. People bring all their documents and cash so they can act quickly and rent the place.
  6. Rental Agents and Supers were offered bribes (Key deposits) to approve applications.
  7. The market was so painful, you did not want to move and would live with almost anything.
  8. Landlords did not fix anything, they didn’t have to.
  9. People would fill out 20 or 30 applications trying to get one apartment.
  10. Buildings had short hours, 9-5 with the office closed for lunch. The tenant would book off work to look for a place.
  11. Rents trended up.

To illustrate this a little further… during my property management school placement on Balliol Street downtown Toronto, I was tasked with accepting tenant work orders and showing apartments. First the only way work of any kind got done in the building was via City Work Order. All work orders were completely ignored except for flood, fire or emergency situations.

This particular incident stood out in my mind, I was showing an apartment and in the laundry room above there had been a leak and the ceiling had collapsed. The hole was very large and moldy. I asked the manager at the time if we could get it fixed. He gave a little laugh and with complete arrogance replied with a scoff “Someone will take it and they’ll fix it”. He was right. One day later that place was rented.

Later on I worked for a company called Macro Properties and to rent a property we would put an ad in the Toronto Star, they paid someone $500 per apartment to answer the phone. The volume of calls was staggering. I would set two appointments per week per vacancy. I would hand out applications and they would bring them back to the head office with a money order for first & last. After one particularly frenzied showing 13 people were at the head office before it opened, with their applications and money orders. I got in trouble from my boss because there were too many applicants and “What do I do with all of them?” The rent was $1600 and it was a 2 bedroom apartment. It was also under construction during the showing. It was not affordable housing.

These glory days for landlords are long long gone. These are not the present market conditions. Not even close.

Current Market Conditions

Renting is seasonal.  It’s been a long winter. Kijiji is now the biggest rental site. It also boasts a current 14,000 apartments & condos & houses for rent. another 4600 approximately. (Other sites don’t have numbers) It’s no problem to answer my own phone. Before I even take on a property, I will do a market survey. If the price isn’t bang on, you don’t get any calls. These are brand new properties and really decent ones. A few years ago my marketing strategy would get about $100 more than the average.  Here’s evidence that the current vacancy rate is a lot higher than propagandized.

  1. Tenants expect a place that is clean and painted and in good condition.
  2. Buildings have late hours every day and even weekends to make it easy for the tenant to come to them
  3. I require people to confirm one hour ahead of time to make sure I don’t get stood up. I mostly have showings with just one person.
  4. The Toronto Real Estate Board’s own published statistics for the last quarter of 2014 state that 50% of places are not rented. The last quarter of 2014 10,611 of all types of properties were listed and 5036 were leased. How is this possible in a 1% vacancy rate situation?
  5. Tenants shop around and have lots of time to make up their mind.
  6. Competition is fierce for good tenants. Buildings are giving away TV’s, free month’s of rent and other promotions.
  7. It takes more than 3.65 days to rent a place and move a new tenant in.
  8. Rents trending down
  9. No depth to market, poor response to ads, few calls.

All of these existing numbers prove to me that the market is not nearly as tight as 1%.  The evidence says it’s not and as more and more buildings come on the market, it takes months for the area to absorb the 50-60 suites of inventory.

Here’s a few examples out of the last month.

8 Mercer Street is one of the most unfinished buildings I’ve ever rented. There are 20-30 suites available currently and they just opened the 6th floor. So there’s a whack of more floors to provide even more inventory. I put the price to $1599 for a one plus a den at John & Wellington right in the heart of the financial district. I get not one phone call in one week. I drop the price to $1499 I get one call and one inquiry right away. As it turns out, my new resident has seen a lot of suites in the building, she has selected the 07 layout as the best one. She likes the floor it’s on because the door to the rooftop garden is right beside her unit. Does this sound like a tight supply to you?

I listed another unit at 33 Singer Court at Leslie & Sheppard in the Discovery Developments. This group of buildings includes some of the best amenities I’ve ever seen, including a dog spa area so you can wash poochie after his walk. It is also rented now but when I did my market survey there were 27 one plus dens for rent in those buildings.

These are simply not low vacancy conditions.

Quest For The Numbers

In my search for some kind of reliable numbers I emailed CIBC’s media spokesperson about this old article in the Globe that came out in February 2014.  I was told they got the number of 1.7 % raising to a little over 2% from CMHC. So I emailed CMHC and they said they did not know where CIBC got that number from and to ask them.  They also said this was an old article, so then I sent them this horrible article from the Financial Post. Even Toronto Life’s moment (Not available online) quoted this low rental vacancy number.

That Financial Post article needs a full blog post on it’s own to fight the propaganda in it. The only motivation for selling these condo sites to a pension fund as a rental building is because condos are getting harder and harder to sell. Or they are short on cash or some other internal reason. It’s not because of the downtown condo rental market strength that’s for sure.

Then… CMHC emails me this report called the Condo Owner’s Survey in which they just called thousands of people and ask if their units are vacant, under repair, or occupied. You can read the whole thing or you can skip to page 6 table 9 which states a vacancy rate of 6.9% or page 9 table 19 which has a vacancy rate of 10.1 % for condos purchased in the previous three years and around 5% for the rest.

This report was published in August of 2014 but surveyed 2013 obviously. Due to the nature of the rental market it’s really hard to get a more recent survey. I doubt that the thousands of investment condos that have come out since then have improved the vacancy rate. The vacancy rate has gone up from the 6.9% or 10.1% rate quoted by CMHC.

Deceptive Marketing 101

I’m sick of hearing about the low low condo rental vacancy rate. It’s a complete fabrication and has been for years. If anyone knows where this information comes from I’m all ears. Probably Brad Lamb in 2012. Who knows. The CMHC report is the best source we have for a true vacancy rate for condos in Toronto. The only people who benefit from this astonishingly inaccurate statistic is the real estate developer, one with a lot of condos to sell.

As someone with experience in navigating the difficulties of renting and managing these new condos, I think it’s time for the Bad News Fairy to sprinkle the condo market with a healthy dose of reality. It’s almost a yard sale out there, with condo owners having to adjust their price expectations as tenant shop for the best deal.  The vacancy rate is closer to 10% than to 1%.

Feel free to question my numbers and methodology in the comments.

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