Renting not so easy in tenant's market.
February 23, 2004 - Ottawa's vacancy rate of approximately three per cent, a six-year high for the city, means market forces are working, local experts say.
"Generally speaking, a three per cent vacancy is considered a healthy balance between demand and supply," said Joy Overtveld, a director of the Ottawa Region Landlords Association and a lawyer who specializes in rental issues.
"There is no advantage to landlords and there is no advantage to tenants. It is a good thing for the long-term benefit of the industry when you have good balance."
Canada Mortgage and Housing Corporation's 2003 national vacancy rate survey conducted this past October showed Ottawa to have a 2.9 per cent vacancy rate for apartments with three units or more.
Robin Wiebe, market analyst for Canada Mortgage and Housing Corporation, said that number is one per cent higher than in 2002. "It is a six-year high for Ottawa."
Wiebe is unsure what will happen this year.
"Forecasting is difficult especially when there are competing trends," said Wiebe. "Low interest rates make ownership more attractive (but) there is a rising number of 15- to 24-year-olds who are far more likely to rent than people in higher age groups."
In 1996, Ontario's 11 largest centres hit its lowest point for the 15 to 24-year-old population according to Wiebe. That year the weighted average vacancy rate in Ontario hit its highest point.
"Since then, the trends have come closer and are converging together," said Wiebe. "My overall view of the market for housing in its totality is that there are long-term trends in the market that are determined by demographics and economics (interest rates and jobs) that can give an additional push or detract the market. The economics have outweighed the demographic in the last two years so the vacancy went up."
President of property management company LPMG Inc. Matt Lapierre said there are still tenants out there, but those prospective tenants know they have ample choice.
Many high-end tenants that used to look for specific areas and amenities and were not concerned about costs are being lost to the housing market because of low interest rates said Lapierre, who sees mainly cost-concerned renters in the current market.
"Tenants are more concerned about the cost, that the place is clean and has a good landlord."
Although Lapierre agreed it is a tenant's market out there, none of his clients have resorted to slashing rent prices. Instead, Lapierre argued that offering quality customer service would likely keep tenants content to remain without exploring options that are out there. To Lapierre, that is the key to keeping rental portfolios filled.
Lapierre and Overtveld agreed that small landlords are suffering more in the current market because their vacancy rates are higher than larger landlords.
In his experience, Lapierre said that many small landlords are at a disadvantage because they do not have the resources to market themselves effectively. Property management companies and large landlords are able to advertise more effectively than with a simple ad in the paper and For Rent sign on the window.
"We spend our time marketing our customers. We have a high Web presence and lots of signage." LPMG's Web site gets 1,000 hits a day from prospective tenants according to Lapierre.
Small landlords that have renovated units to increase the rent have found that unfeasible, said Lapierre. "People will pay $150 less for a clean place with less amenities." In response, Lapierre said owners are delaying upgrades to units to keep costs down for now, in addition to lowering rents.
"I know owners who have slashed rents. It's not good (because) there are still a lot of tenants in town and (many) moving to town," said Lapierre.
One small landlord, who preferred to withhold his name, spent six months finding new tenants for two apartments that opened up in the three-unit building he owns in central Ottawa.
A landlord for over 30 years (with a full-time career) he was surprised with the low response from advertising in newspapers. In the past, one ad usually brought dozens of phone calls and a new tenant could be signed within 48 hours.
He decided to make the investment to renovate both units with the hope of increasing the rent and attracting high quality tenants.
Word of mouth helped lease the first apartment at a lower rent than he originally wanted. The second tenant did answer the advertisement and again, the rent was lowered to get the lease signed.
Having lost six months of rental income, there is immense relief that all the units are filled once again.
OPENING LANDLORDS' VIEWS
The one thing Lapierre wants landlords to realize is they have to be more open these days to who they are willing to lease to. An example could be allowing smokers or prospective tenants with pets to occupy units.
"(Landlords) were used to hand-picking their ideal tenant but that's changed. The tenants are picking the perfect place, the perfect area and the landlord. I'd rather have 12 months of rental income than lose four months (holding out for) a perfect tenant who may not be so perfect."
From 1990 to now, the Ottawa area has gone from being a 50/50 split between tenants and owners to a 40/60 split with 40 per cent tenants and 60 per cent owners, according to Overtveld. Of these landlords, 40 per cent are women and most landlords are over the age of 50 and have another career.
There is no formal data tracking the actions of these small landlords whose influence is felt throughout the market.
"These mom and pop shops control 50 per cent of the housing stock but they are completely under the radar. They have huge influence that can affect the number of units available without anyone understanding why," said Overtveld.
In a healthy rental market, Lapierre thinks landlords need to ensure they are providing ample customer service to keep tenants happy.
"In this market, you don't want to give a reason for tenants to go."
Rental Rates:
According to Canada Mortgage and Housing Corporation, the average rents for 2003 were as follows:
© Copyright 2003 The Ottawa Business Journal