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Uncertain outlook clouds 2012 rental housing expectations

Just-released figures from the Canada Mortgage and Housing Corporation that point toward a rosier job market could be a harbinger of better times in 2012 for residential rentals. But positive vacancy and jobs data are already driving higher-than average rental rate increases in a number of cities — a trend which could put a damper on any parties in the new year.

Residential vacancies have long been closely correlated with employment data. Higher vacancy figures are seen as a reflection of reduced economic activity and reduced employment levels. Simply put, you don't rent an apartment if you don't have a job. But the flip side of the reduced-vacancy/increased-employment coin isn't necessarily a good-news story for recession-weary renters. As supply dries up, average monthly rents in the areas with the tightest markets continue to significantly outpace inflation.

CMHC figures from October show a 2.2% vacancy rate for apartments across the country, down from 2.6% from a year ago. Why? More Canadians, especially 15-to-24-year-olds, are finding jobs and moving out. Year-over-year, the national economy registered 212,000 more jobs, up 1.2% as the overall unemployment rate dropped to 7.3%. Even better news for renters, their new places remained relatively affordable: Annual rent increases averaged 2.0% in October, compared with 2.3% in October 2010. The average rent for a two-bedroom apartment was $883 in October, up $23 over the year.

But the relatively positive national picture masks troubling supply and affordability issues in specific regions. Winnipeg, with a 1.1% vacancy rate and 5.8% unemployment, now wrestles with average rents that rival larger centres like Montreal. CMHC figures show the average rent in Winnipeg jumped 4.6% between October 2010 and October 2011. It's a similar story in Ottawa, where a below-average 5.6% unemployment rate pushed the vacancy rate down by 0.2% to 1.4%. This trend is putting upward pressure on average monthly rents, which jumped 2.3% - to $1,086 - over the year-ago period and are now third-highest in the country.

In Victoria, BC, which had the country's tightest vacancy rate — 0.5% - for four years running until 2009, saw vacancies ease to 1.5% in October 2010 and 2.1% in October 2011. The long-term dearth of supply has come with a cost, though. The average two-bedroom apartment there now rents for $1,045 per month, fifth-highest in the country, and analysts are already calling for vacancies to drop back to 1.5% by the new year.

The usual suspects top the list of major cities with the most expensive residential rents: Two-bedroom apartments in Vancouver rent for $1,237), followed by Toronto ($1,149), Ottawa, Calgary ($1,084) and Victoria. Edmonton ($1,034) and Barrie ($1,001) round out the top seven.

Despite the fact that tightening national vacancy numbers represent a positive turn after years of slack demand, it'll take a few more months of reductions before we can call 2012 a turnaround year. Cities with particularly tight supplies will likely be differentially affected by rent increases. At the other end of the spectrum, cities with the highest vacancy rates will struggle with an entirely different set of troubles. Windsor, Ontario, whose 8.1% vacancy rate leads all major centres, faced down a 10.5% seasonally adjusted three-month moving average unemployment rate in October — up almost a full percentage point over the previous month. Abbotsford, BC, whose 6.7% vacancy rate is Canada's second-highest, is stuck with 7.9% unemployment. While rental rates are holding steady in these areas, the weak economic indicators responsible for them are hardly anything to cheer about.

All of which reinforces the notion that both boom and bust economies don't come without certain costs, and the poison you consume largely depends on where you live.