In a previous post I referred to a report on rental housing released by RBC’s economics department which claimed that enough new rentals need to be constructed (in Toronto, primarily) to increase vacancies so that rent “sustainably stabilize”. In my post I commented on the report, explaining that higher vacancies do not necessarily mean lower rents nor a halt or reduction in rent increases, since even in high vacancy environments landlords have strong incentives to keep increasing rents. And higher vacancies have negative effects for both renters and landlords: landlords lose revenue so they will cut costs such as maintenance and that impacts negatively on renters who may have more choice of vacant units but those units are receiving less maintenance, etc.
In my opinion, the RBC report should have focused on turnover instead of vacancies. Why? Because it’s on turnover that units become available to prospective renters and it’s on turnover that rents can be increased to market rents by landlords. In other words, even if vacancies are extremely low, if turnover is reasonably high then units will be available to lease, just as they would be if vacancies were high. High turnover is obviously good for prospective renters since it means units are regularly coming available to rent. It’s also good for landlords, since it means they can raise rents more often.
It’s a fact that we have a low vacancy environment in Ontario at the moment and it’s a safe prediction that that’s what we are going to have for the foreseeable future. Given this situation, when the RBC report calls for public policy measures to achieve higher vacancies, I can’t help but think we should be calling for higher turnover instead of higher vacancies.
Or, as an economist might say, we need a higher ‘velocity of rentals’.