Taking A Close Look At London

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Recently, while fiddling around with some CMHC data for London, I put together the following charts based on some calculations I was making with the data. These charts compare the growth in the supply of purpose-built rental apartments and townhouses versus average vacancies and average rents, by building age, for the period 2004 to 2019. Building age is separated into two categories: buildings constructed prior to the year 2000 (‘old’) and buildings constructed in 2000 or later (‘new’).

What’s interesting about these charts?

First, take a look at the two lines which show the total number of purpose-built rentals, old and new. The supply of older rentals has shrunk slightly from 2004 to date, due to some properties being taken offline or converted to condos, or simply demolished and redeveloped. The supply of new rentals is much smaller than older rentals, since not nearly as many rentals have been constructed over the past two decades since 2000 than over the four or five decades before 2000. The supply of new rentals has been steadily climbing (as I’ve noted in other posts, London has one of the most active rental housing development sectors in Ontario).

Second, take a look at the lines showing average vacancies for purpose-built rentals, old and new. Average vacancies for older rentals have remained relatively low since 2004 and in fact show a gradual downward trend. Average vacancies for new rentals were extremely high in 2004 and have been dropping ever since and have recently (from 2017) dropped lower than average vacancies for older rentals. The huge drop in average vacancies for new rentals, combined with the slow drop in average vacancies for older rentals, tells us that overall (aggregate) demand for rentals is rising, even as new rentals continue to be added to the supply.

Third, take a look at the lines showing average rents. Average rents have been rising since 2004 for both old and new rentals—this growth for both old and new rentals has apparently been unaffected by the steady addition of new rentals to the supply, demonstrating, I think, that adding a large amount of new rentals to a major rental market such as London doesn’t appear to have a negative or suppressive effect on average rents for older rentals.

(It must be kept in mind that London is kind of unique in southern Ontario since it has seen almost uninterrupted rental development since the 1960s, so similar charts should be prepared for other cities to see how other rental markets have evolved over the same period—that will make a good topic for a future post.)

What does the future hold? We can’t really know from this chart or the CMHC data, but if current trends continue it appears that the total supply of purpose-built rentals and average rents (old and new) will continue to grow steadily. That’s one of the characteristics of ‘mature’ rental market, a topic I’ll return to in a future post.