Economist: Land shortage spikes rents

“Vacancy rates in the residential rental market are lower than they should be and rent increases are more rapid than they should be,” writes Will Dunning, a specialist in Canadian housing markets. “The increased rents (about $25 per month as of the fall of 2011) are being paid by tenants and, to the extent that costs increase for rent supplements and social assistance, by government.  The excess level of rents will escalate.”

Landlords may be less than sorry to hear that assessment, which supports the observations of many property investors in Toronto and Vancouver.

Dunning’s report “Constrained Land Supply for New Housing is Hampering the Recovery” comes as the government introduces new, tighter mortgage rules. Those changes are specifically focused on cooling the condo markets in Toronto and Vancouver, both of which had already begun to cool even before the new rules came into effect.

Part of the reason for the decline in volume sales has been the shortage of land to build on, said Dunning.

He pegs the shortfall on three factors, none of which are in danger of a quick resolution, say analysts.

“Growth management will have a much bigger impact on future low-density development, says Dunning. “Expectations of future shortages may already be influencing expectations and prices in
the land market.

Although, he outlines in the report,  “More pertinent at present are delays in finalizing approvals for new subdivisions and in installing hard services (including water and sewer).

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