With Metro Vancouver creaking under the strain of sub-1 per cent apartment vacancy rates and Canada’s highest rents, it’s eye-opening to look just south of the border at what’s happening in Seattle.
The Emerald City – once itself struggling with low vacancies (although not as low as ours) due to its Amazon-centric tech boom – is now awash with available apartments. Which means rents are falling.
In downtown Seattle, the vacancy rate is a whopping 25.7 per cent, according to the Seattle Times. And in newly completed downtown apartment buildings, around 40 per cent of units are currently empty. In surrounding areas of the city it is not quite as extreme, but still high – South Lake Union vacancies (both new and older units) are now at 13.9 per cent, and in Central/South Seattle they are 11 per cent.
With landlords increasingly desperate to find tenants, rents in downtown Seattle have stopped climbing and are now nearly 3 per cent lower on average than a year ago. In addition, most of the advertised empty apartments have incentives such as $99 damage deposits and the first month’s rent for free. That equates to a further 8.3 per cent rent discount over a year. And with most of the competing landlords offering such incentives, in order to become more competitive, those discounts are deepening – with some even offering two months’ free rent. The Seattle Times article also lists developments offering free parking or gym memberships, often combined with other gifts to tenants who sign for a year, such as free Amazon Echos or $1,000 gift cards.
So how has this happened?
Two words. New supply.
Rather than taking the dripfeed approach that has been characteristic of Vancouver’s new rental housing supply in recent years, Seattle has completely flooded the market with new-build apartments in a very short space of time. In the 2015-2019 period, the city has opened or is opening more new apartments than in the previous 50 years combined. And in 2016, Seattle spent more per-capita on new multi-family construction than any other U.S. city, according to a study by ApartmentList.
Faced with nation-leading population growth and a major tech industry boom led by the Amazon HQ in downtown Seattle, developers threw everything they had at building new rental units. From their point of view, they seem to have overshot, as the new supply was enough to outpace the projected population growth and demand surge. After that, it’s just supply-and-demand economics that leads to lower rents.
Here in Metro Vancouver, there are many challenges to replicating this market-flooding effect – largely because developers have much higher incentive to build condos than rental units. Land values here are astronomical, so developers will inevitably build what will make them the biggest return on that investment. Further, it’s not in the business interests of developers to produce so much of a product that the value falls, and there has not been enough government subsidy to make it worth their while.
There is a glimmer of hope, with the City of Vancouver pledging 20,000 new rental units over the next 10 years, B.C. introducing rental-only zoning, and B.C.’s Rental Housing Task Force on the case to protect tenants and existing rental units. All three levels of government have seen the critical importance of building new rental stock, and seem to be taking a stab at it. And it may be helping a little, with local data analyst Louie Dinh suggesting that median Vancouver rents, although higher than a year ago, may be starting to flatline.
But unless we see the kind of supply flood across Metro Vancouver that Seattle has seen – which still seems highly unlikely – it might not be enough to significantly move the dial on vacancy rates and rents in the long term. Not least because of that same tech company, Amazon, bringing 3,000 new jobs to our shores.