The city is continuing to approve conversions of apartments to privately-owned condominiums despite diminished tax revenues from these properties and plunging rental vacancy rates. Hamilton’s approval conditions for conversions are less stringent than other communities even though the city faces a growing shortage of affordable housing units that is being aggravated by rapidly rising house prices.
The latest conversion – 39 units in a building on King West at Strathcona – was approved unanimously at last week’s council meeting, the same day the Hamilton Spectator reported a steep drop in the availability of local rental units. The newspaper was citing findings of Central Mortgage and Housing Corporation (CMHC) that the city-wide vacancy rate fell steeply this year to 2.2 percent after being 3.4 percent or higher in each of the last five years. It now sits a full percentage point below anything recorded since 2002.
“At 1.6 per cent in 2014, the average vacancy rate for two-bedroom apartments declined to its lowest level in 12 years, down from 2.9 percent a year ago,” noted the federal housing agency. “In terms of magnitude however, the largest decline occurred in the vacancy rate for three-bedroom apartments which fell to 1.9 percent in 2014 from 5.1 percent in 2013.”
One bedroom vacancies stood at 2.7 percent, with area-wide averages pulled up a 5.1 percent rate in bachelor units. The King West apartment just approved for conversion has four bachelor, 20 one-bedroom and 15 two-bedroom units.
City policy blocks conversion if vacancy rates are lower than 2 percent – a level described as “healthy or balanced”, but that’s not a universal view. A staff report last June acknowledged most cities use the 3 percent cutoff, but argued no need to change because Hamilton’s rates have exceeded that for several years.
“A balanced rental vacancy rate is widely accepted as 3 percent, meaning that of every 100 rental units, three are physically unoccupied and available for immediate rental,” argued a major study by the Federation of Canadian Municipalities. “Vacancy rates falling consistently below the 3 percent equilibrium rate generally correlate with upward pressure on rents.”
Since 2006 the city has allowed conversion of 1374 units and as of last June it had applications for 572 more. The CHMC says total rental units in Hamilton fell by over 200 last year despite an official plan target of adding 629 units per year.
The vast majority of apartments in Hamilton were constructed before 1980. Since then social agencies have been almost the only supplier and that suffered a sharp drop after senior government support was eliminated in the mid-1990s.
Councillors on the planning committee waived hearing the staff report on the King Street conversion, and only Chad Collins raised any concerns – specifically about “the financial implication to the city”. The director of planning, Steve Robichaud, replied that “generally what finance staff have advised is that it does have a negative impact onto the city with these conversions and in fact there is a net loss in tax revenue to the city with the conversions that have occurred over time.”
This is because Hamilton’s tax rate on multi-residential buildings is 2.74 times higher than it is on single family units including condominiums. This high rate means about one-fifth of a tenant’s rent goes to the city and favours the new house building sector.
Rapid increases in house prices in Hamilton – up 8 percent a year since 2010 – are likely a factor in the plunging rental vacancy rate as more people are priced out of the market. New homes in Hamilton currently average $450,000.