changing rental housing dynamics & the pandemic
AN EXAMINATION OF THE VANCOUVER MARKET
RENNIE INTELLIGENCE | APRIL 2021
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03 INTRODUCTION 04 RECENT SHIFTS IN RENTAL 06 FACTORS INFLUENCING THE RENTAL MARKET 09 CONCLUSION
Bowen Behan Pausey BUSINESS DATA ANALYST bbehan@rennie.com
Ryan Berlin DIRECTOR OF INTELLIGENCE & SENIOR ECONOMIST rberlin@rennie.com
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01. INTRODUCTION
Whether a topic of conversation or the subject of government policy, the rental housing market is a frequent, if not a permanent, fixture. For good reason, too: along the spectrum of housing options, rental housing in its various forms represents the most accessible path into the housing market for most people, particularly new entrants. For example, rental housing occupancy is most prevalent among people aged 25 to 44; it is also the tenure of choice (or necessity) for international migrants to the region, with the majority renting during their first five years living here (compared to one-third of existing households in Metro Vancouver being renters). The importance of rental housing in the context of new entrants cannot, therefore, be understated, particularly with Metro Vancouver attracting an average of 70,000 in-migrants annually over the past decade. Additionally, Metro Vancouver’s rental housing market (also referred to as the “long-term” rental housing market) arguably plays a more important role in housing this region’s residents than anywhere else in Canada given its comparatively expensive ownership market. Without digressing too much—acknowledging that there are more sophisticated methods of parsing home price data— it is worth noting that the average sold home price in the Vancouver Region in March 2021 (the most recent date for which data were available at the time of this report’s writing) was $1.14 million— the highest amongst Canada’s eight largest Census Metropolitan Areas, being 4% above Toronto’s average sold home price of $1.10 million. With a rental vacancy rate that has hovered around 1% for the past decade—the lowest in Canada among comparably-large metro areas—there has been continuous and growing concern over whether Metro Vancouver has an adequate supply of rental housing. Case in point: between 1991 and 2016, the region’s population grew by 57%, while the purpose-built rental stock actually declined (by 5%). During this period, the number of purpose-built rental homes per 1,000 residents fell from 69 to 42, a 40% decline. That said, there has been some positive movement on the supply front in recent years. Over the past decade (2010 to 2020), Metro Vancouver’s purpose-built rental stock has added 8,700 homes; however, the majority (80%) of the overall growth in total rental housing has occurred in the secondary market (via the addition of 35,360 rented condos). While the secondary rental market is an important source of new rental supply,
security of tenure remains an ongoing concern as well as, in many cases, a lack of professional management. For many people participating in the current housing discourse, the prevalence of short-term rentals (i.e. Airbnb) underscores this problem. As rental supply and demand has shifted over the past year due to the pandemic—largely due to a variety of economic and demographic factors—the dynamic between the short-term and long-term rental markets has come into focus. The discourse is often centred on the effects that the decline in travel and tourism have had on short-term rental demand and the notion that this in turn has led short-term rental owners to transfer their listings into the long-term rental market. Against the backdrop of anecdotes and conjecture, the purpose of this report is to synthesize rental market data from a number of sources to provide insights into the likely causes, more and less, of the softening of Metro Vancouver’s rental market in 2020. DATA & DEFINITIONS • As Metro Vancouver and the city of Vancouver are frequently referenced throughout this publication, Figure 1 presents the boundaries for each.
FIGURE 1: BOUNDARY MAP
METRO VANCOUVER CITY OF VANCOUVER
• Data on vacancy rates and average rents for
apartments in the purpose-built (or primary) rental market and secondary rental market have been obtained from Canada Mortgage & Housing
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Corporation ’s (CMHC) Housing Information Portal. In this case, “purpose-built” refers to homes that are intended for the exclusive use of tenants (for example, an apartment building with a single owner and multiple units) while the “secondary market” refers to privately-owned condos that are rented. The term “apartment” refers to homes that share a common building entryway and whose doors open into a common corridor, and therefore excludes ground-oriented accommodation such as detached homes and townhomes. Note, the purpose-built rental data from CMHC that is presented herein encompasses, but does not distinguish among, age of building or building type (i.e. woodframe or concrete). • Monthly listings for the secondary rental market, which includes non-purpose-built rental properties such as individually-owned rental homes, is described using data from rennie intelligence ’s Rental Database, which tracks the count of listings per both publicly-available rental websites and the Multiple Listing Service (MLS). • Both the MLS and the Canadian Real Estate Association , provided pricing data related to the resale housing market across Canada. • Demographic and employment data presented herein are from various Statistics Canada surveys and publications, including the Demographic Estimates Compendium, the Labour Force Survey, and the Census.
• Annual tourism data was sourced from Destination British Columbia , the provincially funded crown corporation that works to promote tourism throughout BC. It publishes industry performance reports highlighting a range of indicators, from international visitor arrivals to average daily room rates. • Trends in and features of the short-term rental market in the city of Vancouver have been developed using data on Airbnb listings compiled from Inside Airbnb . This platform collects listing data from Airbnb.com, including the number of homes listed and their respective attributes, prices, availability, and location, among other things. The data is collected on a monthly basis and is a snapshot in time. The Airbnb segment of the city of Vancouver’s short-term rental market is used in this report as a proxy for the entire short-term rental market in the city, as Airbnb maintains a significant market share among short-term rental listing platforms. For example, the City of Vancouver’s 2019 short-term rental highlight report indicated that Airbnb maintains an 84% short-term rental market share in the city, while Air DNA (a website that provides short-term rental analytics), estimates Airbnb’s share at 90%.
02. RECENT SHIFTS IN RENTAL
Since the pandemic took hold across Canada in early 2020, low interest rates, substantial government financial support, stock market volatility, and a desire on the part of many people to secure homes that better suit lives that are seen as being increasingly spent in said homes have created conditions that have supported the ownership side of the housing market. As a consequence, Canadian cities from coast to coast have seen property values rise rapidly, from a 37% year-over-year increase in the average sold price of a home in Halifax to a 23% increase in Victoria (through February 2021). In many senses, the ownership market has moved in a seemingly counter-cyclical manner since the pandemic began.
In contrast to ownership markets being unperturbed by economic and demographic shortcomings related to the pandemic, Canada’s rental housing markets have been impacted in a way that is consistent with recessionary conditions, with vacancy rates rising and rents rising
relatively slowly. VACANCY RATES
Nationally, the purpose-built rental apartment vacancy rate rose over the past year, going from 2.2% in October 2019 to 3.2% in October 2020. In looking at Canada’s eight largest Census Metropolitan Areas (CMAs), the same direction of change held, with vacancy rates rising across the
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board. As shown in Figure 2, the largest year-over- year increases were in Alberta, with Calgary’s vacancy rate rising 2.7 percentage points (from 3.9% in 2019 to 6.6% in 2020) and Edmonton’s rising 2.3 percentage points (from 4.9% to 7.2%). The Ottawa-Gatineau CMA experienced an almost doubling in its vacancy rate, which rose by 1.6 percentage points (from 1.7% to 3.3%). At the other end of the spectrum, Winnipeg and Quebec City experienced relatively muted increases in their vacancy rate compared to the other CMAs: the former’s rose by 0.7 percentage points (3.1% to 3.8%) while the latter’s rose by a comparatively marginal 0.3 percentage points (2.4% to 2.7%). Among Canada’s three largest metropolitan areas, Greater Toronto and Greater Montreal each had a vacancy rate of 1.5% in 2019, with Toronto’s jumping by 1.9 percentage points in 2020 (to 3.4%) and Montreal’s rising by 1.2 points (to 2.7%). In comparison, Metro Vancouver had the lowest vacancy rate in 2019, at 1.1%, reflecting a very constrained rental market. The region’s vacancy rate increased by 1.5 percentage points by the end of 2020—a bigger jump than that of Montreal (1.2 percentage points) and, as previously noted, Winnipeg and Quebec City. Despite this rise, Metro Vancouver’s vacancy rate remained the lowest of Canada’s eight largest CMAs in 2020. The experience amongst municipalities within Metro Vancouver was relatively consistent, in that purpose-
built rental vacancy rates generally rose over the past year. This includes the city of Vancouver (where the vacancy rate rose by 1.8 percentage points, going from 1.0% to 2.8%), Burnaby (up 1.9 percentage points, from 1.3% to 3.2%), and the city of North Vancouver (up 2.1 percentage points, from 0.5% to 2.6%). The most notable instance of vacancies rising was in the area that includes the University of British Columbia, where the vacancy rate leapt from 0.4% in 2019 to 13% in 2020; this was a direct result of the reduction of on-campus learning, with many domestic students choosing not to live near campus, as well as thousands of international students choosing not to reside in Canada for the 2020/21 school year. While vacancy rates in the secondary market are generally lower than in the purpose-built segment (individual rental home owners have a lower financial tolerance for empty units than do owners of multi-unit rental properties), they evolved in a similar manner to those in the purpose-built segment across the country over the past year. Of Canada’s eight largest CMAs, six saw their secondary market vacancy rates increase in 2020, with each of Ottawa and Edmonton experiencing a decline. In those two markets, the vacancy rate in the secondary market fell by 0.6 and 0.5 percentage points, respectively, bringing the vacancy rate down to 0.3% in Ottawa and 2.0% in Edmonton. Among the vacancy rate risers, Quebec City led the way with a 1.8 percentage-point increase (from 1.4% to 3.2%), followed by Toronto (0.9 percentage points; 0.8% to 1.7%) and Calgary (0.7 percentage points; 0.9% to 1.6%). In Metro Vancouver, the secondary market vacancy rate doubled, albeit from a low base: between 2019 and 2020, vacancy jumped from 0.3% to 0.6%, a 0.3 percentage point increase. Rounding out Canada’s eight largest CMAs was Montreal, rising 0.2 percentage points (1.8% to 2.0%), and Winnipeg, increasing by 0.1 percentage points (1.6% to 1.7%). Almost without exception, in markets across the country, including both the primary and secondary rental segments, there was a re-balancing of supply and demand conditions in 2020. Notable amongst these changes seen across Canada was Metro Vancouver remaining the most constrained per its low vacancy rate. RENTAL RATES Interestingly, while vacancy rates rose throughout the country in 2020, average rents generally did not decline; instead, they generally increased at a slower pace than in 2019.
FIGURE 2: VACANCY RATES (PURPOSE-BUILT)
WPG
TOR CGY EDM OTT-GAT QUE
VAN MTL
7.2%
6.6%
4.9%
3.9%
2.6% 2.7% 3.4% 3.3% 3.8%
3.1%
2.4%
1.1% 1.5% 1.7%
2019
2020
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Of Canada’s eight largest metro areas, average monthly purpose-built rents rose more slowly in six of them in 2020 versus 2019, with Montreal and Quebec City being the exceptions. In those two CMAs, rents rose faster: by 5.5% in 2020 versus 5.3% in 2019 in Montreal, and by 4.4% versus 3.0% in Quebec City. Edmonton experienced the most modest slowdown in average rent, with the 0.8% increase in 2020 compared to a 1.1% rise in 2019 (a slowdown of 0.3 percentage points). At the other end of the spectrum was Metro Vancouver, where the average rent in the purpose-built rental market rose by 2.7% in 2020, compared to 6.1% in 2019. This was the slowest increase in the region since 2013 and approximately half of the average annual increase of 6.0% seen over the preceding five years (2014 to 2019). As with changing vacancy rates over the past year, a number of factors contributed to this more muted average rent increase in 2020—not the least of which was the freezing of existing rents by British Columbia’s provincial government. First implemented on 18 March 2020, this edict has been extended until the end of 2021. Despite the change in provincial policy, the trend in rents within Metro Vancouver was somewhat varied. While almost all municipalities experienced higher rents in 2020 than in 2019 (West Vancouver and Port Coquitlam were the exceptions), rents actually rose faster in 2020 than in 2019 in eight of 18 municipalities. This was led by Delta and Surrey, where average purpose-built rents rose by 4.2 and 3.7 percentage points, respectively. At the other end of the spectrum, both the township of Langley and the city of Langley experienced the
most significant slowdown in rent growth, with rents increasing more slowly in 2020 than in 2019 by 10.2 percentage points in the township and by 10.3 percentage points in the city. In the city of Vancouver, which has more than half (52%) of the region’s purpose-built apartment stock, average rent rose by 1.9% in 2020; this was down by 4.2 percentage points from 2019 (when rent rose by 6.1%), and was well below the average annual increase of 5.9% from the preceding five years (2014 to 2019). (As noted in the introduction, the above purpose-built rental rates provided by CMHC are an aggregation of rents from buildings of all ages and conditions; they do not reflect “same-unit” rent changes.) A similar story unfolded in the secondary rental market, at least insofar as Metro Vancouver was concerned: the 1.1% increase in average monthly condo rent in 2020 was 0.9 percentage points lower than the 2.0% from 2019, and 3.1 percentage points below the 2014-to-2019 average increase of 4.2%. While this overview of changes in rental market conditions is cursory—many more pages could certainly be devoted to unravelling recent changes in the Metro Vancouver market alone—it serves to empirically establish the weakening of the rental market in 2020, per rising vacancy rates and relatively slowly- growing rents. Having outlined these “whats”, it is now useful to contemplate some of the “whys”.
03. FACTORS INFLUENCING THE RENTAL MARKET There are, of course, myriad factors impacting the rental market at any given time, be they demographic, economic, or policy-related in their origin. During periods of growth, for example, rental housing
Over the past year there has been much debate around the impact that the pandemic has had on both the ownership and the rental segments of the market, with there perhaps being more agreement about the drivers of the for-sale market than those of the rental market. Below, consideration is given to factors that we see as being more, and less, important to the evolution of the rental market here in Metro Vancouver. SLOWER POPULATION GROWTH The Covid-19 pandemic has had direct impacts, though transitory as they are expected to be, on Canada’s demography. With international borders mostly closed, Canada welcomed only 185,000 immigrants in 2020—approximately half of the pre-pandemic target
demand generated from rising in-migration may be complemented by an expanding jobs base and growing incomes; at the same time, the consequent downward pressure on vacancy rates and upward pressure on rents that this might exact could, in turn, elicit government policy responses that seek to restore balance into the rental market. Such policies might include limits being imposed on rent increases (or an expansion of the scope of existing rent controls), restrictions on evictions being introduced, or incentives to encourage the expansion of rental supply. During periods of slow (or no) growth, an opposing scenario might evolve.
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of 341,000 for the year and the fewest since 1998. This had a significant impact on Canada’s population growth rate, with 2020’s 0.4% increase the lowest since 1916. British Columbia also grew by 0.4% in 2020—its slowest rate of growth since 1874. The 22,755 immigrants who came to Metro Vancouver in 2020 was the lowest count since 1989; in turn, less migration and slower population growth at the regional level has had two distinct impacts on the housing market. One, it reduced the demand for net additional homes in 2020, including both rental and ownership, below what would have transpired had there been no pandemic; in the simplest terms, less population growth meant less growth in the demand for housing. Second, and more specifically, the decline in immigration has likely had a more-than-proportional impact on the rental segment of the housing market due to both the unique age profile of immigrants and their propensity to rent (versus to own) their home. Over the past five years, the typical immigrant to Metro Vancouver has been 27 years old, with 57% of immigrants being between the ages of 25 and 44. This is significant because it is these relatively younger age groups that are most closely associated with rental housing occupancy. According to the most recent (2016) Census, the highest household formation rates for rental housing in Metro Vancouver are in the 25 to 44 year old age group: for this segment of the region’s population, between 20 and 25% of people head a household in a rental unit; this compares to between 12% and 18% for the 45-plus population. Additionally, the 2016 Census shows that compared to the 36% of households in Metro Vancouver that rent, 66% of external migrant households (including immigrants, non-permanent residents, and returning Canadians) are in rental homes up to five years after having moved to Canada. Data on the number of people with study permits in British Columbia also show that there was a net loss of 25,505 international students provincially in 2020 (Figure 3). This was the first year-over-year decline in at least 20 years, and was equivalent to the cumulative net growth in international students seen in the years spanning 2000/01 to 2008/09. As these students would typically be relatively young, this outflow would have an out-sized negative effect on rental housing demand than on ownership demand.
FIGURE 3: STUDY PERMITS, BRITISH COLUMBIA
20,000
15,000
10,000
5,000
0
-5,000
2019/20 net drop in international students in BC equal to all net growth between 2000/01-2008/09
-10,000
-15,000
-20,000
-25,000
-25,505
-30,000
With all of this being considered, and for a given supply of rental housing, then—and all else being equal—this would tend to amplify the increasing vacancy rate and slow rent growth. (As an aside, and as noted below, the supply of rental housing did in fact expand in 2020.) Again, the demographic slowdown experienced in 2020 is expected to be transitory, with the federal government having raised its immigration targets past 400,000 for each of the next three years, in part to make up for the demographic gap that was created by the pandemic in 2020. While we know from the 2016 Census that 58% of people in British Columbia aged 20-24 live at home with their parents (as well as 27% of 25-29 year olds, and 11% of 30-39 year olds), we do not know how that share may have changed as a result of the pandemic; in other words, there are currently no data on this front that would support or refute the anecdotes about young renters moving back in with their parents, or doubling and tripling up as a result of the pandemic and the strain on finances it has caused. It remains to be seen if the 2021 Census data, which are being collected in May 2021 and will be released mid-2022, will shed any light on this dynamic. Finally, it is important to note that domestic migration to British Columbia also has an impact on the rental market, especially considering the province had a net inflow of 4,878 people in Q4 2020 (one of only three provinces or territories to see a domestic migration net inflow to round out 2020). This being said, domestic migration data are not available at the regional level for the full-year 2020, and so have not been considered herein.
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the demographic and economic contexts). However, a growing stock of rental homes has played a role, and this will need to be a more permanent feature of the region’s rental market in the coming years if greater balance in the market is seen as being beneficial. THE SHORT-TERM/LONG-TERM RENTAL DYNAMIC International travel to Canada came to an abrupt halt in the early days of the pandemic, while guidelines from provincial governments discouraged domestic travel— all with the goal of limiting the spread of Covid-19. With British Columbia accepting 6.2 million international visitors in 2019, it was clear early on that the significant decrease in travellers to the province, and to Metro Vancouver more specifically, would have repercussions across a variety of sectors. By the end of 2020, British Columbia had a total of 850,000 international visitors to the province—a decrease of 86% from 2019. One such repercussion of diminished travel was the subsequent shortfall in demand for short-term rentals. The short-term rental market, generally speaking, consists of either an entire private residence or a room within said residence that is rented for fewer than 30 days in a row. In noting this decreased demand, speculation that short-term rentals were going to flood the long-term rental market quickly dominated headlines. In looking specifically at the trend line of available Airbnb listings in the city of Vancouver over the past two-and-a-half years, a notable drop was seen in September of 2018, representing the removal of close to 2,500 unlicensed listings in the city from Airbnb’s website (see Figure 4). Since that policy-induced decline of 38%, listings climbed by an average of 3.6% monthly, eventually reaching over 6,200 by August 2019 (a level not seen since before that notable decline). From
JOBS LOST AND LOW INTEREST RATES In addition to slowing migration into Canada, the effects of the pandemic were manifested in employment and interest rates in ways that are noteworthy to rental housing. First, due to the restrictions being placed on both the retail and the hospitality sectors of our provincial economy as a means of limiting the spread of Covid-19, a specific profile of worker was impacted: the young, part-time employee. For example, while part-time jobs accounted for only 18% of all jobs in British Columbia before the pandemic, 45% of job losses during March and April 2020 were in part-time positions. Furthermore, the under-30 population—which accounted for 22% of all employed persons in BC before the pandemic—represented 46% of jobs losses. This in turn likely impacted the financial ability of many of these affected individuals to remain in their own rented home as they did before the pandemic, despite government fiscal supports for individuals and restrictions on landlord evictions. Additionally, the low interest rate environment that was created in Canada by the pandemic, largely through the efforts of the Bank of Canada to support economic activity, also provided an opportunity for some people to pursue home ownership who might have otherwise rented (or who would have continued to rent). SUPPLY For decades, the stock of purpose-built rental homes in Metro Vancouver was stagnant: compared to the 110,778 purpose-built rental homes in the region in 1990, for example, there were actually fewer as recently as 2019 (when there were 110,753). Having noted this, substantial new supply has been coming to market in recent years: between 2014 and 2019, the number of new purpose-built rental apartment completions rose each year, from 2,501 in 2014 to a record 5,590 in 2019. This high-water mark only slightly exceeded the 5,540 homes completed in 2018 and the 5,250 completed in 2020. In fact, the total number of purpose-built apartment completions between 2014 and 2020 (29,075 over seven years) exceeded the cumulative total from 1990 to 2013 (27,221 over 24 years). Given that the elevated additions to supply did not begin to materialize in 2020, but rather years earlier, expanded rental supply can clearly not be viewed as the sole source of the softening of Metro Vancouver’s rental market over the past year (especially considering
FIGURE 4: VANCOUVER (CY) AIRBNB LISTINGS
8,000
7,000
6,000
5,000
4,000
3,000
2,500+ unlicensed listings removed
2,000
1,000
0
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this point onwards listings remained stable, hovering around the 6,200-mark up until April of 2020 (the month following the Canadian border shutdown and government restrictions to address Covid-19). Since then, the number of active Airbnb listings in the city of Vancouver has decreased by an average of 2.5% per month, eventually falling to 4,674 by January of 2021. In the most recent month, February 2021, listings fell by 7.1% to 4,340 (the largest decline in active listings since the policy-induced decline of September 2018). Overall, from the 6,220 listings in March 2020 (before the pandemic hit), listings have fallen 30% as of February 2021. As short-term listings began to ebb in April 2020, long- term secondary rental listings began to flow. Between March and April 2020, new long-term secondary rental listings in the city of Vancouver increased by 9%, which was above the 2% increase seen one year earlier (between March and April 2019). With this being said, the average number of new monthly listings on the long- term secondary rental market throughout spring and summer (that is, fromMarch through August) was 35% higher in 2020 than in 2019. While the softening of the short-term rental market may have played some role in this, it was just one of many factors that affected the long-term rental market (along with the above-noted demographic and economic changes that were experienced).
the most significant culprits of rising vacancy rates and slowing rent growth are more likely demographic and economic in origin. More specifically, slower population growth through reduced migration, combined with the jobs of younger, part-time workers being most negatively impacted by the pandemic, would have conspired to reduce rental housing demand in 2020. Notably, these pandemic- induced changes will almost certainly be temporary, as both migration and the regional economy rebounds through 2021 and beyond. Within the next year, therefore, the rental market is expected to look considerably more like it did before the pandemic than it does now, at least from a demand perspective. On the supply side, the 11,200 rental housing starts from the past two years (2019 and 2020)—the most rental starts over any two-year period in at least 30 years—will, once they become completions, help to maintain some semblance of balance. It is here worth noting that there are a number of hurdles that make the transition of a home from short- term to long-term rental an arduous and uncertain process for the owner of the unit. First, while 70% of active Airbnb listings across the city of Vancouver are classified as entire homes/condos, the remaining 30% are private or shared rooms within an existing home. In other words, close to one-third of the city’s Airbnb market would not reasonably be in a position to transition into a traditional long-term rental format. Second, there are separate applications and fees for short-term and long-term rentals in the city of Vancouver, creating a bureaucratic hurdle for those who were looking to transition to the long-term rental market. Finally, and as established earlier in this report, the region’s and the city’s long-term rental market was already undergoing a change in its supply-demand dynamic that would have been unfavourable for new landlord entrants. While the short-term/long-term rental dynamic was dominating headlines early on in the Covid-19 pandemic, it is important to note that the city of Vancouver has approximately 125,000 rental units (both purpose-built and in the secondary market); this means that even if all short-term rental listings as of February 2021 were converted to long-term rentals, they would only expand the supply of long-term rental units by 3.5%—a small margin.
04. CONCLUSION
It is clear that over the past year (and into 2021) the Covid-19 pandemic has created challenges for virtually all individuals, businesses, and sectors of the economy. Housing markets have bifurcated, with the for-sale segment of Canada’s housing markets, including here in Metro Vancouver, seeing demand soar while supply remains constrained. Metro Vancouver’s rental market has undergone changes that have contrasted with those in the ownership market, with the vacancy rate rising and rent growth slowing. While a full quantitative deconstruction and evaluation of the drivers to these changes will undoubtedly be conducted in the coming years as additional relevant data becomes available, this report seeks to both summarize changes in the rental market while exploring possible causes. To wit, while much ado has at times been made about the impact of the conversion of short-term rentals to long-term ones on the overall rental market (through the expanded availability of long-term rental supply)
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