Rental market tightening even further in 2006.

For the seventh year in a row, the vacancy rate for rental apartment structures with at least three units has fallen in the City of Greater Sudbury, according to a report from the Canadian Mortgage and Housing Corporation (CHMC).

With 1.2 per cent in 2006, the city has one of the lowest vacancy rates in the country.

"The low vacancy rate is certainly another sign of a strong economy," says Warren Philp, Northern Ontario Market Analyst, CMHC.

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"Based on what I'm seeing, I'm not calling for any real turnaround next year, so all conditions point to another tight market in 2007. It's been interesting to say the least."

These rates are a significant improvement of the 11.1 per cent vacancy rate seen by the city in 1999, which have gradually dipped to 2.6 in 2004, and 1.6 in 2005. Sudbury's current figures rival that of Edmonton, which also registered a 1.2 vacancy rate.

Three of the four housing zones making up the Greater Sudbury area have seen lower vacancy rates than one year ago. The Lockerby, New Sudbury and downtown areas have all experienced reductions, with only the outlying areas of Chelmsford and Valley East seeing increased vacancies. Of the three, the Lockerby and New Sudbury areas are tied for the lowest in the city, with a vacancy rate of 0.4 per cent.

Many factors play into continuing reduction of these rates, which are the lowest they've been since 1991, says Philp.

The strength of the housing resale market is rendering home purchases potentially out of reach for some families, increasing the pressure on the rental market.

What's more, the trend of in-migration to the city has continued over the last three years, with 1,200 new residents arriving in that time, many of whom have chosen rental accommodations, says Philp. Other elements have played a strong role, such as high enrollment in local post-secondary institutions and strong employment prospects for the 25-30 age group.

A tight rental market might make things difficult from the renter's point of view, but local rental companies are enjoying the wave, which has driven up the average rental price for a two-bedroom unit from $619 in 2000 to $706 in 2006.

"Sudbury finally feels like a fun place to do business from a rental company's point of view," says Paul Zulich, property development manager, Zulich Enterprises. "You get to be a lot choosier with your tenants, because you can afford to be. You don't deal with as many negative situations because there's an abundance of people with next to no supply."

Part of the reason for such low vacancy rates lies in the lack of new apartments or other residential rental properties, which have not been built in the city for a number of years, he says.

The cost of construction and skilled labour continues to grow, with prices reaching up to $170 per square foot, where it has traditionally been $120 or $130, Zulich says.

In order to turn a profit on the construction of a new building, rental prices would have to reach nearly $1200 to $1300, which exceeds the average higher-end prices seen by traditional rental properties in the city, he says.

The only way that these kinds of prices could be deemed acceptable is for the city average to rise by having landlords increase rental prices of existing units once tenants cycle out of them. The current average turnaround time for a rental property is approximately two to four years.

"Rents are still too low to justify any kind of construction," Zulich says. "No new developments are going to come online because it just doesn't make financial sense."

By NICK STEWART

Northern Ontario Business