THE biggest apartment construction boom in more than 20 years should bring some much-needed relief for beleaguered Winnipeg renters in 2007, according to the latest rental market forecast from Canada Mortgage and Housing Corp.

The federal housing agency said there have been 619 new rental-housing starts in Winnipeg since the start of this year, and most of those units should be on the market by mid-2007.

It said with that many new units coming on stream, the city's overall apartment vacancy rate next year should climb above two per cent for the first time in seven years.

It predicted the rate will rise to 2.1 per cent, which would be a nearly a full-percentage point improvement from this year's 1.3 per cent.

It would also make up the ground that was lost over the last year, when the rate dropped by half a percentage point after climbing to its highest level in five years (1.7 per cent) in 2005.

Richard Corriveau, CMHC's regional economist for the Prairies and Territories, said Thursday there were a number of reasons why the vacancy rate fell in 2006.

They include an increased demand for rental housing because of an influx of new immigrants into the city, and the net loss of 151 apartment units from the city's inventory of just under 53,000 units.

Corriveau said rental units disappear from the market for many reasons. Some are converted into condominiums, for example, some are destroyed by fire, and still others are temporarily removed so renovations can be done.

He said the spate of new construction in recent years has helped cushion the loss of existing stock. CMHC figures show there have been 1,901 new rental units built in the city over the last four years, which is a dramatic improvement over the 54 units that were built in the seven years prior to that.

Local property managers have argued for years that Winnipeg would see a lot more new construction if the provincial government would do away with rent controls.

They say rent controls discourage developers from building new rental units because they can't get an adequate return on investment.

However, government officials dismiss that argument because new units are exempt from the rent control program.

The rent control guideline for 2006 was set at 2.5 per cent. But that didn't stop rents from rising by more than that amount because provincial legislation allows for increases above the guideline if landlords can show they've made upgrades to their properties or have incurred higher operating costs.

CMHC said the average monthly rental rate for a two-bedroom apartment in Winnipeg rose by 3.4 per cent this year to $709 from $683 in 2005.

Grant Stevenson, vice-president of the Professional Property Managers Association, said he isn't surprised that the average rent increase exceeded the guideline in 2006 because sewer and water rates, property taxes and building maintenance costs were all up substantially.

Stevenson, senior property manager for A.S.H. Management Group Inc., said he also isn't surprised to see the overall vacancy rate decline. Not only are there more new immigrants arriving in the city, but the big increase in house prices in the last few years has made it tougher for renters to make the jump from renting to home ownership, he said.

He said it's difficult to predict what will happen to vacancy and rental rates in 2007 because it will depend to a large extent on what happens in the local housing market. If interest rates decline and house sales increase, that could free up more rental units, he said.

University and college students are among those hardest hit by declining vacancy rates and rising rental rates.

CMHC said apartment vacancy rates in the city range from a low of 0.5 per cent in St. Vital to a high of 4.2 per cent in Lord Selkirk in the northern half of the city.

City's apartment vacancy rates

  Source: Canada Mortgage & Housing Corp.