A confluence of factors, including rising interest rates, will result in fewer Canadians seeking homeownership than rental accommodations this year.
That’s according to Marcus & Millichap’s 2019 Multifamily Investment Forecast Report, which further states a healthy job market and B-20 will conspire to favour rentals.
“New mortgage rules also boosted renter demand, delaying homeownership for many potential homeowners as they now need more time to save up,” read the report. “Little was done to encourage an increase in rental stock, though, exacerbating the demand/supply mismatch as developers must already contend with policies and high costs that have been prohibitive. With detached housing prices nearly doubling over the past 10 years and a wave of young professionals and international migrants seeking housing, rental rates have been climbing steadily.”
Rents have also surged in Toronto and Vancouver, and that has made apartment projects more financially viable, as evidenced by a Canada-wide pipeline brimming with about 60,000 units. However, there’s also a pronounced dearth of vacant rental units that secondary markets are relieving with supply, albeit barely.
“The number of occupied units grew by 50,000 last year, outpacing supply growth nationally just as 37,000 new apartments came online,” continued the report. “The national vacancy rate declined to 2.4%, the lowest reading since 2002. A shortage of construction workers, a long approval process and higher development and financing costs are slowing the delivery schedule this year, curbing completions by roughly 2,000 units from last year’s total.
“Historically, Canada has been heavily reliant on condominium owners to supply the rental market, filling the void that purpose-built rentals have not been able to close. Prices have climbed substantially for condo investors, though, slowing this practice… and pushing more residents in search of housing to the apartment market.”
Toronto has cemented its reputation as a leading North American tech hub, but the sector’s growth is putting even more downward pressure on the city’s rental vacancy rate.
“Microsoft, Intel, Uber and other companies have plans to increase operations in the city and bring on new workers,” read the report. “Amid its solid reputation as a top innovator in tech and a mature ecosystem that supports the industry, the GTA will attract young professionals in greater numbers this year. Many new residents choose to rent, not only due to barriers to homeownership, but for greater mobility and to be near local employers, restaurants and nightlife.”
Another emergent technology hub, Vancouver is saddled with Canada’s most expensive real estate market and that, unsurprisingly, drivers more people to rent. However, the average rent is forecasted to hit $1,480 per month by the end of 2019.
“The benchmark price [of a detached home in metro Vancouver] exceeded $1.5 million at the end of 2018, despite a downturn in pricing last summer, well beyond the means of many residents. Renting remains the preferred choice as single-family affordability continues to be a major concern, holding the market vacancy near historical lows.”