MONTREAL ― If millennials are right about the state of their finances, there’s a big change coming to how Canadians live. After years of elevated and seemingly constantly rising house prices, barely half will be able to afford a home of their own.
A new study carried out for tax and advisory firm KPMG found that only 54 per cent of those surveyed aged 23 to 38 believe they will ever own a home.
This “would be a big drop from home ownership levels of previous generations,” KPMG noted, pointing out that home ownership rates are currently above 70 per cent for the generations aged 35 and above.
Watch: Why are rents skyrocketing, and what can be done about it? Story continues below.
KPMG’s consultants aren’t the only ones warning that, with house prices where they are, Canada is headed towards being a country of renters. And that means the country will need more rental housing, as a share of all housing, than it has had in the past.
The problem is, that isn’t happening. Despite a solid increase in rental construction in recent years, the pace isn’t nearly enough to keep up.
“We have all of these housing needs that are getting pumped into the three big cities (Toronto, Montreal, Vancouver) with absolutely no solution,” said Mark Kenney, president and CEO of Canadian Apartment Properties (CAP) REIT, one of the country’s largest apartment building owners.
“Yes, you’ve got new construction, but it’s not enough and it doesn’t work…. We are headed deeper into a housing crisis in the big three (cities),” Kenney told the Toronto Real Estate Forum earlier this month.
Rental rates have seen a large spike in recent years, and the experts say it’s because of increased demand. Many would-be buyers have to stay longer in rental housing, due to high house prices, putting upward pressure on rental rates.
At the same time, Canadian population growth has heated up to the fastest rate in decades, with the federal government hiking immigration levels to above 300,000 in recent years. The target is expected to rise again to 350,000 by 2021. Add to that natural population growth, and Canada is adding half a million residents per year.
Royal Bank of Canada estimated earlier this year that Toronto would need to double the amount apartment construction (condos and purpose-built apartments) to keep up with population growth.
Policymakers have taken some steps to address the issue. The federal government is running a national housing strategy through Canada Mortgage and Housing Corp., a $55-billion, 10-year plan to build 125,000 housing units and take more than half a million Canadian households out of housing need.
At the provincial level, both Ontario and British Columbia are moving forward, to some degree, with plans to allow more densification. The Ontario government got rid of the previous Liberal government’s rent controls, in an effort to get more rentals built, but the data suggests that neither the provincial Liberals’ rent controls, nor the current Progressive Conservative government’s removal of them, had any effect on rental construction levels.
Perhaps not surprisingly, developers and institutional real estate investors say it’s too difficult to build housing. In many cities, it takes three to four years just to get the permits and approvals needed to build; NIMBYism limits where you can build; and in some places, there’s a shortage of land that’s ready for development.
But the upshot is that rental apartments are rising in value (although that does mean rental rates cover less of the mortgage on the property).
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“The demand for this product is unbelievable,” said Alf Hendry, CEO of Homestead Land Holdings, at the Toronto forum. He estimates there is a lot of money waiting to pile into rental investment.
So if you can’t afford to buy a home, it might make sense to just buy shares in a publicly traded apartment rental company. The returns might help with your soaring rent payments.