If there’s one thing Canadians like to talk about, it’s home prices. That’s something Erkan Yönder, now an associate professor of finance at Concordia University, noticed when he arrived in Montreal more than five years ago and opened his first Canadian bank account.
“The first question I got when I came to Canada was, ‘What will happen to the house prices in Montreal?’” he says, recalling a conversation he had with a bank employee at the time. “This is my sixth year in Canada, and everybody is still talking about the housing market.”
In fact, recent years have seen topics like supply shortages, immigration and government housing policy find their way into the national conversation. This shift in focus is one reason Yönder decided to tackle the home price question head on in a recent report, titled AI-Driven Insights into Key Factors Influencing Canada’s Rental Market, which he authored in partnership with Toronto-based private equity real estate firm Equiton.
The report looks at key factors impacting affordability in the rental market – such as “troublesome” supply and demand imbalances, driven largely by a rapid increase in immigration – and where rents could be headed if the problems aren’t effectively addressed.
According to the report, Canada’s average housing supply per capita is 424 units per 1,000 residents, the lowest among G7 nations. Without a co-ordinated effort to address the supply issue – between policymakers, industry groups and the private sector– the affordability crunch is projected to get worse.
“We all understand that the trajectory of the Canadian housing market has been alarming, but until now we really lacked the finer data needed to shape potential solutions,” says Aaron Pittman, senior vice-president, head of Canadian institutional investments at Equiton. “We thought we could get this report on the desks of policymakers who could stand up and say that, while this a coast-to-coast-to-coast issue, it has to be attacked more granularly.”
Rents expected to skyrocket
To better understand what’s been driving higher rents and home prices in Canada, Yönder used artificial intelligence (AI) models to analyze all kinds of data, including census subdivision and mortgage information, rent, vacancy and completions data, and immigration, demographics, income and household figures. He found that rents will continue to rapidly grow in major markets if supply doesn’t drastically improve.
For example, in Toronto, rents are expected to increase to $4,100 by 2027, and to $5,600 by 2032. In Vancouver, the projections are more dire. Rents there are expected to surge to $5,200 by 2027, and $7,750 by 2032.
“These numbers are really striking,” Yönder says, though they’re not all that surprising. “When you look at the linear model as a start, you see that the immigration levels, especially non-permanent residents, have a very strong impact on the rents.”
Indeed, in June 2023, Canada’s population hit a historic milestone of 40 million after a record-setting year of growth, which Statistics Canada attributes mostly to temporary and permanent immigration.
Yönder argues that rapid population growth and aggressive immigration policies are contributing to the country’s supply and demand imbalance, which is ultimately eroding affordability.
Aside from soaring rents, the report notes vacancy rates, which refer to the percentage of available rental units at a particular time, are at record-low levels. Yönder says in a healthy market, vacancy rates should be around five per cent. They are currently approaching one per cent.
“In this environment, a vacated unit is occupied quickly due to excess demand, breaking the traditional link between economic factors and occupancy,” the report says.
Possible solutions
To meet the demand shifts in Canada’s major cities, supply needs to increase by six to 10 times, the report finds.
The Canada Mortgage and Housing Corporation (CMHC) has also been sounding the alarm on the country’s lack of supply and desperate need to build more housing. The agency projects that Canada will need to build at least 5.8 million new housing units by 2030, 2.2 million of which need to be purpose-built rentals, to improve affordability. Canada has built only 570,000 rental units in the last 30 years.
How can this imbalance be resolved? It isn’t a one-party solution, Pittman argues.
“We absolutely do not expect the government alone to fix this crisis,” he says, noting that the private sector contributes almost all of Canada’s new housing stock. “But we do expect the government to help make sure that it’s as easy as possible for developers and institutional investors to do our part to create more housing.”
Equiton Developments, the company’s development arm, specializes in building urban multi-residential properties. By actively managing its own projects, Equiton can better control costs and project timelines, helping it to complete new housing more reliably and quickly. It also allows everyday Canadians to invest in development projects and play a direct role in addressing Canada’s housing crisis.
Of course, the problem goes beyond simply making it easier to build new homes. The report concludes that a more regional approach is needed to address Canada’s housing crisis. With each market facing unique challenges in areas like planning and approvals, demographic shifts, and investments in housing and infrastructure, a one-size-fits-all solution is unlikely to be effective. Pittman hopes the report’s insights will encourage stronger, more co-ordinated efforts between private stakeholders and all levels of government to help ease barriers to housing where they are needed the most.
“It seems like the solution to the housing crisis should be simple enough, right? But anyone who’s worked on it knows it’s a lot more complicated,” Pittman says. “This research is our way of trying to untangle that complexity and put the data in front of the right people.”