Housing affordability will be a challenge, particularly for newcomers to Canada — pushing more of that demographic into the rental market, said Aaron Pittman, head of institutional at Equiton, during the Canadian Investment Review‘s 2023 Global Investment Conference.
With 20 per cent of the Canadian workforce expected to retire over the next 10 years and a declining birth rate, the federal government will have to take steps now to ensure steady population growth to fill those positions, he noted, adding immigration is one area the government is leveraging to fill the void. Indeed, the population growth for Canada grew by one million in 2022, according to Statistic Canada, buoyed by non-permanent residents and international arrivals, including people fleeing the Russia-Ukraine war.
“That’s the first time in Canada’s history that over any 12-month rolling period we’ve increased the population by a million,” he said, adding there will be a subsequent demand for housing. But on the supply side, the country is doing abysmally poor. “In terms of the G7, . . . we’re behind . . . 424 units per 1,000 residents. . . . Today, we’d have to [add] 1.5 to two million new dwellings just to get us to average.”
Despite the fact that newer immigrants consider home ownership as very important, Canada is averaging fewer than 200,000 new home completions per year, said Pittman, noting home ownership is increasingly out of reach for many. Of the most expensive cities to live in in North America, slots two through five are all Canadian cities, he said, citing a recent study that also concluded that entering the middle class in Toronto requires a median household income north of $230,000.
“In terms of percentage wise, you’re probably in the top five per cent of earners in Toronto, certainly in Ontario. But at $230,000, I believe we may be witnessing an erosion of the middle class.”
Housing affordability challenges coupled with supply and demand issues will lead the immigrant demographic into the rental market and, as a result, rental rates will rise, predicted Pittman. And if rental rates rise, it will kickstart more construction and development, he added, suggesting this perfect storm could make rental apartment development more attractive to institutional investors.
Private Canadian apartments tend to be a low volatility segment and on a risk-adjusted return basis, this asset class is very attractive, he noted. “We think the opportunity is there . . . [and] the time is right. . . . There are no crystal balls in this game. . . . But there’s a momentum behind what we’re seeing right now and we think that [the private rental market] is going to be the space to be.”
Read more coverage of the 2023 Global Investment Conference.