If Canadians aren’t able to access single-family housing, then by necessity they have to move to rentals, said Aaron Pittman, senior vice-president and head of Canadian institutional investment at Equiton, during the Canadian Investment Review‘s 2024 Global Investment Conference in April.

Surging population growth, stalled housing completions and a shrinking middle class are creating challenges for households hoping to own their own home. Supported by nearly a decade of immigration policy focused on bringing in working-age immigrants, Canada’s population increased by 3.2 per cent in 2023, exceeding 40 million for the first time. This milestone placed Canada among the fastest-growing countries in the G7, where populations grew, on average, by 0.18 per cent in 2023.

Read: 2023 Defined Benefit Investment Forum: Housing unaffordability may launch ‘generational move’ toward multi-family segment

One purported reason for the government’s immigration policy is to replace an ageing workforce. Between 12.5 per cent and 16 per cent of the G7 population is expected to retire in the next 10 years. In Canada, that number is roughly 13.5 per cent. However, notes Pittman, the costs of housing can prove challenging for many immigrants to Canada, making it difficult for immigration alone to offset the coming wave of retirements.

New housing supply has long lagged Canada’s increasing housing demand. Among the G7, Canada has the lowest average housing supply per capita at 424 units of housing per 1,000 residents. Given the 1.25 million newcomers who arrived in the country in 2023, another 1.8 million additional dwellings would be required for Canada to reach the G7 average.

Currently, Canada averages nearly 200,000 housing completions per year, which has impacted affordability on a wide scale. According to the Canada Mortgage and Housing Corp., the country would need an additional 3.5 million to 5.8 million housing units by 2030 to restore affordability. Of this much-needed housing, Pittman noted two million units would have to be purpose-built rentals. Considering Canada has succeeded in adding only 570,000 new purpose-built apartments in the last 30 years, two million may be a difficult target to achieve.

Exacerbating the situation is a potential Bank of Canada rate cut widely expected later this year. High interest rates sidelined a significant number of buyers, said Pittman, with many looking for a sign of easing rates before jumping into the market. The resulting flood of buyers could drive already-high home prices up even further.

Read: Housing inequality issues present systemic risks to institutional investors: expert

Homeownership costs have also become an issue. The CMHC prescribes that a household’s debt-service ratio (the percentage of monthly income that covers principal, interest, property tax, utilities and all other revolving debt) shouldn’t exceed 44 per cent. However, in Toronto, housing-related costs recently reached nearly 88 per cent of the median income. Vancouver homeowners spent even more at almost 103 per cent the median income. This has put homeownership out of reach for many Canadians. “We have effectively carved out the middle class in this country,” said Pittman.

Incidentally, the average age of a first-time home buyer in Canada is 36 years old. That means the average buyer of a studio apartment in Toronto could expect to pay for it well into retirement, said Pittman.

Another challenge the housing market is facing is land scarcity, said Pittman, noting about 90 per cent of the Canadian population lives within 160 kilometres of the U.S. border and about 70 per cent lives south of the 49th Parallel. While there are vast swaths of undeveloped land in some areas, much of it, such as southern Ontario’s Green Belt, is untouchable to builders due to land conservation regulations, limiting their development. This scarcity of developable land exacerbates the housing supply crisis, pushing prices higher and making affordability an even greater challenge for Canadians.

With these and other factors driving outsized demand in Canada’s real estate market, coupled with a continuing lack of supply, accessible purpose-built rentals are expected to provide Canadians much-needed value in the coming years.

Read more coverage of the 2024 Global Investment Conference.