Outlook for Canada’s housing market

Single-family residential housing

The market for building and buying single-family homes across Canada has been particularly strong, with product moving quickly and prices continuing to rise. Overall, while the expectation is that the market will slow after a buying frenzy during the pandemic, it will remain strong.

Affordability remains an issue, even in cities where it previously wasn’t. Ownership costs as a percentage of household income reached 56.8% for single-detached homes in January 2021, RBC Economics noted in its June 2021 housing trends and affordability report. This was the highest since 1990.

Interviewees had diverging views on the issue of single-family rental housing and whether this trend from the United States will take off in Canada. One interviewee said single-family rental homes are difficult to manage from an operational perspective and noted land costs in Canada tend to be too high to make the numbers work.

Others see this as an option in certain regions to address the desire for more living space while offering more affordable alternatives to buying a single-family home. Single-family rental housing was among the top subsectors for investment and development prospects this year.

Condominium

With affordability having improved for condominiums relative to single-family homes, the outlook bodes well for this asset class despite early sentiment that people would avoid the condo market as a result of the impact of the pandemic.

There’s rising demand for mid-rise units in suburban areas, with one interviewee citing buildings of four to eight storeys outside downtown cores as a key trend. Some real estate players are looking to mitigate risks around office and retail properties by incorporating residential uses like condos.

Despite an improving outlook for condos, some developers are unsure about whether to start new projects, given cost uncertainties. But generally, interviewees identified multifamily housing as a strong category, noting that while it’s capital-intensive, demand will be strong in many cities as people struggle with housing affordability and immigration activity picks up.

Developers are also navigating changing consumer preferences. One interviewee noted that even as builders look for ways to reduce unit sizes to make them more affordable, many consumers want more space as they look ahead to the next pandemic.

Purpose-built rental housing

Rental demand continues to rise as Canada emerges from the pandemic and is likely to experience an additional boost from federal government plans to increase immigration activity in the coming years. Even as the national vacancy rate rose to 3.2% in 2020 from 2% the year before, rents for two-bedroom units increased by 3.6%, according to the Canada Mortgage and Housing Corp.’s January 2021 report on Canada’s rental market.

While there’s interest in building and investing in purpose-built rental housing, it often requires patient capital since capitalization rates can be low. But even as the rental market softened during the pandemic, some building owners have been selling apartment assets at high valuations to large investors eyeing a brightening outlook for rental housing.

There’s also an increasing focus on rental housing as a solution to affordability challenges, especially when government programs are making it more attractive for investors to take a bigger role in this space. Improved collaboration around incentives—such as regulatory, tax, financing or fee breaks—could support the creation of more affordable rental units as rising numbers of Canadians struggle to buy a home and look for alternatives.