In 2022, Canada witnessed a historic population surge, with an increase of over one million people, marking the first occurrence of such growth in the country’s history. This growth equated to a 2.7% increase, bringing Canada’s total population to 39.57 million individuals. This population expansion is expected to generate heightened demands for critical services, encompassing housing, transportation, and healthcare.
The previous year, 2022, saw the highest growth rate since 1957, solidifying Canada’s continued distinction as the fastest-growing nation among the G7 countries. However, unless significant investments are made in the construction of new housing, the mounting demographic pressures could exacerbate the prevailing challenges related to housing affordability.
While a majority of Canadians express openness to increased investments in housing, there is a segment that harbors reservations. Concerns and doubts regarding real estate investors are prevalent, evident in various sources such as news articles, academic research, and government publications.
Nonetheless, it is essential to recognize the indispensable role played by investors in fostering the well-being and growth of the housing market. Primarily, they facilitate the realization of large-scale housing developments by providing the necessary funding during the extended construction phase. Looking ahead to 2024, these dynamics are poised to continue shaping Canada’s housing landscape.
Real Estate Investors Support the Pre-Construction Market
The pre-construction phase of a typical condominium development is characterized by an intricate and time-consuming process. This includes the phases of planning, obtaining regulatory approvals, and the actual construction, which can collectively span multiple years. Notably, in the province of Ontario, securing planning approval for high-density residential projects can be an arduous journey, often extending beyond 500 days. Subsequently, the construction phase itself might consume anywhere from two to five years. Consequently, prospective buyers find themselves in a situation where they must exercise patience, sometimes waiting for five years or even longer from their initial deposit before their residential unit is finally ready for occupancy.
Furthermore, in addition to the substantial time commitment, bringing new housing developments to fruition necessitates significant financial investments, frequently reaching hundreds of millions of dollars. It’s worth noting that real estate projects may encounter delays or even face cancellations during this extended development period. If real estate investors were to be excluded from this equation, there would be a notable scarcity of entities willing to provide the essential financial support, risk tolerance, and enduring patience crucial for sustaining pre-construction initiatives. As we look forward to 2024, the role of real estate investors in this context remains pivotal to the industry’s dynamics.
In anticipation of 2024, it’s essential to recognize that the majority of future residents, whether they’re prospective homeowners or condo dwellers, often find themselves hesitant or financially constrained when it comes to handling the extended waiting periods, financial commitments, and multifaceted risks intertwined with substantial construction projects. Real estate investors play a pivotal role in the market by willingly shouldering these challenges.
Looking ahead to 2024, the exclusion of investors from the real estate landscape could further aggravate the already sluggish pace of housing commencement, ultimately adversely affecting the very demographic that critics of investors in the market aim to support and advocate for.
The demand for rental housing is rapidly on the rise.
With an eye toward 2024, it’s vital to recognize the rapidly growing demand for rental housing in Canada. While many housing advocates express concerns about investors owning multiple properties, emphasizing the potential impact on first-time homebuyers and housing availability, this perspective often overlooks the evolving landscape of housing needs.
According to Statistics Canada’s 2021 Census, a significant 33.1% of households were comprised of renters, marking a substantial surge of 21.5% since 2011. This growth in the rental segment outpaces the expansion of owner households. As the costs associated with homeownership continue to soar, more individuals are turning to renting as a more financially feasible alternative, particularly millennials who face challenges in saving for a home. In 2021, only 36.5% of those aged 25 to 29 years were homeowners, compared to 44.1% in 2011. These dynamics underscore the expanding need for rental housing in Canada’s housing market.
Real estate investors play a crucial role in addressing the growing demand for rental housing, particularly in the Greater Toronto Area (GTA). Purpose-built rentals are the dominant form of rental housing, making up 41% of the market. However, the majority of these purpose-built rentals were constructed over 40 years ago, with only 23,590 new purpose-built rental apartments added since 2000, a significant contrast to the 223,954 units built between 1960 and 1979.
Furthermore, rental projects within the City of Toronto face lengthy approval processes and labor shortages, with an average duration of 100 months from application to completion. Additionally, only one-third of rental projects received approval by the end of 2022.
This is where real estate investors step in to bridge the rental housing supply gap. They have contributed millions of high-quality rental condo units, with condo units making up 89% of rental apartment completions and accounting for 54% of rental supply growth in the GTA over the past decade. In this timeframe, the number of condominium rentals has surged by 130%, in stark contrast to the purpose-built rental supply, which grew by less than 5%. As the year 2024 approaches, the role of investors in providing rental housing remains crucial.
The involvement of investors remains indispensable as we approach the year 2024 to ensure an adequate supply of rental housing to accommodate the expanding population. Without their participation, a growing number of individuals would be priced out of the market, facing heightened competition for a limited number of rental units.
The disparity between supply and demand is increasingly pronounced. Based on the current development trajectory, the Greater Toronto Area (GTA) is expected to witness the addition of 135,000 purpose-built rental and condo units to the housing supply over the next decade. Unfortunately, this figure falls considerably short of the projected demand for rentals, which is estimated to reach 312,000 units, resulting in a deficit of approximately 177,000 units. In this context, the role of investors in the market is more crucial than ever as we look ahead to 2024.
Take Action Now to Be a Part of the Solution
While real estate investors are occasionally met with skepticism, we firmly believe that they are essential contributors to the housing sector. They fulfill a critical role in the housing market by supplying rental accommodations, especially to young professionals and others who may not be prepared or inclined to pursue homeownership. Investors shoulder the primary responsibility of granting Canadians the flexibility to make the choice between renting and owning. This need for their role is expected to persist as we approach the year 2024.
Passing judgment on investors is often simpler than acknowledging the risks they shoulder and the substantial costs they bear in providing essential, top-tier rental housing that might otherwise be scarce. To effectively address Canada’s housing shortfall, which amounts to millions of homes, it is crucial that we welcome investors rather than isolate them.