Canada is in the midst of a rental housing boom and every major city is building at near-record-level highs. As of February, there were 2,307 rental units under construction in Calgary, compared to the 20-year average of 359 between 1995 and 2014.
There are 3,662 units under construction in Edmonton, compared to the 20-year average of 936; in Vancouver it’s 4,684 to 1,325; Toronto is 5,150 to 1,770; and in Montreal a whopping 8,447 units are under construction, 247 per cent greater than the long-term average.
Is there really that much demand for rental housing in Canada, and if so, why aren’t these people buying? One of the most important demographic segments to assess when answering that question is the 25-34 age range – new households are formed from this group, with many buying their first home in their late 20s and early 30s.
Age bracket growing
This age bracket has been growing by 50,000 to 100,000 per year since 2007, in stark contrast to declines every year between 1991 and 2001. Currently this age grouping is made up of older millennials.
For Fortress Real Developments’ latest Market Manuscript report, I reviewed several studies on millennial preferences from global, American and Canadian sources. There is a clear desire from millennials to buy, but currently many don’t put a high priority on homeownership or starting a family.
Millennials are also much more likely to change jobs regularly. The lack of the stabilizing forces of family and long-term employment, coupled with quickly rising house prices, have resulted in a reluctance of millennials to rush into homeownership.
Americans rent for six years
A recent Zillow study indicated Americans now rent for six years before buying, compared to 30 months on average in the 1970s. Proximity to work and neighbourhood amenities are must-haves for millennials, neither of which are typically found in areas with affordable ownership housing.
Population projections by Statistics Canada show further increases in the 25-34 age group to 2020 under its low-growth scenario and 2024 under its high-growth scenario. Patient capital will chase the demand for purpose-built rental apartments from this age group, while private investors will chase demand from condo tenants.
Millennials might not be looking to buy until they’ve reached their mid- to late-30s.
In conclusion, I believe that despite their inexperience, millennials are not falling victim to irrational exuberance, and simply buying because they think pricing will go up. Ninety-one per cent of American millennials aspire to be homeowners, which is surprising given the recent housing market meltdown; they still believe in the financial benefits of owning, but place a huge stock in the non-financial benefits.
Millennials still want to buy, but what, when and where they buy has changed dramatically, and builders and developers will need to follow those trends closely to ensure they’re planning the successful development projects of the future.
For more info on millennials and demographics, check out the Spring 2016 Market Manuscript by Fortress Real Developments: ________________________________
Fortress Real Developments is a diversified real estate development and investment company that partners with established builders and developers across the country. Fortress sources equity capital for the partnership, in addition to providing value-add services such as market research, structuring of debt, marketing, and other realty services. Ben assists in evaluating both the market conditions and projects that Fortress is active in. Follow his blog posts and commentary on the Canadian Housing Market at www.fortressrealdevelopments.com/news or follow him on twitter at @BenMyers29