In the medium to long term, Canada’s housing boom will be boosted by immigration more than by millennials looking to buy for the first time, says Adrienne Warren, senior economist at Scotiabank, in a new report on real estate trends.
“As millennials move past their prime household formation years beyond the middle of the next decade, immigration is emerging as a key driver […],” she says. As more new Canadians buy homes, the country will see “growing rental and homeownership demand, elevated new construction, and ongoing urban population densification,” she adds.
Warren highlights in the report that the number of new immigrants to Canada reached nearly 300,000 last year, “up from an average of 260,000 over the prior decade, and registering the highest level in almost a century.”
That number is set to increase, given the federal government’s Advisory Council on Economic Growth “last year recommended boosting Canada’s annual immigration target to 450,000 by 2021.”
Rental market demand is also set to rise over the medium to long term. Says Warren in the report: “Pressure on already drum-tight rental markets in many Canadian cities, primarily in British Columbia and Ontario, will continue.” The solution is more rental supply, she adds, considering “the average vacancy rate for purpose-built rentals has dropped to 1% in Toronto and 0.9% in Vancouver,” which is “well below the 3% level typically considered balanced.”
The main driver of rental demand, says Warren, is millennials who are moving out of their parents’ homes.
Millennials and homeownership
It shouldn’t come as a surprise that some millennials are choosing renting over owning. Even the cost of renting is tough to deal with, given half of renters captured in the 2016 census spent more than 30% of their average monthly income on housing.
Plus, millennials are currently worried about challenges such as paying down debt, and finding good jobs and ways to save for retirement. Nonetheless, home ownership seems to be on their radar: a March 2017 HSBC study found more than 80% of Canadian millennial respondents planned to buy a home in the next five years, while 34% had already bought.
The challenge, however, is more than two-thirds (70%) of non-homeowners didn’t have enough for a down payment. And, while 53% had only an approximate budget, 27% had no budget.
Many millennials who had bought a home in the last two years said they had overspent (42%).
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