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Will multi-family starts continue to dominate the Canadian housing market?

Peter Caulfield
Will multi-family starts continue to dominate the Canadian housing market?

There’s a major transition in the Canadian housing market underway, says Alex Carrick, chief economist of ConstructConnect, a Markham, Ont.-based construction data provider.

As a percentage of total housing starts, single-family housing has been falling, multiple-family housing has been rising, and, in recent years, multis have accounted for more than one-half of all starts.

According to Canada Mortgage and Housing Corporation statistics, more than one-half of new housing starts in Montreal, Ottawa, Toronto and Vancouver are multiples.

In Calgary and Edmonton, on the other hand, the majority of housing starts are single-family.

Canada has been leading the United States in the trend towards multiples, says Carrick.

“In the U.S., it’s in the largest urban centres and mainly in MSAs (metropolitan statistical areas) where there is a strong high-tech presence, where multiples have taken over from singles as the bigger portion of housing starts,” he says. “High-tech work attracts young people who have not yet been sold on the idea of living in the suburbs.”

The major American cities where multiple-unit construction is clearly dominant are San Francisco, Boston, Chicago, Los Angeles, Miami, New York, San Diego and Seattle.

All of the above cities, with the exception of Chicago, are located on the east or west coast.

What’s causing the current surge in multiple-family housing starts in Canada?

From the early 1980s until the early 2000s, single-family housing consistently accounted for about 60 per cent of annual Canadian residential groundbreakings, with multi-family structures taking up the remaining 40 per cent, says Carrick.

But, beginning early in the 21st century, there has been a dramatic shift in the composition of Canada’s total housing starts.

“Since 2002, the single/multiple composition of housing starts has been reversed,” says Carrick. “In 2017, multi-unit starts made up almost two-thirds of Canada’s total unit starts and singles were only one-third.”

Carrick says there are a number of interrelated reasons for the trend to multiples.

“Some cities don’t have enough land,” he says. “For example, Vancouver’s constricted geography means developers have limited land to build on.”

For aging boomers and empty-nesters who no longer need a lot of space, a condo or apartment has a lot of appeal.

And, since they’re usually cheaper than a single-family house, a downtown highrise can be just the ticket for young people.

“Young men and women want to live downtown,” says Carrick. “Not only is that where the jobs are, but downtown living is much nicer than it used to be. There’s less dirt and pollution than there used to be, and there’s more of the good things, such as public transit, galleries, museums, theatres, bars and restaurants. And the suburbs aren’t as appealing as they used to be.

“Will the current dominance of the multi-family market continue to prevail?” asks Carrick hypothetically.

For several reasons, the answer is probably “no,” he says.

“Traditionally, strong employment and income growth, which we have now, provide more of a lift to single-family purchases compared to multis,” he says. “There are currently outstanding jobs prospects in Canada and the national unemployment rate is at a 40-year low.”

Another argument in favour of a revival in single-family starts is that members of the millennial generation are entering a crucial stage in their lives.

“As many millennials find their first high-paying jobs and begin forming families and raising children, they are expected to move out of rental accommodations downtown and move to the suburbs, just as their parents and grandparents before them did,” he explains.

A recently published report by Ryerson University’s Centre for Urban Research and Land Development comes to a similar conclusion.

According to Millennials in the Greater Toronto and Hamilton Area: A Generation Stuck in Apartments?, millennials are little different from previous generations.

“Many of them are entering a stage where they will prioritize space and affordability over amenities and access to transit. We expect they will want all the same things their parents did as they age and move up the income ladder, including marriage, children and home ownership,” it reads.

The report says a lack of supply and high prices have kept millennials from buying.

“As a result, there will potentially be almost 700,000 millennials looking to break off into their own household in the next decade. This pent-up demand will create almost 500,000 new millennial-led households over the next decade, contributing strongly to net new household formation in the region… the vast majority of them will prefer ground-related homes (singles, semis and townhouses) when it comes time to purchase,” it notes.

According to the report, most of millennials’ housing demand will come from the new housing market.

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