COVID made housing unaffordability “contagious”

Our recently released Rental Market Report (PDF) attracted significant attention. It underscores what Canadians have been experiencing for the past several years — there simply is not enough affordable housing in most areas of the country.

Canada is facing the lowest national vacancy rate since the 1980s at 1.5% and a sharp increase in rents of 8%. This is well above the historical average of 2.8%.

These numbers are very concerning and paint a sobering picture of our current reality. Even in a G7 country that consistently ranks amongst the best in the world, the problem persists. Too many people in our communities cannot find a rental housing unit they can afford on their own. At. All.

Navigating Canada's Housing Crisis: A Perspective on Rental Markets and Innovative Solutions

There is ample evidence that demand started outpacing supply for homeownership in Toronto and Vancouver in the early 2000s.

A decade or so ago, households that found homes in central Vancouver or Toronto unaffordable still had several options. They could consider buying a property in a more affordable neighborhood. Alternatively, they could opt to remain in the rental market for a longer period. This would allow them to save up for a larger down payment, thus reducing their future borrowing needs.

Eventually, this reasoning resulted in demand being displaced from homeownership and directed towards the rental market in Vancouver and Toronto. Data shows the rental market in these cities became tighter in the early 2010s.

We also saw a trickle-down effect for housing as demand spread from central to outer areas of Toronto and Vancouver. This further exacerbated the tight market conditions.

Then, COVID hit and brought new opportunities. It enabled people to work remotely, which opened avenues for improving their housing situation. For example, workers who were able to work remotely and found housing in 2 of Canada’s largest cities’ too expensive, started looking in other areas and, in many cases, moved.

This shift brought increased demand in housing markets outside of large urban centres, in markets that had been somewhat insulated from the affordability crisis.

Data shows that affordability started to deteriorate in Montréal, Ottawa-Gatineau and other smaller urban centres, during or just before the pandemic.

Many factors have since contributed to the housing affordability crisis. One could say that COVID helped spread the housing unaffordability contagion across the country.

Housing unaffordability is an engine for social immobility

The pandemic that sparked increased geographical mobility for many workers eventually led to social immobility. It did so by increasing demand for housing in areas that were not ready for such a large influx of new residents. Our latest report shows that social immobility is taking different forms:

• Many Canadians are now “staying put” with their current housing units as turnover rates decreased from 13.6% in 2022 to 12.5% in 2023.
• More Canadians feel they can’t afford to move to a new place, or simply are not willing or able to do so. It’s difficult to interpret whether this is high or not given this data has only been collected for a few years. That said, the trend seems to show that renters are increasingly reluctant to move.
• A lot of Canadians can’t access market housing. In Vancouver, Ottawa and Toronto, the stock of rental units that may be affordable for the 20% of Canadians that earned the lowest income is virtually zero.
• Overall, data shows that 2.7 million Canadian renters — more than one in four — live in a housing unit that is unaffordable to them. This means they must seek alternative housing arrangements or sacrifice other essential needs to make ends meet.

Source: CMHC Rental Market Report

Where do we go from here?

There are encouraging signs, despite all of this. Housing starts in 2021 and 2022 reached historic levels. While starts were down in 2023 from those record highs, they remained well above any average of the past 30 years.

There has also been a structural shift over the past 10 years with apartments growing steadily as a share of total housing starts. Purpose-built rentals, as a proportion of all starts, have dramatically increased, from 14% in 2013 to 36% in 2023. Though demand still outpaces supply in the rental market, builders are reacting to tight market conditions.

This is encouraging, but collectively we must acknowledge a key point: new rental supply is not necessarily affordable when it is ready for occupancy. It may take several years before new supply results in higher affordability.

In the short-to-medium term, other options may need to be considered, but they involve rethinking how we envision housing.

In many other major markets, households, and not only students, share a housing unit to make ends meet. This is a well-documented phenomenon in New York City and London. Many Canadians lack a place to call home or can't afford one without sacrificing essential needs. Sharing an apartment with friends, family, or through organized means could provide an opportunity for them to improve their housing conditions.

In other cases, the most affordable housing units share amenities, like kitchens, common rooms and bathrooms. Enabling these types of options for households who are willing to consider them may help increase supply faster than solely through new construction.

For instance, converting commercial buildings into residential units may pose technical challenges. The complexity arises primarily from the existing structural elements. For example, because plumbing is integrated into the structure, it becomes difficult to create multiple bathrooms and kitchens on each floor. However, a change in thinking in how some of our housing amenities are used could make conversions more viable.

When it comes to alternative housing arrangements, more research is needed to document how Canadian cities rank compared to their western counterparts and how they could meet the housing demand of people living in Canada. This would help define what could be a “made in Canada” approach to help solve our housing crisis.

While some may find this solution challenging to conceive, compromises in housing needs versus wants may be necessary. The idea here is not to reduce anyone’s current living standards, but what may come as a sacrifice to some, may very well be a sought-after improvement for others.

The essence of that reflection is to provide new options to Canadian households living through our housing crisis.