CMHC The Path to Economic Recovery

The Path to Economic Recovery

Insights from the 2021 Housing Market Outlook

The annual Housing Market Outlook (HMO) forecasts that home sales and price growth will moderate from unsustainable 2020 levels within the next two years, while the hard-hit rental housing sector will start to see recovery with the return of international students and net migration to Canada.

COVID-19 has had unprecedented impacts on Canada’s urban centres. While some sectors of the economy have struggled to adapt to pandemic conditions, housing activity has been strong and somewhat disconnected from overall economic and employment conditions in many centres,” said Bob Dugan, CMHC’s chief economist. “Economic conditions are expected to return to pre-pandemic levels by the end of 2023, if broad immunity to COVID-19 takes hold by the end of 2021. This includes the pace of home sales and prices, which we expect to see moderate from 2020 highs over the same period. However, significant risks remain with respect to the path, timing, and sustainability of the recovery.”

The outlook assumes the five-year mortgage rate will increase but remain very low by historical standards until the end of 2023. It’s not certain if the shift toward work-from-home arrangements, which is a factor in driving housing demand from more expensive CMAs to less expensive markets, will persist after the pandemic, causing risk to the forecast. With the unprecedented uncertainty caused by the COVID-19 pandemic, CMHC will continue to closely monitor the health of Canadian housing markets and release updates as necessary.

Rental demand in key markets

Rental demand will recover once immigration and inter-province migration resume, along with in-class learning and the return of international students. However, CMHC anticipates that vacancy rates will likely remain elevated, compared to pre-COVID levels.

Toronto

The recovery of the rental market in Toronto is primarily contingent upon how soon the pandemic is brought under control. Employment losses have been concentrated among younger workers, a disproportionate amount of whom are renters. International migration, which is a key driver of rental demand, has slowed significantly.

New rental units under construction may face longer lease-up periods in a slower market. Typically, newly launched projects take up to 12 months for full lease-up. With lower tourism levels and short-term rentals restricted to principal residences, some condominium apartment units will continue to be converted into long-term rentals, thereby increasing supply and lowering rent growth.

Due to current uncertainty, planned purpose-built rental projects may be on hold, which could adversely affect new supply. The slowdown in new construction will be concentrated in downtown cores with higher land costs, such as Toronto Centre, where new rental projects need to command high rents to be financially viable.

Vancouver

The COVID-19 lockdown resulted in a major decline in the typical flow of migrants into

Prevalence of Secondary Units in Ontario Homes

CMHC estimates say that nearly one out of six ground-oriented homes in Toronto is equipped with a secondary unit, totalling approximately 75,000 units across the city, making it the municipality with the highest ratio in Ontario.

Commonly referred to as basement apartments, accessory apartments, in-law suites and laneway homes, past attempts to estimate the number of these units, including by CMHC, were unsuccessful due to a lack of reliable data. But now, using the Municipal Property Assessment Corporation’s (MPAC) database, CMHC researchers created a method to identify which properties in 28 Ontario municipalities contain a secondary unit.

“This report hopes to provide more accurate data and analysis on secondary units to housing stakeholders, particularly at the municipal government level,’’ said Anthony Passarelli, Senior Analyst with CMHC. “Along with the creation of new purpose-built rental apartment structures, secondary units help to address shortages of affordable rental housing.’’

Estimated percent of homes with secondary units by Ontario municipality:

9.6% 8.9% 8.4% 7.4% 3.3% 3.1%

Brampton Sudbury Thunder Bay Mississauga Ottawa Hamillton

the Vancouver region, where growth in rental market demand is heavily contingent on international migrants, young adults and students. The disruption of this segment is most clearly seen in the University Endowment Lands’ high vacancy rate in 2020. Meanwhile, job losses were most concentrated for Vancouver’s young and low-income workers, for whom homeownership is not an immediate financial reality in most cases.

Multifamily units will account for both the majority of starts and the majority of growth. Condominium apartment starts will remain the dominant construction form. Overall, the forecast is driven mainly by condominium apartments, but rental apartments will remain a growing segment, given a large and persistent cohort of young adults (under age 30) in the Vancouver population.

Rental demand will recover once immigration and inter-province migration resume, along with in-class learning and the return of international students.

Calgary

In addition to job losses from pandemicrelated lockdowns and uncertain credit conditions in the first quarter of 2020, the Calgary census metropolitan area (CMA) was hit especially hard due to its exposure to the energy sector. Significant job losses brought apartment vacancies up to a level last seen in 2017.

While the primary rental supply is projected to continue growing, CMHC expects the level of returning net migration and employment to lower vacancy rates in the near future; however they are not expected to reach prepandemic levels in 2021.

Both single-detached and multi-unit new constructions are expected to moderately increase in 2021, driven by recovering economic conditions, stabilized financial conditions, and the expected return of migration.

Hamilton

Rental demand will likely outpace supply in Hamilton owing to a combination of factors. The employment recovery in service sector industries hardest hit by the pandemic will stimulate greater rental demand. So will higher international migration and a greater number of post-secondary students returning to the classroom. With homeownership costs rising much faster than incomes, expect few renters to transition to homeownership. A decrease in the vacancy rate would place strong upward pressure on average rents.

Kitchener-Cambridge-Waterloo (KCW)

The primary rental market is expected to remain tight, similar to 2020 conditions. Demand will remain strong, with the average vacancy rate expected to linger below the 10-year historical average (2.3 per cent) despite supply additions over the last several years. While the purpose-built rental stock in the KCW CMA has increased by an annual average of more than 1,300 units since 2016, the average vacancy rate has not exhibited an upward trend, suggesting tight conditions.

Ottawa

CMHC anticipates the vacancy rate in 2021 will remain above the 3.9% reported in its latest Rental Market Survey (October 2020). Online studying, which reduced the number of domestic and international students, lower immigration, and a decline in youth employment placed downward pressure on rental demand.

It is unclear if students will return physically to campuses this fall. Moreover, demand conditions have deteriorated since October due to the second lockdown this winter. This led households to move out of the more expensive core areas or to move back in with family. As well, since the Survey was conducted, another 821 purpose-built rental apartment units were completed, adding to supply, while demand remains weak.

Montreal

Net migration in Québec declined sharply in 2020, particularly in the Montréal census metropolitan area (CMA), where most newcomers settle. Even if some border restrictions are lowered during the year, net migration is expected to remain relatively low in 2021. This will limit growth in rental demand.

Despite a very limited supply of condominiums for sale, the number of starts in this segment will remain low. Multi-unit project developers will continue to focus on the rental sector rather than on condominiums. Rental construction will be supported by low vacancy rates in several geographic areas. Nevertheless, uncertainty surrounding the growth in rental demand in sectors most affected by the decline in net migration will temper activity. Uncertainty about the demand for spaces in seniors’ residences as the pandemic continues could also limit construction.

Speed of recovery

The precise timing and speed of the economic recovery in major markets is highly uncertain, and outlooks remain subject to significant risks. These include a slower-than-expected reaching of broad immunity to COVID-19 and stronger-than-expected inflationary pressures leading to higher mortgage rates.

As Canada’s authority on housing, we contribute to the stability of the housing market and financial system, provide support for Canadians in housing need, and offer unbiased housing research and advice to Canadian governments, consumers and the housing industry.

MANAGE YOUR PROPERTIES WORRY-FREE.

HOW MULTIFAMILY THRIVES NOW

By Peter Altobelli, vice president and general manager, Yardi Canada Ltd.

If you are among the many Canadian executives who fast-tracked contactless solutions in 2020, you already know how to pivot your business to keep operations going and maintain resident satisfaction. Moreover, you are likely aware of the long-term benefits of leveraging real-time data and creating a digital ecosystem for communications, services, and payments.

If you’re still aligning your business and technology strategies, here are a few key elements to consider for retaining quality residents, optimizing operations, and maximize cost savings.

Focus on what matters most

People are the centre of your business, be it the renter or prospect. Having the right tools in place is essential to successfully manage those relationships and maintain or enhance service levels. This translates to automating every aspect of marketing from an engaging digital presence, an entirely virtual lead to lease process, a portal to manage resident transactions including rent payments and maintenance requests and to building a community with virtual events. Finally, invest in a comprehensive CRM system that will help track and administer all exchanges effectively, giving your team the ability to focus on providing excellent customer service.

By leveraging technology in your processes, you can articulate ROI as you measure and analyze marketing investment versus results more accurately. At a time where the business and social aspects of peoples’ lives are moving to virtual, it is essential to bring the contactless experience to your marketing and customer service.

Simplify the procurement lifecycle

Automating supply purchasing, invoice processing and vendor management makes sense even when your workforce is not remote. Similarly, going paperless with your suppliers wasn’t a top priority in 2019, but last year’s digital transformation has confirmed that it can be achieved. By providing your vendors with an online portal you can easily capture and approve invoices, purchase orders, and payments within one platform. Property Managers and Operators that have integrated technologies such as payment and vendor portals, along with online marketplace, have seen minimal disruption in service levels, gained control of MRO spending and retained a competitive edge.

Regardless of when you take your transactions online, collecting and centralizing your data will unlock potential cost savings.

Increase energy efficiency

Utilities is often a property’s largest controllable operating expense but with rising ESG demands, energy managers and operators are seeking innovative technology that goes beyond metering. The most effective method for reducing these costs is by gaining visibility across your portfolio with an energy management tool that automatically connects your data for utility consumption, invoice processing, billing and benchmarking reporting. Accessing real-time analytics keeps stakeholders in sync and up-to-date and it also puts property owners in control of maintaining the property value.

Get connected

For more tech best practices or insights, reach out to your peers and consult with industry experts. Tech is here to stay, and with a mobile platform that connects every aspect of your business, you will be in the best position to succeed and drive higher revenue. People are stronger when working together, and the same is true for technology.

For more information about Yardi, please call (888) 569-2734 or visit yardi.com