Canadian Population Boom, Improving Home Affordability Create Investor Opportunity

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For the first time in nine quarters, housing affordability improved in Canada. 

Episode 74 of the Real Estate Investor podcast explores a myriad of topics, including a closer look at National Bank's Housing Affordability Monitor. 

Hosts Daniel Foch and Nick Hill note that it was the largest improvement in over three years and ended the longest sequence of declining home affordability since the 1986 to 1989 episode, although the median home is still not affordable for many Canadians. Mortgage payment as a percentage of income is at 64.6 per cent, the second-highest level since 1981.

Office vacancies in Canada reach an all-time high

Foch and Hill also explore how the pandemic has impacted commercial real estate; office occupancy rate in Toronto stabilizing at around 42 to 43% per cent of pre-pandemic occupancy, while office vacancies across Canada hit a record high of 17.1 per cent at the end of 2022 due to cost-cutting measures implemented by companies.

The podcast also discusses RBC (TSX:RY)'s recent report on the Canadian housing market correction, which suggests that the housing market correction is gradually letting up, with prices expected to level out in a few months. The report forecasts a 15 per cent peak-to-trough decline in the national RPS Home Price Index, with roughly half of that decline still to come.

Rental housing shortage could quadruple by 2026

Moreover, Foch and Hill explore another report from RBC highlighting the shortage of rental housing in Canada, which is expected to quadruple by 2026, despite a record number of apartments being built last year. 

The biggest gains in purpose-built rental stock were seen in Calgary and Ottawa-Gatineau, while Toronto and Montreal, popular destinations for newcomers, experienced the smallest gains. 

The rental housing gap, the difference between the projected rental stock and the rental stock required to achieve balance, is expected to exceed 120,000 units by 2026, nearly four times the current estimated shortfall.

The hosts explain that Canada needs to significantly increase the supply of purpose-built rentals to meet current and future demand and provide stability in the rental market.