What’s driving the demand for apartments? In today’s housing market, there’s an imbalance between supply and demand. This video is going to talk about how the supply-demand imbalance for places to live is creating opportunities to profit in the apartment sector. Let’s start off by looking at why the demand for apartments is increasing.

Why the Demand for Apartments is Increasing

The first factor is demographics. Younger generations are renting longer with many destined to be lifetime renters. Baby boomers are selling their homes to fund retirement, and new immigrants can spend a decade or more before they have the capital or the credit to purchase a new home.

The government plans to bring more than 1.3 million immigrants from 2022 to 2025: 431,645 new permanent residents in 2022, 447,055 in 2023, and 451,000 in 2024.

The third factor is housing affordability. The high cost of home ownership is forcing more people to rent. This trend is continuing to accelerate because of rising land and construction costs, as well as barriers to new development.

The last factor is lifestyle preference. The stigma of renting is disappearing. Many people are making the choice to live a more flexible lifestyle, free of ownership burdens. When you look at the percentage of the population who rent in Canada, when compared to other developed nations, there’s a wide gap. It’s lower in Canada, and you can expect the rental propensity to increase over time, bringing Canadians more in line with what we see in other developed nations.

What’s Affecting Supply?

Now let’s consider the key factors affecting supply. First, there is a lack of developable land in many locations. Environmental factors are limiting supply. As an example, in Southern Ontario, we have the island effect as you can see on the map. New land development is very limited as you have the green belt on one side and the lake on the other.

Second, there are barriers to new development. In addition to restrictive land use policies, lagging infrastructure and development approval burdens, the timeline for development today is lengthier than in the past. This prevents new supply from coming to market in a timely manner.

And lastly, there’s the economics of supply. Increasing land costs, construction costs, and municipal development fees make it expensive to construct new apartment buildings. This leaves a wide gap between the cost to build new versus the cost of existing. These economics are not likely to change in the foreseeable future in most markets.

Why Investment in Apartments?

So, why apartments? In addition to the factors driving demand and the barriers to new supply that are creating a long-term imbalance, privately held apartments make a great investment. Apartments are a product of necessity. They provide diversified income and have shown long-term positive returns through various economic cycles.

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