Multi-unit housing market is primed for profit

For the first time since the mid 90’s, Canadians are beginning to wonder if house prices will ever go up again.  Over the 12 months ending July 2018, the New Single-Family House Price Index has been basically flat; increasing by a meager 0.5% and actually experienced five months of zero growth and one month of decline.

What does this mean for real estate investors?

How should Canadian investors be looking at and evaluating commercial real estate opportunities as they grapple with this potential “new” normal in the residential housing market?

Graph 1 should be an eye opener for any investor who thinks all real estate is created equal. The graph depicts the only years since 1983 that new home prices have fallen on an annual basis versus the annual return on multi-residential properties in those same years. History clearly shows that a downturn or correction in single family homes has no bearing on or correlation to the performance of multi-residential properties.

Graph 1

Multi-family remains strong

Multi-family properties represent the most basic sector of real estate and fulfills the most basic of human needs: a place to live. Multi-family properties are attractive to investors because of the built-in, perpetual demand for housing. Further, annual rent increases provide a nice hedge against inflation. This type of investment is attractive in markets that are supply constrained and are seeing immigrational and migrational population growth due to strength in the underlying regional economy.

Here are some additional trends that should continue to positively impact multi-family properties:

  • Vacancy rates are at an all-time low
    Even with the extensive increase in the condo-related rental units over the last several years, most economically desirable regions in Ontario have continued to experience extremely low vacancy rates. Anticipated future demand for housing is expected to continue to outweigh the supply thereby keeping vacancy rates low for the foreseeable future.
  • Rental prices are high
    Despite the good intentions of the rent control legislation, numerous municipalities are experiencing increasing rents due to the low vacancy rate and heightened rental competition.
  • Would-be homebuyers side-lined
    Recently, there has been a significant drop in sales activities in part by tighter lending policies and rising interest rates.  Such changes have made it harder for buyers, especially first-time buyers to purchase a new home. A number of purchasers have either been completely side-lined or found themselves looking at more affordable options, like renting.

If you’re looking for a healthy, stable market to invest in with great growth potential, then the multi-family housing market is primed for investing — and for profit.

For further information, please contact us at investors@equiton.com.

For Advisors – Please Contact:
Marcus Schlechta | VP, Business Development | mschlechta@equiton.com
JD Methot | VP, Business Development | jdmethot@equiton.com

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