Canadian developers are making record investments in new high-rise developments while turning away from detached homes, a shift that is not exclusive to larger markets where affordability concerns have persisted for years.
Over the last year, a monthly average of $2.9-billion has been invested in new construction of multiple-unit dwellings, according to Statistics Canada data. That is the highest in comparable data since 2010. The apartment segment – which includes both purpose-built rental units and condominiums – accounts for the majority of investment.
By comparison, a monthly average of $1.9-billion has been spent on the construction of new single-unit dwellings, which include detached homes and cottages. The result is an ever-widening gap in favour of high-rise buildings that reflects a move toward comparatively cheaper living arrangements, whether for renting or ownership.
“It’s basically millennials, migrants and baby boomers looking for the last affordable piece of housing,” said Priscilla Thiagamoorthy, economist at Bank of Montreal, in explaining why developers have embraced multi-unit construction.
Over the 12 month period ending with September, British Columbia saw $9.9-billion invested in new multi-unit construction, compared with $4.4-billion for single-unit dwellings, the largest gap among the provinces. (Statscan figures for new construction investment are not adjusted for seasonality or inflation.) Next highest is Quebec, with a $4.4-billion gap in favour of multi-unit housing.
At the metro level, Toronto and Vancouver have seen billions invested in high-rise living options in recent years. This is hardly surprising given how expensive detached homes remain in both regions, despite a recent patch of instability, along with a need for more apartment buildings.
However, it’s not just Canada’s priciest markets that are building vertically.
In Halifax, $494-million has been invested in new multi-unit construction over the past year, which is roughly double of what was invested in detached homes. In 2010, single units had an $80-million advantage.
An abrupt shift has occurred in the Niagara region. In 2016, about $460-million was invested in building detached homes, or nearly triple the multiunit segment. Over the past 12 months, multi-unit dwellings have a $50-million advantage, with strength in both apartments and row houses.
Similar reversals are found across the country, including in the metro areas of Calgary, Winnipeg, Barrie and Guelph in Ontario, and Abbotsford-Mission and Kelowna in B.C.
Statscan’s investment data do not say whether multi-unit investment is being driven by the rental or ownership markets. However, there are clear signs of mounting interest in purpose-built rental construction. For one, there were nearly 50,000 rental-unit starts in 2018, or close to double the previous 10-year average, according to the Canada Mortgage and Housing Corp.
Given low vacancies and rising rents in many markets, rental buildings have become an increasingly popular asset class. Investors spent a record $8.38-billion buying Canadian apartment buildings in 2018, according to a report from commercial real estate firm CBRE Canada. Through the first half of 2019, another $4-billion was spent.
Investment in detached homes is not entirely dead, however. Total investment in single-unit buildings – which, in addition to new construction, includes renovations and conversions – was $5.4-billion in September on a seasonally adjusted basis, or slightly higher than for multiunit buildings. (Detached homes attract considerably more money for renovations.)
However, what was a $2-billion gap only four years ago has entirely closed, as developers have shifted their spending, and the appetite for multiunit housing shows little sign of abating.
"I think it will be pretty entrenched for a while,” said Ms. Thiagamoorthy.
Matt Lundy