Canada, for a while, has been facing housing issues that are only exacerbated by the pandemic. Apartment rents in cities like Ontario, Quebec and British Columbia have risen more than 5%, sometimes even as high as 8% between October 2019 and October 2020. The government encouraged Canadian universities to limit campus occupancy and promote remote learning. Some students left for home, and others looked into leasing off-campus apartments.
Many universities have restricted the number of students allowed on-campus. They capped the occupancy at 30% to 50% in September to prevent community transmission due to COVID-19. The post-secondary students are now scrambling to find housing off-campus. It has made the already tight rental housing market in the vicinity of the largest Canadian colleges and universities tighter and tighter. This development has been appealing to the luxury student-housing investor market.
University students outside of Canada’s large urban centers now face a new rental landscape. According to the Canada Mortgage and Housing Corporation, the rents in Canada’s seven largest cities fell by 1.4% between 2019 and 2020. However, at the same time, rents rose by 0.1% in Canada’s 29 smallest cities. Those smaller centers have a large student population from the major educational institutions.
Luxury Student Housing
One of the ever-growing segments in Canada’s real estate has been luxury student housing. But COVID-19 has been a massive threat to the market, with many investors monitoring it. There has been a high number of inquiries from international students currently studying in the US who are now looking to move to Vancouver and the West Canadian market.
Even before the pandemic, Metro Vancouver was experiencing a severe supply-demand imbalance of student housing. There was a shortage of more than 14,300 student housing beds in that region in 2019, as per the reports of Real Estate Investment Network Canada. The University of British Columbia had a waitlist of 6,500 for the 2019-2020 school year.
Shift in Demand
The sudden rise in housing prices is due to the rising demand for housing. Many countries that got hit hard by the COVID-19 pandemic see their students enroll in the summer session years in various Canadian universities. Even with the shift to online classes, students are studying and staying in Canada.
As of December 31, 2019, more than 498,735 post-secondary international students were studying in Canadian universities. This is an increase of 14.5 percent from the previous year, as per reports from the Canadian Bureau of International Students.
Privacy and why does off-campus Housing so much in demand
Many schools in Canada have decided to build new residences with private configurations. They are even planning to address the older stock dorm configurations. Designed with keeping in mind privacy for the past decade, they have been ahead in the real estate competition. Off-campus housing also has had the added bonus of remaining open at all times, even during the pandemic. That was not the case for on-campus operators.
The off-campus housing plans also provide more leeway over their housing terms. During the 2020-2021 academic year, various off-campus housing properties offered various tenant inducements, including concessions, COVID clauses or flexible leases to fill the immediate vacancy caused due to the sudden shift to online classes. Another reason why off-campus housing has done so well even in the pandemic is that most students signed their leases before the onset of COVID.
Why the sudden rise?
According to James McKellar, professor of real estate and infrastructure at York University, the rising rents in Canadian cities is actually the knock-on effect of a shift in demand for rentals and homeownership from urban areas to the outlying ones. It occurred due to the COVID-19 pandemic.
The pandemic has upset the housing market. The uncertainty of working at the office and the fear of getting contaminated led people to work from their homes. This shift in demand, according to Mr McKellar, has led to more competition in smaller markets that in turn caused the rent prices to go up. According to him, the rent prices are going up as demand is also on the rise.
Richard Togman, CEO of Rent Panda, a listing platform that helps students find housing in the Guelph, Thunder Bay, Kitchener, Cambridge and Waterloo areas, said that, for students, the situation in the markets is even worse than what the data says.
The rent is now quite expensive for a first-year student at the University of Guelph, Ontario, looking to move to Guelph. The rent at Guelph is from $650-$750 a month. Yet, it is expensive for student housing, considering it is a rural area.
The decrease in supply and the sustained demand, regardless of price, is causing higher competition. This discrepancy has made it hard for college students to look for affordable places.
Is PBSA the Solution?
Time can only tell what the future holds for the student housing market. Canada is still emphasizing more housing and less occupancy; more construction under heavier restrictions with little-to-no on-campus classes. It has provided the student housing operators and developers with an opportunity to make their clauses flexible. Eastern Ontario is a potential market for these investors.
Queen’s University is an unexploited market for such investors. It has a vacancy rate of 1.9 per cent, according to CMHC, even though the rents continue to rise. A new condo development tailor-made for students is scheduled for completion in September 2021 on the northwest edge of the Queen’s University campus.
The Kingston market is ideal for the luxury student market as the investors are domestic. The student housing inventory there is older, and the students pay an average of $800 a month for a shared house with amenities between four and five students. These students’ families pay for private school tuition and coming from a higher-income bracket, they look at it as an investment.
Image Source: Single-family homes are seen against the skyline of Vancouver, British Columbia, Canada September 30, 2020. REUTERS/Jennifer Gauthier/File Photo