Canadian rental prices could hit a floor sooner than expected because of a significant underestimation of people sharing homes due to affordability issues, according to new research from CIBC Economics.<\/p>\n
The proportion of the population \u201cdoubling up\u201d in homes, grouping together extended families, multiple families or a number of roommates, has grown significantly in recent years, economist Benjamin Tal says, but is substantially undercounted. Declining rental prices are likely to entice some to seek their own accommodation.<\/p>\n
\u201cDoubling up is the most common response to deteriorating housing affordability but also can be seen as shadow demand ready to be utilized in an environment of improved affordability,\u201d Tal wrote.<\/p>\n
In an email to Yahoo Finance Canada, Tal says the impact would be seen mostly in rental units but potentially also small condos that have seen price declines. \u201cIf you are a young couple living in somebody\u2019s house, you might stretch things a bit and try to buy that small condo,\u201d he wrote.<\/p>\n
Housing affordability remains a central issue for Canadians<\/a>. National average prices have come down from post-pandemic peaks, but remain elevated<\/a>. Rents are also generally far higher<\/a> than they were before the pandemic, in spite of national average asking rents dropping for 14 straight months<\/a>.<\/p>\n As rental prices decline, doubled households are more likely to undouble, Tal notes. And he argues that the scale of that cohort is likely much higher than policymakers think. Typical measures of demand and affordability are usually calculated by looking at people leaving parental homes and net international arrivals, Tal says, a methodology that \u201cdoes not account for doubling up and basically assumes that the number of families and unattached individuals (adjusted for age) equals the number of households.\u201d<\/p>\n \u201cThis of course is not the case,\u201d Tal added.<\/p>\n Tal uses Canadian census data in an effort to better estimate the doubled-up population. Those numbers from 2021 show \u201cdoubled-up\u201d households increased by around 20 per cent over 10 years, accounting for 17 per cent of the population \u2013 a figure that climbs north of 20 per cent in high-rent hubs like Toronto and Vancouver. Over the same time period, non-doubled households increased by 7.2 per cent, though they made up 70 per cent of the total population.<\/p>\n \u201cA more recent Statistics Canada survey found that two or more person non-family households grew by just under 26 per cent between 2018 and 2022, continuing the strong growth momentum,\u201d Tal said.<\/p>\n Those numbers, however, are likely still not representative, he adds, because non-permanent residents (NPRs) are “dramatically” undercounted and students\u2019 actual living circumstances are not properly recorded in the census. \u201cThose two groups naturally have a high propensity to double up,\u201d Tal said, \u201cand therefore undercounting them means underestimating the actual doubling-up rate.\u201d<\/p>\n As a consequence, there may be many more households more likely to undouble, and thus much more potential demand for units than currently understood if affordability improves, Tal says.<\/p>\n \u201cHousehold formation among non-family individuals is highly sensitive to changes in income and price,\u201d he wrote. \u201cAny improvement in affordability can potentially increase the number of newly created low-income households even if it means spending a higher percentage of their income on housing.\u201d<\/p>\n