Demographics and housing demand
There's a lot of Millennials in their late 20s and early 30s
I was talking to an analyst at CMHC a few months ago and he mentioned that there's an increasing number of Millennials who are in their late 20s and early 30s, looking to move out on their own (instead of living with roommates or parents), and that this is a factor adding to housing demand. But I hadn't seen a quantitative estimate up to now, so I assumed that it would be relatively small compared to the effects of migration.
Mike Moffatt posted an estimate a couple days ago, based on projected population by age. His estimate is that from July 2022 to June 2023, this demographic shift added demand for about 130,000 additional homes. That’s more than I would have thought.
The federal government is hitting the brakes hard on population growth via migration, aiming for net migration of 300,000 annually for each of the next three years: 500,000 new permanent residents minus 200,000 fewer temporary residents. This is the biggest lever we can pull to reduce housing scarcity (the gap between supply and demand) in the short term.
Unfortunately, if we take the increase in Millennial housing demand into account, it looks like the target might still be too high. Discussion on Reddit.
Current homebuilding rates vary from one year to the next - over the last few years it’s been between 210,000 and 270,000 annually. Statistics Canada.
Suppose demographic change results in demand for 130,000 more homes per year over the next few years. With net international migration of 300,000, and an average household size of 2, migration adds demand for 150,000 more homes. That’s a total of 280,000 homes.
Plus there’s a large backlog of suppressed demand from the post-Covid international student boom in 2022 and 2023.
If we assume -200K fewer temporary residents per year, that means the target for new permanent residents should be more like 400K or less. So then net migration would be 200K, resulting in demand for 100K additional homes. Add that to demand for 130K additional homes from demographic change and you get total demand for 230K additional homes.
Where does Mike Moffatt’s estimate come from?
It’s based on population projections by age. Canada's Need for 3.5 Million More Homes, April 2024.
In our 2022 paper, Ontario's Need for 1.5 Million More Homes, we developed the RoCA Benchmark, a method of converting population by age totals into a number of households (thereby creating a crude measure of housing demand). The RoCA Benchmark is defined as follows.
RoCA Benchmark Number of Households (Definition): The number of households a community would have, given the size of their population if their age-adjusted headship rates were equal to the 2016 "Rest-of-Canada" average, where the rest of Canada excludes Ontario and British Columbia.
Figure 1 provides the parameters to convert population data into the number of RoCA Benchmark Households. For example, for every 1,000 persons between the ages of 25 and 34 added to a population, the RoCA Benchmark number of households increases by 467.
More
Twitter thread by Mike Moffatt. Earlier thread focusing on Ontario.
70 per cent of new housing demand in Ontario last year came from newcomers: analysis. Marco Vigliotti, iPolitics.
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