Finally, some good Canadian real estate news—though it’s unlikely to be a lasting trend. New data from the Canadian Housing Statistics Program (CHSP) at Statistics Canada (Stat Can) shows more new condo apartments were owned by end-users in 2022. As interest rates climbed, prices stalled and investors no longer saw the same return potential. Owner-occupants rose to the highest levels since at least 2018, while investors saw their share shrink to the lowest level over the same period.
About Today’s Data
Today we’ll be looking at the share of owner-occupied, recently built condo apartments across Canada. Owner-occupied means they’re used by actual homeowners, as opposed to being investor owned. Recently built means completed and began occupancy in 2016 through the reference year, which is 2022 in this case.
Lastly, across Canada is only five provinces, since those are the only ones that have rental data in the registry. Those provinces are British Columbia, Ontario, Nova Scotia, Manitoba, and New Brunswick. It’s less than ideal, but still gives us a fairly good perspective on how the investor issues are evolving in the more popular regions.
Canadian Investors See Their Share of New Condos Fall Sharply
Higher interest rates are deterring more investors and putting more new supply in the hands of end-users. Canada’s share of owner-occupied new condos climbed 2.4 points to 43.3% in 2022. It was the highest since they began studying the registry data six years ago, in 2018.
It’s an improvement, but consider that 66.5% of households owned their home in 2021. With fewer than half of new condos going to end-users, investors are still capturing more of the market than average.
Out of the five provinces, three saw the share of end-users rise. Nova Scotia saw the largest improvement, with owner-occupancy climbing 2.2 points to 39.6% of recently completed units in 2022. It was followed by BC, where the rate jumped 1.7 points to 46.9% over the same period. Lastly was Ontario (I know, right?), where it made a much smaller 0.8 point increase to 40.1% in the data.
Canadian Families Capture Greater Share of New Housing As Rates Climb, Investors Flee
The share of Canadian condos completed since 2016 that are owner-occupied. In percentage points.
*No data available for use in 2020, and 2021.
Source: Canadian Housing Statistics Program (CHSP); Better Dwelling.
Only New Brunswick saw a decline, falling 8.4 points to 58.3% of new condos in 2022. Still much higher than other provinces, but also eroding much more quickly as investors descend on one of the last affordable provinces.
Manitoba has no lower level data to compare in previous years. The 2022 registry data is the first year to look at rentals. The remaining provinces are being added as the Housing Statistics program continues to grow.
Canadian Households Helped By Higher Rates, Investors Deterred
When rates were cut in 2020, Canada saw investors scramble to capture more of the market. In 2022, as interest rates climbed the opposite trend began to occur. Higher interest rates help to slow price growth, and lower the attractiveness to investors.
Low rates helped to produce more demand and increase leverage for buyers. The increased demand helps to bid up prices, while also increasing leverage at the same time. Not only are more people purchasing, but they also have more access to debt to absorb the increases. Now the opposite is happening—higher rates are reducing demand, and reducing the qualified pool of buyers to improve prices.
Investors are also moving out of the market as a result of higher interest rates. As rates were cut, investors were incentivized with rapidly rising values and low input costs. Since investors tend to be better leveraged than end-users, they didn’t just provide more demand, they became the marginal buyer—driving price growth under the assumption they can pass on costs.
As rates climbed, prices began to stagnate and fixed income markets began to look much more attractive. Investors can turn to bonds and GICs for better yields, without having to turn younger households into regular payments. In other words, capital moved towards more productive use.
Don’t worry. Canada’s pushing to flood the market with cheap mortgage credit again, and the BoC is openly trying to encourage real estate investment as they begin to cut rates. This should help to restore balance and put more housing out of the reach of end users, and back into the hands of investors. That’s the goal, right?
