Queen’s students and recent graduates face unique challenges as they navigate renting and purchasing properties in Canada.
Recently, talk of the housing market seems to centre on rising interest rates in the midst of a so-called ‘housing crisis.’ Important features of the current housing market include high interest rates and a higher demand on a market with limited supply.
“The growth in demand has been quite rapid over the last few years, not just in the number of people, but the willingness of people to pay for housing. At the same time, there are limits on how fast the growth of supply is happening,” said Huw Lloyd-Ellis, Queen’s professor of economics, in an interview with The Journal.
Population growth in Ontario is quite fast compared to the incremental growth observed in the supply of housing. Currently, this growth in supply is slower than what’s typical.
“As interest rates have risen, property values have fallen […] People are less certain property values will increase in the short term, which means people are delaying purchasing new construction,” said William Scharer, ArtSci ’20 and a Toronto realtor, in an interview with The Journal.
Increased interest rates mean mortgages are becoming more expensive to pay off, which increases the overall cost of buying a house. While housing prices can be difficult to compare over time—accounting for all relevant factors such as inflation and borrowing costs—it can be helpful to analyze the fraction of income spent on housing.
“In the early 2000s, the average person spent around 40 per cent of their disposable income on housing, now it’s more like 60 per cent,” Lloyd-Ellis said.
Queen’s students, like other university students across Canada, face unique challenges when it comes to housing, both in the homeownership and the rental spheres.
As borrowing costs increase, not only does it become more expensive to buy a home, but rental costs also increase, making it difficult to save.
“Rising interest rates have pushed people who would be able to buy into second-guessing whether they want to purchase and pay the borrowing costs,” Scharer said.
To combat this, Scharer recommends new graduates hoping to enter the homeownership arena be financially disciplined, and take advantage of savings opportunities, such as the First Home Savings Account (FHSA).
As people remain in the rental market longer before moving up to homeownership, the demand for rental properties increases, and rent prices with it.
“In Kingston, the rents, especially around campus, have always been quite high relative to other cities,” Lloyd-Ellis said. “The rents have grown quite rapidly, until recently, compared to house prices.”
Leased units in Ontario are rent-controlled, meaning rental costs may only increase by a certain percentage each year. In 2023, allowable rent increases were capped at 2.5 per cent.
However, this restriction doesn’t apply between tenants, giving landlords the opportunity to raise rent as much as they’d like when leases turn over.
In a city with a significant rate of lease turnovers, this leads to much higher rental costs. The January 2023 Rental Market Report released by the Canada Mortgage and Housing Corporation showed that in 2022, within the same structure, a 2-bedroom unit in Kingston that turned over to a new tenant was, on average, 21.6 per cent more expensive than one that didn’t turn over.
“If you raise interests, the costs of servicing a house, landlords are going to try to pass that on as much as they can to the renters,” Lloyd-Ellis said.
Lloyd-Ellis is currently conducting research into “filtering,” which is a housing supply practice that would see the building of houses targeted towards middle to upper-middle class individuals.
The aim would then be for individuals who require affordable housing to move into the housing once occupied by those in the middle to upper-middle class.
“When you build housing higher up in the quality distributions for middle income people in particular, they can move from where they’re living now, to maybe the housing that’s higher quality,” he said. “[Middle income people] leave housing behind that was relatively lower quality in some sense. That housing becomes more affordable for people [at] lower income.”
For Scharer, the optimal time to join the housing market is when you’re ready. He said it’s not about timing the market, it’s about time in the market. In practice, Scharer said homebuyers should consider buying and holding their properties.
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