Low interest rates may impact the student rental market with revitalization of the real estate industry, but Kingston still has issues with housing supply.
On June 5, the Bank of Canada (BoC) announced a decrease in the policy interest rate to 4.75 per cent from five per cent. The five per cent interest rate was the highest rate for the last two decades, which remained since July 2023, according to BoC.
The central bank cut interest rates to 0.5 per cent in response to the pandemic, which remained until March 2022. In June 2022, inflation, measured by the consumer price index, reached an all-time high at 8.1 per cent. To combat the high inflation, the BoC hiked interest rates 10 times until it reached five per cent in July 2023.
When announcing the rate cut, the Governor of Bank of Canada Tiff Macklem said it’s reasonable to expect further cuts to our policy interest rate if inflation continues to ease. The high interest rates help reduce inflation, Macklem explained.
Huw Lloyd-Ellis, an economics professor who researches housing markets, told The Journal this cut alone isn’t going to have a significant effect on the housing market, but what’s important is that more cuts may come.
“These are pretty small changes at the moment, and it seems unlikely to have major effects compared to the other kind of forces that really drive the market,” Lloyd-Ellis said.
Lloyd-Ellis said prospective home buyers couldn’t qualify for mortgages due to high interest rates before, but lower borrowing costs could allow more people to buy homes.
According to the City of Kingston, 44 per cent of Kingston homes are occupied by renters rather than owners.
“[If interest rates keep falling,], then what you might see is housing units that are currently being rented being shifted into the owned market, which you could say, well, that that’s a problem for the rental market,” Lloyd-Ellis said.
According to the Canadian Mortgage and Housing Corporation, Kingston’s vacancy rate was 0.8 per cent in October 2023—one of the lowest in Canada. A healthy vacancy rate hovers between three to five per cent.
The low vacancy rate is reflective of high demand relative to the supply of housing, Lloyd-Ellis said. He explained you need a certain amount of housing, whether it’s owned or rented, to improve the vacancy rate.
“The adjustment in the interest rate, as long as it doesn’t affect the overall supply of housing, it’s not going to have much effect,” Lloyd-Ellis said.
Kingston exceeded its housing target of 587 homes in 2023, launching 1,465 new projects. It’s unclear when these projects will be finished since launching new homes doesn’t mean those houses will be available on the market instantly.
It isn’t clear how the federal government’s restrictions on international student visas will impact the student housing market.
In 2019-20, 668 first-year undergraduate international students were enrolled at Queen’s. In 2020-21, Queen’s intake decreased to 571 students. This figure dipped again in 2021-22 when it dropped to 371 students out of 12,041 applications.
There was a slight increase in 2022-2023 with 414 enrollments, although there was an overall decrease in the number of applicants to 10,132.
Starting in September, both domestic and international students accepted after April aren’t guaranteed residence to live on campus. It’s unclear how this unprecedented policy could impact the student housing market.
Tags
interest rates, Student Housing, Student rentals
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