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Forecasting and Analysis
Today, about 60 per cent of Canadians live in single-detached homes. However, demographic changes suggest that the demand for multiple-dwelling homes, including condominium apartments, will account for a growing share of residential demand in the coming years. The rising popularity of smaller units will come at the expense of the future demand for single-detached homes, a shift that some analysts suggest could negatively affect the value of larger single-detached homes. While this may be a source of concern for baby boomers planning to trade their single-detached homes for smaller units, the situation may not be as alarming as it first seems. New sources of demand and adjustments on the supply side will likely mitigate the negative impact on the future value of single-detached dwellings.
The question of whether speculation or fundamentals led to the growing demand for condos in recent years has triggered many debates. However, the source of demand for multiple-dwelling units over the long term will likely be less ambiguous. Past experience suggests that many baby boomers will want to downsize as they age. At the same time, census data suggest that there is a general trend toward fewer persons per household, and this is not solely due to our aging population. This trend will likely support demand for smaller units, such as condos and townhouses. Combined with our expectation that population growth will remain soft in coming decades, these changes raise the following question: Who will buy the baby boomers’ single-detached homes once they decide to downsize into smaller units?
The changes in the needs of the baby boomers (now aged 46 to 67 and accounting for roughly 29 per cent of the total population) will have a large influence on the housing market in coming years. Indeed, younger members of the boomer cohort currently account for the bulk of households occupying single-detached dwellings. Nevertheless, as their children leave home, members of the cohort will become “empty nesters.” And while some may opt to stay in their single-detached homes for the rest of their lives, a sizable share will move into smaller, lower-maintenance homes. Indeed, 2011 census data show that the prevalence of living in a single-detached home starts declining after the age of 55. (See chart.) While 67 per cent of the population aged 50 to 54 occupied a single-detached home in 2011, this proportion drops to 59 per cent for the population aged 75 to 79.
Since the baby-boom cohort is much larger at the tail end of this generation (there are many more younger boomers than older ones), the empty-nest trend will continue and likely accentuate in coming years.
Still, baby boomers’ decision to downsize is not expected to be the sole reason for an increase in the demand for smaller units over the long term. Census data suggest that the proportion of one-person households is trending up. Indeed, between 2001 and 2011, the proportion of one-person households increased from 25.7 per cent to 27.6 per cent. This increase may be partly explained by the aging population and the rising divorce rate among the older age cohorts, but also by a trend toward fewer marriages, including common-law relationships. Canadians who have never been married and are not living in a common-law relationship make up a growing share of the total population. This share increased from 27.6 per cent in 2006 to 28 per cent by 2011. Furthermore, in 2011, 30.8 per cent of young adults in their 20s were in a couple, down from 32.8 per cent in 2006. This change is even more dramatic when compared with 1981, when more than half of young adults were married or living in a common-law relationship.
Some of the increase in the share of one-person households may be attributed to the echo boomers (the children of the baby boomers) who are now aged between 21 and 41. This generation will further boost demand for multiple-dwelling units, since the youngest members of the cohort have reached an age at which they are beginning to move out of the family home and enter the market for starter homes and rental accommodations. In addition to demographic changes, other factors—such as affordability, the attractiveness of living in the core of a city, and the fact that there is very little space to build single-detached units in the core—will support demand for multiple-dwelling units in coming years.
These trends raise the question of whether future demand for single-detached homes will be enough to support price growth, particularly for homes far from city cores. But it is not all bleak. New young families and increased levels of international immigration will bolster demand for single-detached homes. Moreover, the relative supply of these homes will fall, due partly to lower construction levels and also because some may be converted into semi-detached units. Therefore, while potential pockets of oversupply might remain, these factors will help balance the market for single-detached homes in most regions and cushion the impact on the value of these homes.