There’s hidden housing demand lurking in the Canadian market that may be unleashed quickly as affordability improves, putting a floor under rents and housing prices faster than many expect, says CIBC World Markets Inc.
In a report, economists at CIBC examine the phenomenon of “doubling up” — people taking roommates, multiple families crowding into shared accommodation and members of extended families living together — in response to a high-cost housing market.
“Doubling up is the most common response to deteriorating housing affordability but also can be seen as shadow demand ready to be utilized in an environment of improved affordability,” the report said.
And this demand isn’t captured in the traditional policymakers’ data on housing markets.
While census data can be used to estimate the amount of doubling up that’s happening, CIBC said it believes that this understates the phenomenon, due to undercounting of non-permanent residents and the “misallocation” of students.
Overall, the data indicates that the number of living arrangements that involve “doubling up” may be more than 17% and that it’s higher than 20% in particularly pricey markets, such as Toronto and Vancouver — representing underestimated housing demand that may be poised to be unleashed.
“The practical implication here is that with the current improvement in affordability due to falling prices/rent, some of this potential demand might be released due to undoubling and might establish a price floor faster than currently anticipated,” the report said.
Urban centres with high levels of doubling up will be the first to see increased housing demand, primarily at the low end of the rental market, the report suggested.
Also, this decline in doubling up “could absorb new affordable supply coming to the market, reducing the pressure on vacancy rates, while potentially establishing a floor for rent of units that are at the more affordable end of the rental market,” it said.