Uncertain Times for Co-Living
Surging numbers of international students and minimum-wage earning temporary workers have been a boon for the co-living industry. However, forthcoming policy changes may affect the sector’s fortunes Over 2,000 dwelling units were completed in Ottawa last quarter. An impressive number, but patently inadequate to offset the demand created by the 25,000 additional residents our city welcomed during the same period. In light of that discrepancy, it’s not surprising that rents in Ottawa continued bounding upward. In fact, we might wonder why they didn’t rise even further. In theory, when there’s a shortage of a necessity, such as housing, bidders will bid away their discretionary income, and bid up rents, until there is one available dwelling for each person who has the means to pay the bid up rent. In Ottawa, the median renting household paying median market rents currently enjoys $13,100/year of discretionary income. So it seems there was room for apartment hunters to bid rents even higher. Why didn’t that happen? Without modifying the previously described theory, there are only two ways we can explain the outcome: Apartment Hunters Earned Less Newly arrived (near) minimum wage earning residents predominated the population of apartment hunters. Consequently, apartment hunters, on average, earned less than the typical renter. Three quarters of Ottawa’s population growth is attributable to a net gain of temporary residents (students, refugees, and temporary workers). The majority of those residents earn minimum wage, which is insufficient to pay for the bare necessities and rent on all but one apartment rented (on theMLS) in the fourth quarter. We should not assume that most of these residents would have worked overtime or leaned on financial support from abroad: consider the federal government’s recent admission that international students frequently arrive with little to support themselves other than the opportunity to work full time; that refugees may not work unless they have a permit; and that temporary workers are permitted to work for only one employer—who is likely averse to overtime pay. Minimum-Wage Budget Minimum-Wage $2681 Taxes & CPP/EI (383) Rent (second cheapest) (1,650) Tenant’s Insurance (45) Food (333) Transit (129) Utilities (185) Total (44) Minimum wage assumes 8 hrs/day 5 days/ week with two 15-minute unpaid breaks/days. Utilities include electricity, cellular phone, and internet Apartment Hunters Shared Accommodations These (near) minimum-wage earning new arrivals could not afford their own apartments, and so they must have found shared accommodations. Accordingly, it seems unsurprising that multi-bedroom apartment rents grew about 45% faster than rents for one-bedroom units and studios. Co-Living Sponsors Thrive The cost of living has been surging since 2021. Over the same period, the number of minimally resourced temporary residents in Canada has exploded. Both factors would have driven demand for budget-friendly shared accommodations. The proliferation of co-living projects has coincided with those trends. Tellingly, co-living sponsors have continued to break ground on projects through conditions that have forced many developers to pause their traditionally positioned apartment projects. Contraction Risk However, policy changes may dampen demand for shared accommodations. The federal government’s recently imposed cap on international student visas will likely halve the numberof international students arriving in Ottawa. Additionally, Immigration Minister Marc Miller has announced plans to “rein in” the temporary foreign worker program. Those reductions will slow demand-growth across the market, but will likely affect multi-bedroom apartments and co-living facilities most acutely. The government will continue to admit 500,000 comparatively higher-earning permanent residents annually, which suggests rental demand for traditional units in Ottawa will continue to outpace supply growth. Demand growth in the co-living sector may be limited to price-driven spillover from the traditional market, and so, may be less prodigious than it has been. Under the new student visa system, Ottawa would see its international student population begin to shrink at the end of this academic year and equalize at 60% of its current level by the end of the 2028 academic year. Note: Projections of international student population assume the followingfigures remain unchanged: Ottawa’s share of Ontario’s international students;Ontario’s share of student visas (under the new system); graduation rates, anddrop-out rates Sources:StatsCan: Estimates of the number of non-permanent residents by type, quarterly.StatsCan: Population estimates, quarterly.StatsCan: Persistence and graduation indicators of postsecondary students.IRCC: Temporary Residents: Study Permit Holders (various versions).CMHC: Starts and Completion Survey.CMHC: Populations, Households, and Housing Stock.Urban Nation—Rentals.ca: October, November, December, 2023 Rental Reports.Dalhousie—UBC: Canada’s Food Price Report 2024
