Since 2009, policymakers in Minneapolis having been implementing land use changes to encourage more housing supply. Some of these changes have included eliminating parking minimums, encouraging multi-family buildings up to 6 storeys on commercial corridors, establishing height minimums in high-density zones, and permitting triplexes on all residential lots. It's, from what I can tell, the type of stuff that many cities have now done or are looking to do. But it seems to have worked remarkably well in Minneapolis. According to The Pew, between 2017 and 2022, the city issued permits for nearly 21,000 new homes and nearly 87% of them were for homes in buildings with 20 or more suites.
This is interesting. It tells us that the triplex policies don't seem to be doing all that much, but that the market has certainly taken to larger multi-family projects. This is an accomplishment. Even more importantly, though, is that it seems to be having a measurable impact on average rents. During the same time period as above, Minneapolis increased its housing stock by 12% and average rents increased by only 1%. Whereas the rest of Minnesota only increased its housing stock by 4% and, maybe as a result, average rents went up by 14%. Changes in homelessness also look dramatically different.
It looks to be a similar story to what's playing out in Austin: increased housing supply is tempering rent growth. (Okay, in the case of Austin it seems to be causing rents to fall.) What I would be interested in seeing now is a further breakdown of this 87% share. Because 20 suites is a different kind of build than 300 suites. It's different for developers and it's different for cities. And I'd like to know if the market is favoring one over the other, or if it's building apartments at all scales. If the city is in fact building lots of new apartments at multiple scales, then this is even more of an accomplishment. It means there might be no "missing middle."
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Last year, the Feds lowered immigration targets in response to Canadians getting grouchy about the number people entering the country. This is expected to be felt starting this year. RBC estimates that Canada's overall population will shrink by about 0.2% this year and next, before returning to positive growth in 2027 (albeit at a lower rate).
That said, the data we have at our disposal today is backward looking and for the 12 months ending on July 1, 2024, Canada continued to see impressive population growth. Looking at the Greater Golden Horseshoe specifically, it grew by about 382,000 people. The 2023 figure was also revised upward from 340,000 to 367,000.
Here's a table from TMU's Centre for Urban Research and Land Development:
Nowhere in the US are apartment rents declining as fast as they have in Austin. Average rents are down 22% from their August 2023 peak. This is according to Bloomberg. What seems to have happened is this: Lots of people started moving to Austin during the pandemic, rents jumped up dramatically, and so the city enacted policies to encourage more housing supply. Developers responded as they do and, between 2023-2024, well over 50,000 apartment suites were completed in the city. Now landlords have very little leverage in the market, and so rents are naturally dropping. It all makes perfect sense, but I will say that I'm surprised by the chronology. Apartment rents jumped 25% in 2021, there was a pro-development policy response, and then increased supply started flooding the market in 2023. How? Then again, Yahoo Finance is reporting that "builders [in Austin] typically take two years to go from buying land to welcoming tenants." That's development magic and I'd like some of it.
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Nearly three-quarters of this growth was concentrated in the Greater Toronto Area, and about three-quarters of this growth was concentrated in Toronto and Peel at 143,000 and 70,000 people, respectively. These are big numbers, especially during a period of dramatically fewer housing starts.
Of course, going forward, lower household formation should alleviate some of the pressures on our housing market. But zero population growth is not sustainable, not unless we want to end up like Japan with a demographic crisis. So there will be tremendous market pressures to return to positive growth.
At the same time, if we go back to RBC's insight report, it specifically says: "This [lower immigration levels] will help realign housing demand with supply — so long as homebuilding can be sustained near current levels." Yeah, that's not happening. Housing starts in the Toronto region have fallen off a cliff.
So I continue to feel like 2027 will mark an important turning point for our housing market. It could be the year when population growth broadly returns, when we've fully absorbed the supply from the last cycle, and when we suddenly realize we don't have nearly enough new housing. Or at least that's my view.
Cover photo by Richard Hong on Unsplash
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