Addressing Canada’s student housing crisis with industry: The role of purpose-built solutions
Canada’s post-secondary education system is globally recognized, attracting students from around the world. However, a severe shortage of student housing threatens this success, posing a broader socioeconomic challenge that demands urgent action.The Canadian housing market faces a significant supply and demand imbalance, with over four million homes needed over the next six years to restore affordability.* Other policymakers, such as the Canadian Human Rights Commission, believe this number could be even higher. Rising government charges and insufficient construction capacity have exacerbated this crisis.Without positive government intervention and policy adjustments — such as the recently introduced HST exemptions on rental housing — amid the currently challenged financial environment, the lack of housing starts witnessed in the past two years will persist, particularly in university cities and towns where demand for all housing is exceptionally high. The magnitude of the student housing shortfall Canada is experiencing an unprecedented shortfall in student housing, with a deficit of over 400,000 beds nationwide.** This shortage is particularly acute in the country’s 20 largest university markets, which host approximately 1.5 million post-secondary students but offer only around 170,000 beds.*** The result? An overwhelming majority of students are forced to compete for already limited and expensive rental housing, exacerbating the housing crisis in local communities. In university towns like Guelph, Ontario, the housing shortage is particularly severe, reflecting a broader trend across many such communities. The strain on local rental markets, driven by insufficient student housing, has led to rising rents and forced many, including students, into substandard or overcrowded accommodations. Compounding this issue, the provincial tuition freeze mandate for domestic students has compelled universities to increase international student intake to cover rising costs, further straining the housing supply. The role of purpose-built student accommodations Purpose-built student accommodations (PBSAs) offer a viable solution to this crisis. Unlike traditional rental units, PBSAs are specifically designed to meet the unique needs of students, providing them with safe, affordable and community-oriented living spaces.Countries like the United Kingdom and the United States have successfully implemented PBSAs at scale, significantly alleviating housing pressures on students and local communities alike. Off-campus PBSA accounts for 60 per cent in the U.S., 58 per cent in the U.K. and 69 per cent in Australia, but only 29 per cent in Canada.**** The PBSA market in Canada remains underdeveloped.To close the gap, we must incentivize the development of PBSAs through policy changes, financial support and streamlined regulatory processes. The recent introduction of PBSA in the Government of Canada’s Affordable Housing Fund, which aims to provide low-interest loans for new affordable housing projects, is a step in the right direction, though details have yet to be released. Still, more needs to be done given PBSAs are essential to drive affordable housing and economic growth, by alleviating existing housing stock that can be made available to the general non-student population. Student housing in Ontario amid ongoing municipal approval challenges Bill 185 in Ontario is a significant development for expediting approvals in the student housing sector. This legislation has enabled Forum Asset Management to unlock approximately 1,100 units across projects in Guelph and Toronto, providing University of Guelph and York University students with high-quality, community-focused housing.However, despite the progress made by Bill 185, developers continue to face headwinds, from continually escalating development charges (which in Toronto, according to data from Scotiabank, have increased by 2,000 per cent over 20 years) to higher construction and financing costs. The way forward: Collaborative efforts and policy reform The Canadian student housing crisis cannot be solved by developers alone. It requires a combined effort from all stakeholders, including government agencies, educational institutions and the private sector. Key policy changes, such as the inclusion of PBSA in the definition of affordable housing (which would create development charge exemptions) and the adoption of policies similar to Bill 185 across other provinces, are essential to unlocking the potential of this sector. Additionally, property tax exemptions for student housing catering to specific university student bases, both on and off-campus, should be created. These exemptions could play a pivotal role in supporting universities’ broader educational and community missions, regardless of whether the housing is university-owned or operated by the private sector.By lowering the operational costs for student housing providers, such exemptions could directly translate into lower rents for students. This is particularly critical as students often face significant financial pressures, including the burden of repaying student loans upon graduation. Alleviating financial strain allows students to focus more on education and well-being, and less on the economic challenges associated with finding suitable housing.*****Moreover, universities must take a more active role in facilitating the development of PBSAs on or near their campuses. The QUAD at York University is an example of what can be achieved when public and private entities work together toward a common goal. Canada’s housing crisis is multifaceted and impacts all Canadians as well as international students. By adopting supportive policies, we can create more PBSA, which delivers a “two birds, one stone” approach by freeing up traditional housing while providing students with the safe, affordable housing they deserve.Successful projects such as ALMA @ Guelph and The QUAD at York University offer a blueprint for creating vibrant communities that benefit both students and the broader population. Crucially, these projects require experienced developers who understand the unique needs of students, as PBSAs are far more than just conventional apartment developments — they’re about building communities that foster social belonging, well-being and positive environments essential to the development of our future leaders. * Canada Mortgage and Housing Corporation, Housing shortages in Canada, Updating how much housing we need by 2030.** Forum estimate using data from Bonard, Student Housing Market Canada. November 2023, and Statistics Canada.*** Bonard, Student Housing Market Canada. November 2023.**** Canada Mortgage and Housing Corporation, Canada’s Housing Supply Shortages: Estimating what is needed to solve Canada’s housing affordability crisis by 2030.***** Simplydbs. Student Housing Index Survey. Student housing and youth mental health: Survey finds strong correlation. Enjoying this article?Get the latest REM articles in your inbox 3x week so you stay up to date on the latest in the Canadian real estate industry Success! Email Subscribe The post Addressing Canada’s student housing crisis with industry: The role of purpose-built solutions appeared first on REM.
Financing Your First Investment Property: What You Need to Know
Investing in real estate can be a powerful strategy for building wealth and achieving financial freedom. However, securing suitable financing for your first investment property may present challenges. At the same time, to maximize the profitability of your investment, it’s critical to obtain the best possible rates with favourable terms.The Importance of Finding the Right FinancingChoosing the right financing method is a key part of real estate investing. Firstly, the right financing allows you to take advantage of market opportunities promptly, as they arise. Without proper funding, lucrative deals might slip through your fingers. Additionally, different financing options have varying impacts on your cash flow. Selecting a method that aligns with your financial situation and needs ensures you can manage your investment without undue stress. Moreover, the right financing can improve your returns over the long term, enabling you to build a more substantial property portfolio and achieve financial independence.Importance of Financial PreparationBefore diving into any financing option, it’s essential to prepare yourself financially. Understand your current financial status, including your income, expenses, and available capital for investment. If your credit score is below the ideal range, take steps to improve it first, as you are likely to qualify for better rates with a better credit score. This might include paying down debt, correcting errors on your credit report, and making timely payments. Having a cash reserve can help cover unexpected expenses and improve your chances of securing financing, too. A financial advisor can help you evaluate your finances and determine strategies to support your goals.Define Your Investment GoalsClearly define what you hope to achieve with your investment property, whether it’s rental income, property appreciation, or a combination of both. Having a clear strategy will guide your financing decisions and help you choose the option that best aligns with your goals.Types of FinancingRegardless of the type of financing you opt for, it’s recommended that you get a lawyer to review the terms to ensure that they are favourable to you and there are no potential issues down the road.Traditional MortgagesA traditional mortgage is often the first option that comes to mind when financing an investment property. Lenders typically require a good credit score, usually around 620 or higher for conventional loans. Investment properties usually require a higher down payment than primary residences, often 20% or more. Lenders will verify your income and employment status to ensure you can make monthly payments.BenefitsTraditional mortgages generally offer lower interest rates compared to other financing options. You can spread the cost over a longer period, making monthly payments more manageable. This can provide a stable foundation for new investors who are looking for predictable expenses and lower initial costs.DisadvantagesMeeting the credit score and down payment requirements can be challenging for some new investors. The approval process for traditional mortgages can be lengthy, potentially causing you to miss out on quick-deal opportunities. Terms may be more restrictive. Additionally, investment property mortgages often come with stricter underwriting criteria compared to primary residences.Private LendersPrivate lenders are individuals or companies willing to lend money for investment properties. This option can be more flexible but comes with its own set of challenges. Private lenders may be found through personal connections, real estate investment networks, or private whole mortgage companies that match investors to lenders.BenefitsPrivate lenders often have more flexible terms and are willing to work with borrowers with lower credit scores or unique situations. The approval process is usually faster, enabling you to act quickly on investment opportunities. This can be particularly beneficial in a competitive market where speed is essential.Investors who do not qualify for traditional mortgages may find a viable alternative in private lenders, who often offer greater flexibility in their approval process. Unlike conventional lenders who typically base their decisions on standard credit ratings and stringent criteria, private lenders assess your ability to repay the loan with a broader perspective. They may consider factors such as your overall financial situation, the potential income from the investment property, and other unique circumstances, making it easier for investors to secure financing even if they don’t meet the rigid requirements of traditional mortgages. This flexibility can be particularly advantageous for those with non-traditional income sources or less-than-perfect credit scores.DisadvantagesHowever, the interest rates and fees associated with private lending can be higher, impacting your overall profitability. There is less regulation with private lenders, which can increase the risk. It’s essential to thoroughly vet any private lender to ensure they are reputable and that the terms are clearly understood.Hard Money LoansHard money loans are short-term loans provided by private lenders or companies. They are secured by the property itself rather than your creditworthiness, and the loan amount is based on the property’s value, not your credit score. These loans are typically for 12 months or less.BenefitsHard money loans are approved quickly, which is ideal for flipping houses or other short-term investments. Approval is based more on the property’s value than your financial background. This can be an excellent option if you need to close a deal quickly and have a clear exit strategy.DisadvantagesThese loans come with higher interest rates and fees. The short-term nature of these loans requires quick repayment, which can be risky if the investment doesn’t pan out as expected. It’s crucial to have a solid plan for repaying the loan or refinancing before committing to a hard money loan.Seller FinancingSeller financing involves the seller of the property acting as the lender. This can be an excellent option for new investors who might not qualify for traditional financing. Terms are negotiated directly with the seller.BenefitsSellers may still require a down payment, though it can be lower than traditional loans. Terms can be tailored to fit both parties’ needs. This can simplify and speed up the transaction process. Additionally, seller financing can be a good option if the property requires significant work that might make it difficult to obtain traditional financing.DisadvantagesSellers may charge higher interest rates than traditional lenders. If the seller has a mortgage, their lender may require full repayment upon sale. This can introduce additional complexity and potential hurdles in the transaction. It is also important to ensure all terms and conditions are clearly set out, to avoid potential issues.Home Equity Loans and HELOCsIf you own a primary residence with significant equity, you can leverage it to finance your investment property. You will need to have enough equity built up in your home to secure the loan or line of credit. Similar to traditional mortgages, a good credit score is required.BenefitsHome equity loans and HELOCs often have lower interest rates compared to other financing options. Additionally, you have greater flexibility in how you deploy your capital, and can use the funds for various investment-related expenses.DisadvantagesA key concern with these loans is that your home is used as collateral, which means you risk foreclosure if you default on payments. HELOCs may have variable interest rates, leading to fluctuating monthly payments, and making it harder to manage monthly budgets. It’s important to carefully consider the risks and have a clear repayment plan in place.Tax ImplicationsFinancing an investment property has specific tax implications. In Canada, interest on your mortgage, loan fees, and other related expenses are potentially tax-deductible. However, tax rules are complex, and it’s essential to understand how different financing options will affect your tax situation. Consulting with a tax professional who specializes in real estate can guide you and optimize your strategy.Assessing Cash Flow and Return on Investment (ROI)Before committing to a financing option, it’s important to thoroughly assess the potential cash flow and ROI. Calculate all expected income and expenses to ensure the property will generate positive cash flow. This includes considering the financing costs, property management fees, maintenance, and other operational expenses. Ensuring a good ROI is crucial for the long-term success of your investment.Commit to Continuous EducationSimilar to other aspects of investing, staying current on investment financing and educating yourself is important for your overall success. Understanding the nuances of different financing methods, interest rates, and terms can significantly impact your investment’s success. Informed decisions help you avoid costly mistakes, ensure better cash flow management, and maximize your returns. Research and education provide the knowledge needed to navigate the complexities of real estate financing, allowing you to choose the option that best aligns with your financial goals and investment strategy.Before committing to a financing option for your investment property, build a strong knowledge base. Immerse yourself in learning and networking. Start by connecting with experienced investors and joining local or online real estate investment groups. Engaging with a community of like-minded individuals can provide invaluable insights and practical advice. Additionally, take advantage of various educational resources such as books, online courses, and seminars. Also, attending high-quality conferences, like the Investor Summit Conference in Toronto, known as Canada’s top real estate investment conference, can significantly increase your knowledge about investment financing and other key aspects of investing. These events feature leading keynote speakers and numerous information sessions, providing ample opportunities for both networking and learning from industry experts. By leveraging these resources, you can build a solid foundation for making well-informed decisions about financing your investment property.Securing financing for your investment property is a crucial step towards achieving financial independence through real estate, so it’s important to approach it with careful consideration. By investigating all financing options and preparing yourself financially, you can find the method that best aligns with your needs and goals, allowing you to start taking advantage of real estate opportunities to build your property portfolio.
Canada’s “Boldest” Mortgage Reforms: Unexpected Changes Announced
On September 16, 2024, the Government of Canada introduced the most significant reforms to mortgage regulations in decades, aiming to unlock homeownership for more Canadians, especially younger generations struggling with affordability. These sweeping changes were outlined in a news release from the Department of Finance, signalling a shift in policies to make it easier for Canadians to purchase homes amidst rising housing costs. The changes came as a surprise to many. The new rules, which came into effect on August 1, 2024, include transformative updates that are expected to have wide-reaching effects on the housing market. Key Changes to Mortgage RulesThese reforms, described as the boldest mortgage changes in decades by the federal government, are intended to help more Canadians, especially first-time homebuyers and younger generations, secure homeownership. The changes will also impact investors in preconstruction properties, making mortgages more accessible. Introduction of 30-Year Amortizations for Insured MortgagesOne of the most significant reforms is the expansion of 30-year amortizations for insured mortgages, a measure designed to reduce monthly payments for borrowers. Effective December 15, 2024, first-time homebuyers will be able to access 30-year insured mortgages for all types of homes, not just new builds. Additionally, this change will apply to all buyers of preconstruction homes, including investors. This builds on a previous amendment, effective August 1, 2024, which allowed 30-year amortizations for first-time homebuyers purchasing new builds.This change will provide borrowers with longer terms to repay their mortgages, thereby reducing their monthly payments by approximately 9% compared to 25-year amortizations, with all other factors being equal, according to an Edge Realty special report. The goal is to make homeownership more affordable, particularly in expensive markets where housing prices have made it difficult for many to enter the market.Increase in Insured Mortgage Cap to $1.5 MillionAnother significant change is the increase in the insured mortgage price cap from $1 million to $1.5 million. This adjustment, effective December 15, 2024, reflects the rising cost of homes in Canada’s more expensive cities, such as Toronto and Vancouver, where the average home price often exceeds $1 million. This measure will allow more buyers to qualify for an insured mortgage with a down payment of less than 20%.With this change, buyers in high-cost markets will need to put down 5% on the first $500,000 and 10% on the remaining portion above that. For a $1.5 million home, the minimum down payment would be $125,000, leaving a mortgage of $1.375 million. This policy will make it easier for buyers in cities where home prices have historically excluded them from insured mortgage programs.Building on the Ability to Switch Lenders Without RequalifyingBuilding upon earlier changes introduced by the Canadian Mortgage Charter in Budget 2024, which allowed insured mortgage holders to switch lenders at renewal without requalifying under the stress test, the new mortgage changes further expand this flexibility. Now, as of December 15, 2024, all insured mortgage holders, including those purchasing preconstruction homes, can switch lenders without requalification. This provision is designed to promote greater competition among lenders and ensure that borrowers have access to more competitive rates without the barrier of undergoing a new stress test.The original policy was seen as a way to empower insured borrowers with more options during renewal. By broadening its application to preconstruction homes and investors, the new changes enhance this flexibility for a larger segment of the market, according to the Edge Realty special report. Investors, in particular, stand to benefit by gaining easier access to more favourable terms when financing preconstruction properties.This adjustment is intended to drive competitive pricing in the mortgage market, as borrowers will no longer be locked into their existing lender due to the requalification process. This increased competition could lead to better mortgage rates and conditions for both homeowners and investors, especially in a high-interest-rate environment.Implications for Homeowners and InvestorsIncreased Access for First-Time HomebuyersThe extension of 30-year amortizations and the raised price cap will likely benefit first-time homebuyers by reducing their monthly payments and lowering the threshold for mortgage qualification. These changes are particularly relevant in markets where high prices have made homeownership difficult for younger buyers. The expansion of the amortization period from 25 to 30 years is seen as a way to provide more time for homebuyers to pay off their mortgage, which could help ease the financial burden.More Opportunities for InvestorsFor real estate investors, the reforms introduce a new opportunity. Investors will now be able to access 30-year insured mortgages for preconstruction homes, which was previously limited to first-time homebuyers. The Edge Realty special report mentions that this could potentially boost investor participation in the preconstruction market, especially as sales of preconstruction condos have slowed in recent years due to rising prices. The increased availability of insured mortgages could encourage more investment in new builds, particularly in major cities where demand for rental units remains high.Looking ForwardThe government’s intention behind these reforms is to address the affordability crisis while supporting housing supply growth. The expansion of insured mortgages to a broader range of buyers, including investors, could stimulate more construction of new homes and condos, which aligns with the government’s broader goal of unlocking nearly 4 million new homes as part of its national housing strategy.However, as these changes are implemented, the long-term impact on the housing market remains to be seen. While the goal is to make housing more affordable, it’s also possible that the increased purchasing power of buyers could drive up prices in some markets, particularly in the short term, or that other unintended consequences arise.
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