Study: Changes and challenges for Canada's residential real estate landlords

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Many Canadian households have moved from renting to home ownership during the past two decades, providing new challenges for the nation's residential real estate landlords, according to a new study.

Lower interest rates, more attractive financing options and relatively strong economic conditions have encouraged more households to buy homes, in turn driving up house prices.

The study, published today in the Services Industries Newsletter, found that even though prices for homes have risen more rapidly than rents, households have consistently opted more and more for home ownership.

As a result, only about 3 in every 10 Canadian households rented in 2005, compared with 4 in every 10 in 1986.

The study found that households that turned from renting to owning in recent years tended to have higher incomes than those that did not. Therefore, Canada's pool of renters is now populated proportionally more by low-income households than it used to be.

The fastest-growing segment of the residential rental market has been households in the bottom 20% of the income distribution, or the lowest income quintile.

The study also showed that elderly people are playing a larger role in the rental market than they did two decades ago. Younger households, married couples with children and lone-parent households are playing a lesser role.

As the population ages, older households will likely represent an even higher proportion of renters. If so, landlords might be expected to provide better accommodation for aging renters, such as special facilities or equipment.

The study also found that, due to an aging stock of apartments, residential landlords devoted 14% of their operating expenses to repair and maintenance costs in 2004.

Renters increasingly low-income households

The shift from renting to owning over the past two decades has occurred, at least to some extent, across all income quintiles, most age groups, and in every province except Newfoundland and Labrador and Prince Edward Island.

Most notably, the role of households in the lowest income quintile (that is, the 20% at the bottom of the income distribution) has grown rapidly in the rental market in the past two decades.

In fact, these households have been the fastest-growing segment of the residential rental market. Total spending on rents by households in the lowest quintile rose by 5.2% on average each year from 1986 to 2005. This far exceeds the 3.4% average growth recorded for all other households.

In 1986, these households made 24% of all rent payments. By 2005, this proportion had reached nearly 30%.

Landlords are, therefore, relying increasingly on the lowest income households to rent their units. The primary reason for this is the rapid shift away from renting, and towards home ownership, for all but the lowest income households.

City dwellers, Quebeckers far more likely to rent

City-dwellers are far more likely than other Canadians to rent their place of residence. In 2005, 37% of households living in Canada's 14 largest cities rented their dwellings, compared to only 28% of households elsewhere.

Québec has long been the province where households are most likely to rent, followed by British Columbia. Conversely, households are least likely to rent in New Brunswick and Newfoundland and Labrador.

In addition, between 1986 and 2005, every province experienced a decline in the proportion of households living in rentals, except for Prince Edward Island and Newfoundland and Labrador.

In other words, across most of the nation, households are more likely to be homeowners than they were 20 years ago. The biggest shifts occurred in Alberta, Manitoba and Saskatchewan.

The residential rental market has expanded most rapidly in British Columbia, where households spent $4.8 billion on rents in 2005, up 167% from 1986. In 2005, households in British Columbia accounted for 16% of Canada's residential rental market, up from 12% in 1986.

Youngest households most likely to rent

Younger households are over-represented in the rental market relative to the size of their population. Those headed by someone younger than 35 accounted for 34% of all household spending on rents in 2004, even though they comprised only 20% of all households.

Nevertheless, young households are not as predominant in the rental market as they were in the 1980s. For instance, in 1986, households headed by someone younger than 35 accounted for nearly half of all household expenditures on rents in Canada. By 2004, this proportion had fallen sharply to just over one-third.

In the last two decades, a number of factors reduced the importance of this age group in Canada's residential rental market. First, they now comprise a smaller proportion of Canada's population of households. Second, they are more likely than previously to own rather than rent their place of residence. And, finally, there has been an increase in the number of young adults returning to live with their parents. Many of these young people would otherwise have been renters.

Older households, those headed by someone aged 75 or older are also playing a larger role in the rental market. In 2004, they made 11% of all rent payments, up from 7% in 1986. This is not surprising given the gains in life expectancy.

Singles more likely to rent than couples

Almost half of all renting households are headed by unattached individuals even though they comprise only one-quarter of all households.

In terms of total expenditures on rents, nearly 41% of such spending came from unattached individuals in 2005. This was up markedly from 33% two decades ago. There has been a relatively sharp increase not only in the size of Canada's unattached population, but also in the number of these households that rent.

Between 1986 and 2005, the number of unattached individuals who rented rose 26%. In contrast, there was a 3.7% decline in the number of renters among other household types.

Also over-represented in the residential rental market are lone-parent households. However, their 6% contribution to all rental spending in 2005 was down sharply from a 10% share in 1986. This decline occurred even though there are now more lone-parent families.

The primary reason that lone-parent families now comprise a lower share of the rental market is that, on average, they are far less likely to be renting their dwellings than they were two decades ago. In 2005, 45% of lone-parent households were renters, well below the proportion of 64% in 1986.

On the other hand, couples (married and common-law) are under-represented among renters. In 2005, they comprised 63% of Canada's households but represented only 43% of Canada's rental spending.

The article "Changes and challenges for residential real estate lessors" is now available as part of the Analytical Paper Series - Services Industries Division (63F0002XIE2007052, free) from the Publications module of our website. Other information from the Services Industries Division can be found in the Services Industries Newsletter (63-018-XWE, free), also available on our website.

For more information, or to enquire about the concepts, methods or data quality of this release, contact Don Little (613-951-6739; fax: 613-951-6696; don.little@statcan.gc.ca), Services industries Division.