Projecting Future Housing Demand: Niagara

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How much housing will be needed in the future? That’s the most important question for developers and lenders who want to know if the new housing projects which they’re proposing to build will be needed. Obviously, it’s impossible to answer that question with much accuracy, since by definition the future is impossible to predict.

That hasn’t stopped Ontario’s Ministry of Finance which prepares population projections for five-year periods up to 15 years into the future, corresponding with Census years (the most recent Census was conducted in 2016). Using these projections, which are for total population for the province’s regional municipalities and counties, and applying household data reported in the Census, it’s possible to calculate rough estimates of future housing need.

How does this work? Total population and total households are both reported in the Census, which means the average number of persons living in a household can be calculated. This average, which is for 2016, can be applied to a chosen future projected total population prepared by the Ministry of Finance to calculate the estimated number of future total households. When total households for 2016 are subtracted, the difference is the estimated number of new households which will be formed from 2016 to the future year. Since in the Census one household lives in one dwelling unit, the estimated number of future new households which will be formed represents—generally speaking—the future demand for new housing units. (Two caveats need to be applied to these calculations. First, these are high-level, general estimates only and should be treated with caution. Second, these calculations are based on the assumption that average household size won’t change in the future; in reality, this could increase or decrease, and in most areas of southern Ontario average household size shrank slightly from 2011 to 2016.)

The table below shows the results of my calculations for the Niagara region for the Census years 2016, 2021, 2026, and 2031, using the process described above. I have added two high/low scenarios: a slight increase in average household size and a slight decrease. Note that for projected total population my calculations use the Ministry’s so-called reference or medium scenario projections which they consider “the most likely to occur if recent trends continue” (the Ministry’s webpage for population projections is easy to find with a quick internet search if you want more details).

The estimates of new households needed I’ve calculated, which should be treated with caution since they’re based on population projections and household size assumptions, suggest significant depth-of-market for new housing units will exist in Niagara in the future, on the order of tens of thousands of units.

Will all of these new units be built? Data on housing completions collected and reported by CMHC suggests that across the Niagara region 7,831 housing units were delivered to market from June 2016 (the month after the 2016 Census was conducted) to June 2020, or about 36.9% of the estimated 21,217 new households needed by 2021 (see the table above). Applying the average monthly completions over that period and projecting to June 2021 that total rises to hypothetically 9,749 completions or 45.9%. That’s less than half of what calculations based on the Ministry of Finance’s population projections suggest will be needed by 2021.

We’ll have to wait until 2021 to find out if the Ministry’s population projections are accurate, but ever if they’re inflated by a significant amount it’s clear that housing completions are not keeping up. Where will those new households find housing? There are two options: (1) outside Niagara or (2) in existing households; if the latter, then household sizes will have to increase to accommodate them.