Purpose-built rental housing and household formation among young adults in Canadian cities, 1991–2016

In recent decades, several Canadian cities have experienced a significant restructuring of their housing demand as young adult aspirations and expectations of maintaining independent households have been confronted by soaring housing costs, falling vacancy rates, and a rental supply system that is characterized by an overreliance on rental condominiums and other provisional forms of ‘secondary’ rental housing. The study presented in this paper focuses on intra-metropolitan variation in household formation among young adults and attempts to explain it from a macro perspective, emphasizing the importance of a community’s ‘primary’ or purpose-built rental sector. Following a review of the international literature on the impacts of housing supply and availability on household formation, panel regression models are estimated to examine the effects of changes in the relative supply and real cost of purpose-built rental housing on changes in young people’s household formation in Canadian metropolitan areas between 1991 and 2016. The results indicate that a 1% increase in the relative supply of purpose-built rental housing leads to 0.24% and 0.14% increases in the rates of family and non-family household formation of young adults. These estimates are generated using instrumental variables, controlling for potential simultaneity between household formation and purpose-built rental supply.