Josh Pillsbury, co-founder and managing partner of Summit Cover, describes a complex and evolving landscape in Canada’s multifamily real estate market, driven by significant demographic shifts and persistent housing shortages.
According to Pillsbury (pictured above), the country is facing a supply crunch that is putting immense pressure on both property managers and real estate investment trusts (REITs) to meet demand.
"Right now, we don't have enough housing supply for, you know, the population growth that we're anticipated to have over the next five to ten years," he told IB.
A particular area of concern is student housing, a subset of the multifamily sector that has seen skyrocketing demand due to the sharp rise in student visas. In 2023, approximately 1 million student study permits existed in Canada, a figure Pillsbury noted was “about a three times increase in the last 10 years.” This sudden influx has pushed many students into the general rental market, creating added strain on an already overstretched housing supply.
"A lot of students actually must look to rent regular multifamily apartments, as opposed to purpose-built student housing," he said.
REITs, which heavily influence the supply, face additional complexities due to their cross-provincial reach and the regulatory nuances that vary at both provincial and municipal levels.
“Rental housing is regulated very much at the provincial level, and then new development proposals are approved at the municipal level,” Pillsbury said. Toronto, in particular, is a challenging market, having struggled with adequate housing approvals for decades due to the “municipal approval process that takes place and various different types of regulations put on landlords.”
Adding to these hurdles are the rising construction costs and ongoing supply chain challenges, which directly impact financial planning for property developers and managers. The inflationary environment, particularly over the last several years, has caused significant price spikes for essential building materials, creating further complications for the insurance sector.
“These last three years had a significant amount of inflation to various building products, upwards of 25-30% or more,” Pillsbury said, also referencing materials such as lumber that saw wild fluctuations in pricing due to supply chain disruptions.
Pillsbury believes that while some supply chain issues triggered by the pandemic have been resolved, the industry is still grappling with the inflationary pressures from the last few years.
"We're still mainly dealing with the inflationary impacts," he said. Managing these costs while also ensuring adequate insurance coverage for property managers has become a focal point of discussion, especially as insurers and brokers work to recalibrate their policies in response to a changing economic landscape.
Environmental risks, such as flooding and wildfires, are also reshaping the insurance landscape for multifamily housing. Pillsbury points to the increased frequency of wildfires in Western Canada as a significant concern, with insurance companies even considering the introduction of wildfire-specific deductibles.
“As recently as last week, I've heard some insurance carriers discussing putting in place a wildfire-specific deductible, which is something that I wouldn't say has been something I've encountered in the past,” he said. “When catastrophes do occur, there's not too much we can do to really stop a wildfire in its place or stop a flood from happening.”
Technological advancements, particularly in the realm of risk management software, are starting to play a larger role in managing these risks. One major area of innovation lies in tenant liability insurance tracking, a critical issue for multifamily developments. According to Pillsbury, many tenants either cancel their insurance after moving in or let it lapse without the landlord’s knowledge, creating unnecessary risks for property managers.
“The last few years, it's been very challenging to figure out that piece of data, mainly because tenants cancel the insurance after they move in, or they just let the insurance lapse,” he said. Summit has been a pioneer in deploying compliance software that can track tenant insurance coverage in real-time, providing valuable data that can be used in negotiating better insurance premiums for property owners.
Pillsbury believes this technology will reduce risks and insurance rates over time: “You get a lot more meaningful data that you can actually leverage on the back end when it comes to negotiating the property insurance renewal.”
