When the dam breaks: Pent-up demand for housing is growing and it could lead to a ‘bigger than ever’ crisis.

Andy Yang, 20, appreciates he's one of the lucky ones. In a city that has seen some rents nearly double in the last year, his London, Ont., landlord hasn't raised the cost of the townhouse Yang shares with two other students.

He is also optimistic he will own a home in the future because he hopes to graduate from the Ivey School of Business into a job in real estate or consulting.

I think I will own a house in the future if I'm being optimistic .... But that will take a little while and I will probably also need financial support, like probably some money from my parents or a line of credit of some sort," he said.

A third-year student, Yang is probably about a decade off his own home search. By the time he hits the market he will likely be part of the pent-up demand for housing that is already building as buyers wait out the Bank of Canada's rate climb regimen and developers put their projects on pause.

A year of rate hikes is expected to keep the housing market cool for at least the first half of this year. But what stops the market from reigniting given an anticipated influx of immigrants and a huge cohort of millennials in the thick of their family years at a time when the GTA is experiencing a chronic housing shortage?

Some experts argue there is a medium-term crisis brewing as the central bank's interest rate policy also appears to be delaying housing starts at the very moment when government is desperate to speed up construction.

There is little expectation that buyers will come roaring back to the housing market at pandemic levels this year. It's more likely they will start to trickle off the sidelines in the second half of the year, say the forecasters.

That just gives the demand more time to build, said Royal LePage CEO Phil Soper. He says there was too much pent-up housing demand going into the pandemic for it to be satisfied between spring 2020 and the first quarter of 2022, so the longer the market sits dormant the more demand is building on top of that residual appetite for housing.

Some pent-up demand is already playing out in the rental market where vacancy rates have shot up to squeezed pre-pandemic levels and the GTA saw double-digit rent increases last year.

But developers are also holding out for rates to stabilize and buyers to come back before they launch new projects, said Shaun Hildebrand, president of Urbanation, a market research firm that tracks development.

In the short term there are enough condos on the market to satisfy the lowest demand in nearly 20 years, he said.

However, Hildebrand said, The current level of activity is much too low for a population the size of the GTA. So we will inevitably start to see more activity occur, but it's not going to be a big opening of the floodgates, at least on the ownership side."

The pressure will be on the renter side as new immigrants tend to rent in their first few years. In three or four years, renters will also be facing a shortage from the units that are currently being delayed by developers, who don't want to launch in a down market.

Shaun Cathcart, director and senior economist at the Canadian Real Estate Association (CREA) says there's another wild card in the market turnaround - demand from equity-rich existing homeowners, who have smaller mortgages but have been waiting out the heated competition of the last few years.

The medium- and longer-term are harder to see but, without enough new homes to supply the growing population, it's not clear what will stop prices from accelerating at uncomfortable levels again, say experts like Mike Moffatt, an assistant professor at Ivey and senior director of policy and innovation at the Smart Prosperity Institute.

He thinks it's a valid concern and he worries the prospect of unaffordable homes is already being baked into younger generations.

Moffatt, who spends a lot of time around senior and postgrad students just a little older than Yang, has detected a shift.

The mood has changed from five to 10 years ago," he said. These guys expect to earn six-figure salaries. None of them think they'll be able to afford a house, or at least not in Ontario. They all talk about moving either to the U.S. or Alberta, starting their careers there because they're like, We just can't make it here."

He doesn't think the central bank's January's signal that it has put its rate hikes on hold will be enough to entice buyers back to the market immediately and that just kicks demand further down the road.

Although Moffatt thinks the province's target to build 1.5 million homes over the next decade is appropriate for the projected population growth (8.3 million new people), achieving it will be difficult.

To give you an idea of how challenging that's going to be, Ontario hasn't even built 750,000 (homes) in any 10-year period since 1974 to 1983," he said. Basically, we have to do something that we haven't done for decades and then double it."

When it comes to pent-up demand, the head of the Toronto region's homebuilders' association says he can already see the danger. The 1.5 million provincial target could even be low, said Dave Wilkes, CEO of the Building Industry and Land Development Association (BILD).

I do believe that we are currently falling behind," he said. We don't have the conditions to meet the projected demand," said Wilkes, citing higher borrowing costs, weak market demand that is prompting developers to delay launching housing projects.

He says the building industry is at a turning point - not fighting for its survival because homes will always get built - but, nevertheless, trying to reinvent itself to speed construction.

The provincial government has begun down the road of changing the way housing is approved and built, the density that land is used for. Unless we have a really strong focus on that, we are going to be in that red zone," said Wilkes.

Since the housing market slowed, the GTA has already added thousands of newcomers. Then there's what Soper calls the organic stuff" - a huge cohort of millennials who stayed in school longer, lived with their parents longer and now want to buy a home but don't want to dip their toes in the high interest rate environment.

The huge millennial generation, the largest in history, has yet to be unleashed on the Canadian housing market," he said.

With the expectation that interest rates could fall in 2024, Soper says, the short-term relief in house price inflation that big cities across Canada are experiencing right now is blinding policymakers to the medium-term crisis.

It's going to be bigger than ever," he said.

Real estate association economist Cathcart agrees the demographics suggest pent-up demand.

It's not just the population growth. It's the relentless household formation from baby boomers, Gen Xers and millennials and, now Gen Z, just moving from their 20s into their 30s. It's just relentless," he said.

Tess Kalinowski is a Toronto-based reporter covering real estate for the Star. Follow her on Twitter: @tesskalinowski