WATERLOO — A new report says too many student apartment buildings are sprouting near Waterloo's two university campuses.

The oversupply of student beds, currently estimated at more than 5,000, is expected to increase while the universities struggle to maintain enrolment.

This imbalance will likely have consequences, says the report from the Canada Mortgage and Housing Corp.

Landlords may have to resort to incentives to rent older buildings. Other units could be taken off the market as students choose new buildings with more amenities that are closer to campuses. This could reduce the number of basement apartments, small apartment buildings, houses or rental condominiums.

"There's going to be some carnage up there. It amazes us how some of these things are getting financed or built," said developer Craig Beattie, whose firm, Perimeter Development, has stayed out of the student housing market.

Beattie worries about small investors who may not make the money they expect after buying a condominium to rent to students.

The report from the federal agency compares supply and demand for student housing in six Ontario cities. It focuses on Waterloo where 30,000 students need off-campus housing.

It found that between 2010 and 2015, enrolment surged by 3,200 students at Wilfrid Laurier University and the University of Waterloo. Student housing surged by 8,500 beds over this same period, with a further 3,200 beds recently completed or under construction.

"In Waterloo, supply has already exceeded demand," the report states. The imbalance could worsen as the university-age population declines until 2022, a demographic trend that's putting pressure on enrolment.

There's an upside for students: more choice as landlords compete. "We understand that our students have more choice in where they live than any other city or town," said Glen Weppler, UW's director of housing.

But there are risks. For example, struggling landlords could let buildings decay. "That harms, or potentially harms, the space for students to have a good, positive living environment," Weppler said.

Growth in student housing is attributed to the enrolment surge of 2003 when Ontario eliminated Grade 13, and to government policies promoting the redevelopment of the Northdale area near the Waterloo campuses.

The newest off-campus housing features units with two or fewer bedrooms, targeted to students and young professionals, the housing corporation report says. This differs from recent years in which students were offered units of three to five bedrooms.

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UW welcomes this shift. It disliked seeing students housed in five-bedroom units. "When you put that many students into a space, it doesn't promote student success," Weppler said.

UW is building another on-campus residence for 539 first-year students, opening in September.