A huge lack of inventory is pushing up borrowing costs and home prices across the country
The annual pace of housing starts in Canada picked up between August and September – but that news has done little to brighten the gloomy overall outlook for housing inventory across the country.
While the annual adjusted rate of starts last month was 8% higher than in August, the current pace remains well below the level Canada Mortgage and Housing Corporation (CMHC), the national housing agency, estimates is needed to restore affordability by 2030.
Around 3.5 million additional housing units are required by that year to ensure everyone in Canada who wants a home can afford one, according to CMHC, with its latest housing market outlook indicating that the current pace is nowhere near sufficient to hit that target.
By the end of 2023, housing starts will have posted a “significant” decline, the Crown corporation said, with factors including labour shortages, prohibitively high costs of construction materials, and the high-interest-rate environment that’s spiking project financing costs.
CMHC says the outlook is slightly rosier from 2024 onwards: interest rates are projected to fall next year as inflation ticks downwards, and increased income and employment growth are set to support both housing demand and supply.
Still, the inventory shortage looks set to remain one of the foremost challenges facing Canada’s housing market over the next decade, especially with companies currently experiencing massive issues filling jobs in the construction sector.
Over 93,000 open jobs remain in that industry, according to Statistics Canada’s latest census data, despite the number of construction workers across the country having surged by nearly 10% in the period between 2016 and 2021.
The 6-month trend in #housing starts was up 3.9% in September.
— CMHC (@CMHC_ca) October 18, 2023
Despite higher #InterestRates, multi-unit construction in 2023 continues to persist at 2022 levels. This has helped offset the declines in single-detached construction.
Read more: https://t.co/wUonGZs3RC pic.twitter.com/1ILlMs1ZMl
How can companies in the construction sector attract more workers?
Speaking at the Mortgage Professionals Canada (MPC) national conference in Toronto, Home Capital Group CEO Yousry Bissada (pictured top) highlighted the extent of the labour shortage crisis facing Canada’s construction sector.
“More than half of the condos in Toronto are two to three years late. And that’s from the time they start digging the ground – not the approvals,” he said. “The reason is [that] there just aren’t enough people.
“There aren’t enough electricians, plumbers, all the various parts. There just aren’t enough. So how’s that going to be solved? You can approve all the buildings, but you need the labour force to be ready.”
Bissada said a more targeted approach to immigration could help address that issue, while lenders should also be trusted with assessing the creditworthiness of borrowers with minimal regulatory interference.
“Should we have criteria on people who can build homes? The [immigration] points system right now is more on technology capability and doctor capability… So that has to be solved,” he said. “The [other] part is all these people who want to come in and buy homes, solving the problem of financing them.
“In discussions with Ottawa, I say, ‘We know who’s a good credit and who isn’t. We spend a lot of time, we’ve got professionals in the field – we know. Don’t make it more difficult as we get more supply and we figure out how to finance these homes. We know who can get it.’”
Recent government action on housing supply welcome, says executive
Some reason for optimism on the housing supply front has arrived in recent months, First National Financial president and chief executive officer Jason Ellis (pictured below) noted on the same panel, with action taken at both federal and provincial government level to improve the situation.
Among those positive measures identified by Ellis was the decision by the federal government to eliminate the GST on new qualifying rental housing construction, a change that came into effect in mid-September.
“That’s a tremendous concession to the developers, as the cost of building has been going up,” he said, “and a lot of those responded immediately to say ‘That changes the math for us, and we’re going to start putting a shovel in the ground on units.’”
Another step in the right direction, according to Ellis, was the decision by the feds to earmark an additional $20 billion in financing for developers by raising the Canada Mortgage Bond program’s annual cap to $60 billion.
“That creates a confidence in funding the developers as they reach the end of construction,” Ellis said. “I think those two things combined are really going to motivate the creation of rental stock, especially in the large urban areas where so much of that [immigrant] population is going to come to rest. So good developments there.”
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