Market observers believe a big uptick is needed
It’s no secret that Canada needs to radically accelerate the pace of home construction to prevent housing affordability from spiralling even further out of reach by 2030 – but how gloomy is the current outlook for homebuilding across the country?
According to recent projections by Royal Bank of Canada (RBC), growth of 315,000 units per year will be required over the next six years simply to keep up with the rate of national household formation, a significantly faster clip than witnessed in recent years.
In September, meanwhile, Canada Mortgage and Housing Corporation (CMHC) reiterated its view that about 3.5 million extra housing units are needed between now and 2030 to restore housing affordability, with Ontario, British Columbia, Quebec and Alberta facing significant challenges meeting their targets.
Any uptick in homebuilding in the coming months will be tied in some part to whether the housing market itself begins to heat up, according to RBC assistant chief economist Robert Hogue (pictured top).
He told Canadian Mortgage Professional that the existing home market would provide an important indicator of prospects on the construction side.
“Typically, the existing home market kind of leads the way and when you have more buyers in that market, it eventually flows to preconstruction sales which, to this day, remain very quiet – to say the least,” he said.
“But once things start to pick up in existing-home markets, we would expect that to pick up as well. Pre-construction sales do not immediately translate to housing starts. And right now, despite some declines in starts in 2023, the levels remain, I would argue, still relatively historically high.”
The Toronto Regional Real Estate Board (TRREB) unveils its 2024 Market Outlook and Year in Review report, forecasting an upswing in the Greater Toronto Area (GTA) housing market. https://t.co/KVJ3ZWMg5G#mortgageindustry #housingmarket #affordability #supplyanddemand
— Canadian Mortgage Professional Magazine (@CMPmagazine) February 12, 2024
Tight rental market could see increased investment in sector
On housing starts figures, it’s also important to keep in mind that those statistics include all types of housing, including rentals, Hogue said. That’s important because certain markets like Toronto and Vancouver have seen a significant uptick in purpose-built rental starts in recent years.
“We would expect that to continue given all the policy efforts to [boost] that segment, like more construction, and grow the rental stock,” he said.
A recent release by CMHC further proving the tightness of the rental market amid skyrocketing rental prices, meanwhile, is also likely to spur further investment into the space, Hogue said – even though that may vary sizeably from one market to the next.
“That will also transpire into more rental starts. It’s probably not going to be across all markets in Canada, but certainly the major markets like Toronto and Vancouver will continue to contribute,” he said. “So in terms of new supply, there’s going to be a mixed picture, probably, for 2024.”
How has the federal government addressed the construction crisis?
Among the measures introduced by the federal government to incentivize homebuilding is the Housing Accelerator Fund – a move aimed at removing impediments to home construction and encouraging local initiatives to build faster.
Recent developments from that multibillion-dollar fund include a pledge to allocate about $176 million to housing in Ottawa, with Regina and Abbotsford also inking deals for hundreds of housing units under the scheme.
Still, market players are calling on further action from the feds to spur a quicker pace of construction, with the Canadian Home Builders’ Association (CHBA) advocating the introduction of insured mortgages with a 30-year amortization period to get Canadians into homes and impel new projects.
Housing start figures for the opening month of 2024 are set to be released on Thursday, with the pace of new home construction already having slowed over the course of last year compared with 2022.
Actual housing starts in 2023 were down by 7% over the year prior, according to CMHC, with plummeting single-detached starts throughout the year contributing in large part to that decline.
Toronto and Vancouver bucked that trend to see actual housing starts increase substantially in 2023 – by 5% in the former and 28% in the latter – but Montreal posted a huge drop, coming in 37% lower than 2022 as single-detached and multi-unit starts both fell throughout the year.
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