The current pace of housing construction is struggling to keep up with Canada's population growth
While Canada’s new residential resale listings have increased for the six straight months up to September 2023, their levels have only returned to their long-term average, according to TD economist Rishi Sondhi.
“New resale listings have certainly increased, [but] they haven’t gone up so much as they’ve returned to a kind of normalcy,” Sondhi said.
“The Bank of Canada has since paused its hiking campaign, but the elevated interest rate backdrop has hit home sales in Ontario hard.”
Crucially, the current pace of housing construction is struggling to keep up with Canada’s inflation-fuelled population growth.
“When you look at how housing has been keeping up with population growth over time, it was faring well until about 2016, which is when federal immigration targets picked up,” Sondhi said. “Around that time, population growth began to outpace the rate at which new houses were being completed in many parts of Canada.”
TD Economics is anticipating the Canadian population to grow by more than 1 million people this year and by 740,000 in 2024, while being short by more than 300,000 housing units from 2023 to 2025.
“That gap has widened as population growth has continued to climb,” Sondhi said. “With the population rising, it's very difficult to build enough new houses to keep up with demand.”
The Bank of Canada’s latest interest rate hike could contribute to cooler activity in the national housing market for the remainder of the summer, accorfing to James Laird, co-CEO of Ratehub & President at CanWise.https://t.co/LcKovl1k56#mortgagenewd #housingmarket #ratehike
— Canadian Mortgage Professional Magazine (@CMPmagazine) July 13, 2023
Accelerated pace of building is still not fast enough, TD says
Overcoming elevated borrowing costs and persistent labour shortages, Canada’s construction industry has been able to sustain a pace of housing starts roughly 20% above pre-pandemic levels, TD said.
However, Sondhi warned that a major reason why the pace appears so high is because “it takes so long to deliver new projects to the market so there are many simultaneous projects on the go increasing these numbers.”
“Part of this has to do with the shift to building purpose-built rental apartments, which take longer to complete than single-family homes,” Sondhi said, while stressing that “construction timelines have lengthened across all types of homes.”
“Even with relatively high levels of construction the main concern is that we will struggle to keep pace with increased demand due to our growing population.”
