CMHC economist says downgrade in estimate of 2030 existing units a "cause for concern"
The overall number of additional housing units required to restore affordability by 2030 remains unchanged, according to Canada’s national housing agency – but a downgrade in its assessment for how many units will actually exist by that year is a “cause for concern”, the body’s deputy chief economist has said.
The Canada Mortgage and Housing Corporation (CMHC) said in its mid-September update on housing supply shortages that the national supply gap still has 3.5 million more housing units required by 2030, although a shortfall in housing construction means its estimate for existing units across the country by that year has fallen from 18.6 million to 18.2 million.
Aled ab Iorwerth (pictured top), of CMHC, told Canadian Mortgage Professional that the current challenges at play in the housing market and construction sector appeared to be weighing down on housing starts in 2023.
“This year, we think it’s very hard to get stuff built. Particularly from what we’re hearing [from] the construction companies, the developers are having a hard time accessing capital,” he said. “[There are] higher interest rates, but then we think credit is tighter.
“So the starts numbers seem to have held up a little bit in Toronto and Vancouver, and apartments in particular, which is a little bit surprising. But overall, we’re quite concerned about housing starts this year, and this will have a permanent effect. Without supply now coming on stream, we’re going to have an even bigger affordability challenge.”
We’ve made updates to our report on estimating supply gaps.
— CMHC (@CMHC_ca) September 13, 2023
The big picture remains the same: Canada needs 3.5M more homes by 2030 to restore #housing affordability.
However, changing economic and demographic projections have caused supply gaps to shift across provinces.
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Could provincial policies change the picture for the better?
CMHC emphasized in its September update that changing housing supply policies across different provinces, particularly Ontario, could have a significant impact on those overall 2030 unit estimates.
Ab Iorwerth said plans to boost inventory in Canada’s most populous province were a positive development.
“I think there are a lot of details in the plans, but I think what is encouraging is that the government of Ontario is saying supply is an issue and they’re going to work to improve processes and trying to get more housing built,” he said.
“So I think that’s all in the right direction. I think policies in the past have been more directed at demand, but what we really need is more supply and so the fact that Ontario is really trying to tackle this issue is important – and that’s to be welcomed.”
CMHC examines population- and economic-growth scenarios
Two additional scenarios and their possible implications for 2030 were examined by CMHC in its recent report: firstly, a low-economic-growth scenario, in which inflation remains above the Bank of Canada’s target rate and productivity-growth is subdued, and secondly a high-population-growth scenario in which federal government immigration targets are maintained past their current end date of 2025.
In the first scenario, the central bank’s policy rate would bottom out at 3%, rather than the 2.5% envisaged in CMHC’s baseline scenario, with consumer demand remaining weaker and a 5.7% mortgage rate prevailing.
Those factors, acceding to CMHC, would “lower the demand for housing directly and raise the cost of purchasing a home.”
Meanwhile, in the high-population-growth scenario, Canada’s population would number over 44 million by 2030, meaning each year would see annual immigration levels of between 600,000 and 700,000 people. That would result in a situation likely to “put upward pressure on house prices,” while having a more limited impact on income per household, according to CMHC, “because immigrants may not all be in high-earning occupations.”
The low-economic-growth scenario would mean lower price increases compared to CMHC’s baseline scenario, while in the high-population-growth outcome, higher price increases would likely take place.
Which of those is more likely? That’s “a little tougher to call,” according to ab Iorwerth.
“The concern that we have at the moment on the economic side is that inflation is coming down, but we’re not totally clear yet that inflation will come down sufficiently for the Bank of Canada to really start reducing interest rates,” he said.
“So we think that interest rates will start to come down next year, but there is that risk that inflation stays higher for longer. So I think it’s important that we keep an eye out on that low-economic-growth scenario, because certainly the economy has surprised us with its strength in the face of higher interest rates. But my concern is that at some point, those higher interest rates will have a meaningful impact on overall economic growth.”
