A sluggish pace of homebuilding is weighing on housing affordability
A slight increase in housing starts across Canada last month did little to brighten an overall gloomy supply outlook, with the seasonally adjusted annualized pace remaining below economists’ expectations despite jumping by 5% over August.
Canada Mortgage and Housing Corporation (CMHC) believes around 3.5 million additional units are required by 2030 to restore affordability in the housing market, but the current pace of homebuilding – 223,808 units on that seasonally adjusted yearly basis, according to the national housing agency – means that remains a distant prospect.
For brokers, that signals fewer available homes for clients, as well as a likely continual climb in home prices as a result.
There’s no single catchall solution for the current malaise, although addressing burdensome development charges could help boost homebuilder enthusiasm and incentivize construction, according to a leading government relations expert.
JP Boutros (pictured top) told Canadian Mortgage Professional that those charges, which are fees levied on land development projects, are a “real stickler” for homebuilders at present, and that a wider conversation about how to better fund cities was required. “Cities need better revenue streams,” he said. “They need consistent supports and that only comes, really, through municipal taxes.
“Then you don’t have to hit for development charges quite the way you do. Infrastructure needs redoing in older cities… Obviously the federal government’s going to come into play on that, but funding cities better and more equitably is needed.”
Why have development charges become so prevalent in Canada?
While a province might have the ability to amortize payments on construction over decades, Boutros pointed out, cities do not have the same luxury when it comes to running an operating deficit.
The constant need for balanced budgets on the city side, he said, is one of the main reasons development charges have become so prominent. “It’s a revenue stream that shouldn’t be a revenue stream, and that’s the thing that will make it better for everybody,” he said, “if they figure out how to be funded more properly by the province and the feds do what they need to do to provide [for] the citizens.
Frances Hinojosa of Tribe Financial pointed out that brokerages should already have had comprehensive compliance policies and procedures in place even before the new changes took effect. https://t.co/BMIqv7qhLn#MortgageIndustry #FinancialRegulation
— Canadian Mortgage Professional Magazine (@CMPmagazine) October 16, 2024
“You do that, you’ve taken quite a bit of pressure off of development in every sense of the word, so that has to be the conversation.”
How will political developments affect housing affordability?
Housing affordability woes and a cost-of-living crisis are key issues at federal level weighing against the ruling Liberals at present, with Prime Minister Justin Trudeau’s party flagging in the polls.
Recent weeks have seen the introduction of a host of new rules in a bid to change that picture, including an increase in the insured mortgage cap to $1.5 million (up from $1 million).
But with an election scheduled to take place at some point in the next year – and possibly well before next October, depending on whether further efforts to topple the government take place – Boutros said it’s essential that each party make clear its approach to those policies, and whether they’re on board with the notion of the government backstopping mortgages.
With Conservative leader Pierre Poilievre currently topping most polls as the likely next Prime Minister, his view on the matter is likely to be most closely watched by the mortgage industry and borrowers. “I’d like to know what his opinion is and what the opinions of the other parties are, because this will become an election issue,” Boutros said.
“Considering he is quite likely going to be the next Prime Minister of Canada, will he retain those proposals as they are now? Should they be enacted in December, would he keep those? Does he support them? Does he have questions about them? These are very valid questions.”
Poilievre has pledged to ease the supply crisis through a “Building Homes Not Bureaucracy” Act, which it says would require large cities to accelerate the pace of home construction to meet housing targets and build more homes.
That plan would also offer rewards for cities that are removing “gatekeepers”, which it says are hindering home construction through excessive regulation and red tape.
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