Report points to 'critical long-term housing shortages'
Millions of new homes are required to restore housing affordability in Canada by 2030 – but rising interest rates saw housing starts fall by around 30,000 units in 2023, according to modelling from the national housing agency.
That means the pace of new home construction likely slipped by between 10% and 15% year over year, Canada Mortgage and Housing Corporation (CMHC) said on Thursday, as deputy chief economist Aled ab Iorwerth highlighted significant challenges in both the immediate and longer terms for housing.
While the short-term impacts of higher interest rates were reflected in the muted full-year estimates, ab Iorwerth also emphasized the “critical long-term housing shortages” weighing against the outlook.
“Extensive” investment in the private sector, according to ab Iorwerth, is the only way to remedy the housing market’s current structural deficit. “With the private sector providing roughly 95% of housing in Canada, this is especially true to address the affordability challenges of the middle class,” he said, “whether for rental or for ownership.”
Economic upturn key to accelerating housing starts
A sluggish current economic outlook is weighing against home construction prospects, with the willingness of individual buyers and investors to borrow money directly impacting the pace of new construction, particularly in the condo market. “Developers move forward with construction once around 70% of apartments are presold,” ab Iorwerth said.
2023’s decline in housing starts affected the new construction of condo buildings across much of the country, except for Alberta, where the strong economy bolstered demand. In Toronto, meanwhile, ab Iorwerth said CMHC was concerned that starts had yet to reflect the full impact of higher rates and borrowing costs.
He also pointed out that lower interest rates in the future could boost housing starts again, provided the momentum for increasing supply continues.
“Long-term solutions are needed to secure Canada’s housing supply. The government must ensure the private sector can build as much housing as possible when interest rates are low,” he said.
Public investment also identified as potential driver of future growth
Government policies must also work alongside private-sector efforts, according to ab Iorwerth, with improvements to approval processes and frameworks that minimize uncertainty for developers.
He noted that recent government initiatives, such as a working group to explore domestic investment opportunities for Canadian pension funds, could help attract long-term capital to the housing sector and address shortfalls in supply.
“As we build a future where all Canadians have access to affordable housing,” ab Iorwerth said, “collective efforts will be critical.”
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