Move was an "important step" – but further action required, says economist
The federal government’s move to eliminate GST charges on rental developments was a welcome one – but plenty still needs to be done to incentivize housing construction and put spades in the ground, according to the national housing agency’s deputy chief economist.
Aled Ab Iorwerth (pictured), of Canada Mortgage and Housing Corporation (CMHC), told Canadian Mortgage Professional that the policy, announced in recent weeks, was an “important step” towards accelerating the pace of homebuilding and tackling Canada’s chronic inventory shortage.
“But I think we need a response from everybody,” he added. “Some of the provinces, Ontario in particular, have started to step up. I think more action is needed – including by the private sector. We need to make sure that the private sector has the incentives to build more, and that includes getting access to capital.
“We also need policies to improve the productivity of the construction industry. I’m not sure that the digital technology revolution has really hit the construction industry, and so I think there’s a lot of action required there to improve productivity, improve how much each worker produces and so forth.”
Private sector investment coming into building rental structures is crucial, Ab Iorwerth said, to address the supply crisis – “and it’s important that in that case, the private sector has the incentives to get in there on the access to capital lending and so forth.”
Response to the GST cut on rental construction has been generally positive, with real estate company Dream Unlimited Corp. reportedly planning to push ahead with 5,000 new rental units throughout the country as a result of the move, according to The Canadian Press.
Lastly, #ICYMI...
— CMHC (@CMHC_ca) October 3, 2023
“We need drastic changes. All hands on deck.”
Our Deputy Chief Economist Aled Ab lorwerth discussed the scale of Canada’s #housing supply challenge earlier this month.
4/5 pic.twitter.com/ahno1YQPzQ
No easy answers to tepid pace of home construction
While CMHC said in its latest update that the number of additional units required for construction by 2030 remains unchanged, Ab Iorwerth expressed concern at the generally lacklustre pace of housing starts this year.
In its April Housing Market Outlook, the agency said it forecast a “significant drop’ in housing starts in 2023, with rental affordability also set to take a hit as demand surges above inventory – particularly in Vancouver and Toronto, traditionally the nation’s two hottest markets.
Ab Iorwerth said some concerning developments had emerged in CMHC’s latest research and dialogue with industry leaders on the home construction front.
“There are two trends in the anecdotes we’re hearing,” he told CMP. “One is that anything that goes ahead is heavily reliant on CMHC programs, MLI Select in particular. The other is that some of the buildings going ahead are there to show that companies can keep their workers employed because they’re not necessarily making a lot of money on the new construction.
“I think housing starts are holding up at the moment, but we have concerns that at some point, stuff is going to come back to bite and they’re going to fall quite sharply.”
Is there any end in sight to Canada’s housing supply crisis?
CMHC’s spring outlook featured grim news for would-be buyers hoping to see housing affordability improve in the current market downturn.
Interest rates have surged over the last year and a half, squeezing the budgets of prospective new entrants to the market and existing homeowners alike.
Meanwhile, the likelihood of scant improvement in the sluggish present pace of home construction means there’s little end in sight to homebuyers’ woes.
“Higher mortgage rates and a long-term lack of supply of new housing will make homeownership even less affordable,” CMHC said. “Rental market conditions are expected to further tighten, placing significant upward pressure on rents.”
The agency’s latest update on the number of units required by 2030 said that Ontario and British Columbia account for about 60% of the current unit gap, a product of the fact that “housing supply hasn’t kept up with demand over the past 20 years in some of the largest urban centres.”
Quebec was also identified as an area that will require further supply, with the province – once viewed as one of the most affordable in Canada – seeing prices and demand slowly creep up in recent times.
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