Canada has a “chronic insufficiency of home supply that is temporarily exacerbated by pandemic-related impacts linked to record-low mortgage rates and a shift in preference for housing,” says a report released by Scotiabank this year.
The report by Jean-François Perrault, senior vice-president and chief economist, indicated that Canada has 424 housing units per 1,000 residents, the lowest of any G7 country, and that the number of housing units per 1,000 Canadians has been falling since 2016 owing to the sharp rise in population growth. It said an extra 100,000 dwellings would have been required to keep the ratio of housing units to population stable since 2016, but still leaving Canada well below the G7 average.
That current housing deficit could be up to 1.8 million homes.
“The principal challenge facing the housing market – and the underlying cause for rising prices and diminished affordability – is the substantial insufficiency of supply relative to demand,” the Scotiabank report says.
“Population growth will resume its rapid pace of increase if the government delivers on its very welcome immigration plans. Foreign students will return to Canada and need housing. Travel will resume and owners of temporary accommodations will rent those out. If the government is successful in rolling out a new national childcare system, family incomes will rise, almost certainly increasing the demand for housing.”
Phil Soper, president and chief executive officer of Royal LePage Canada, says there are two challenges when it comes to inventory. One is the number of homes being built in a calendar year relative to the organic demand in that year. The other challenge is the problem created over the previous years by underbuilding relative to need.
“We have a large deficit of housing in the country. Scotiabank estimated it to be up to 1.8 million homes. … The strong demand for housing that started in the latter half of 2020 and into 2021, in addition to the low cost of money, has resulted in a strong building campaign this year. But relative to the cumulative housing shortage we have in the country, it’s just the beginning,” Soper says. “I wouldn’t want anyone to be under the mistaken assumption that a strong new home construction number in 2021 has somehow solved the problem. It’s going to take years to address it. It’s a problem that’s accumulated over the years.
Soper says that, demographically, we will see 10 to 15 years of strong growth in housing demand. Eventually, however, the millennials that are helping to drive that growth “will reach the point of saturation and move out of their rapid or high housing turnover phase of their life.”
Experts say the housing deficit has been caused by cash-strapped municipalities turning to the development industry as a source for funding and the cost of building new housing has increased. Another factor has been the length of time it takes for the approval process.
Some of the issues that came out of the financial crisis of a few years ago also may have made developers a bit more conservative and cautious so they didn’t want to get into a situation of having to deal with excess inventory.
Kevin Lee, chief executive officer of the Canadian Home Builders’ Association, says there’s no question that Canada doesn’t have enough housing units and that has been driving up prices for quite some time. And the population has continued to grow, creating more demand.
“With that shortage of supply, you end up with real price spikes that just aren’t healthy for the market overall,” he says.
Lee says a study by the CHBA in 2017 estimated that over the coming decade the country would be 300,000 family units short.
“Certainly we’re still on that pace. We need to be building about 30,000 more a year was our estimate just to keep up to population growth,” Lee says.
Like Soper, Lee points to the large cohort of millennials who are of the age when they are growing their families. “We were projecting that we would need about 37,000 more additional family-oriented housing units per year, more than two times what we would normally be doing in terms of growth just because that household growth was going to be so big in that form of housing.”
Lee says there’s a real need for municipalities to get more engaged in enabling more supply to come on line quicker. Development approvals are taking on average up to two years but more than one planning application can take longer.
Elton Ash, regional executive vice-president of Re/Max of Western Canada, says problems with supply are being seen all across the country, particularly in the larger cities.
“The issue is not getting better. It’s getting worse,” Ash says. “The near-term future is it’s going to continue being a supply shortage and prices will continue to escalate.
“There has to be a greater concerted effort at all levels of government to really look at the supply side.”
With housing affordability being an increasing concern across the country, with a recent Re/Max report on housing affordability saying 42 per cent of Canadians surveyed saying the high price of real estate was a barrier to entry in the market, the low supply that is helping to drive prices up is worrisome. Shaun Cathcart, senior economist with the Canadian Real Estate Association, says the inventory of resale market homes for sale is basically the lowest it’s ever been.
“That’s why you see prices up over 20 per cent nationally in the last year,” he says.
“I don’t expect any super quick fixes. In fact, we’re already seeing increasing evidence in the last three months that prices are starting to re-accelerate in various places, which is actually what you would expect with market conditions where they are.”
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