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When it comes to the question of whether we're building too many homes in Canada, economists at Bank of Montreal are suggesting everyone should just relax, even in Toronto where condos are popping up like dandelions.
They released two slides Friday to make the point. One shows the number of homes on which construction has begun across the country in recent years. "With the exception of a brief spurt in condo starts in early 2012 and a few weak winter months, Canadian housing starts have been tucked neatly in a 175,000-to-205,000 per-year range since late 2009," BMO's Robert Kavcic notes. "There are obviously differences by region (there always are), but overall, this steady level of activity is enough to satisfy fundamental demand, but not too strong to concern policy makers."
Economists have pegged the number of new homes that we need in Canada each year, based on demographics, to be in the neighbourhood of 165,000 to 180,000.
In a separate chart, BMO's Sal Guatieri says that Toronto's homebuilding is on a sustainable track. The pace of new construction suggests about 35,000 new homes will be started this year, while census data suggests that 38,000 new households will be formed, he suggested.
"The slower pace of building compared with the prerecession boom should allow the Toronto condo market to absorb the 55,000 units now under construction, especially if the recent healthy pace of sales persists," Mr. Guatieri wrote.
Not everyone is so sure. When it comes to national housing starts, Toronto-Dominion Bank economist Diana Petramala says "what's striking is the fact that they've been structurally higher since about 2002, even though household formation hasn't been."
And when it comes to Toronto, she acknowledges that housing starts peaked in mid 2012 – but the majority of starts in the city are condos, and all of the units in a condo building count as started when construction on the project begins, even though condo buildings take years to complete. That means that, while starts might have cooled off, the spike in finished units has yet to hit the housing market, Ms. Petramala points out.
Moreover, she says that the number of new condo projects that are in the sales stage (and have not yet begun construction) is picking up again.
But Canadian Imperial Bank of Commerce economist Benjamin Tal actually suspects that much of the concern about overbuilding (a concern that has been voiced by a number of economists as well as the Bank of Canada) might be based on outdated data.
He says that most economists are working off of old numbers that significantly underestimate the number of temporary residents we have, both in Toronto and Canada, such as students and temporary workers.
"In places like Toronto, we might be underestimating household formation," he says. "It could be that there are more people than we're actually counting."