When Bob Dugan surveys the future of Canada’s housing market, he doesn’t see the rosy picture many long for.
“I’m actually worried that affordability is going to deteriorate rather than improve unless we can do something about it,” the chief economist at Canada Mortgage and Housing Corporation told The Canadian Press on Friday (June 16).
A day earlier, the country had learned from the Canadian Real Estate Association that the actual national average home price was $729,044 in May, up 3.2 per cent from a year earlier, while the seasonally adjusted average home price was $715,290, up 2.7 per cent from April. The average topped $1 million in the Greater Toronto Area and several parts of B.C.
Dugan’s feelings about the lack of affordability have been festering within the federal housing agency for some time, prompting it to ring alarm bells last summer, when it revealed the country needed to build 3.5 million more homes than it is on track for to reach some semblance of affordability.
A year later, the situation looks no better. Some 271,000 homes were built two years ago and roughly 260,000 last year, Dugan said.
The annual pace of housing starts — a measure of when construction on homes begins, and a key indicator of how Canada is addressing housing supply gaps — dropped 23 per cent in May compared with April as starts of apartments, condos and other types of multi-unit housing projects in Vancouver, Toronto and Montreal fell.
Dugan is now forecasting between 210,000 and 220,000 will be constructed this year.
“I hope my forecast is wrong, but the way things are looking right now, I’m not optimistic that we’re on track to doubling the pace of housing starts.”
Starts aren’t strained because of a lack of interest or demand in building, but by labour shortages, higher interest rates and costs for materials, along with zoning issues and NIMBYism, which stands for Not In My Backyard and refers to people who object to something being in their neighbourhood but not in other regions.
Yet CMHC feels affordability is not unsolvable. It will just take many parties moving in tandem.
“There’s not one solution. There’s not one institution or level of government or organization that can address the issue,” CMHC chief executive Romy Bowers said in the same discussion as Dugan.
“It really requires all of Canada, an all hands on deck type of response.”
The star of the response must be supply, she and Dugan agree.
Atop Bowers wish list is a more concerted effort to address the lack of purpose-built rentals.
She counts about 4.5 million of these units and though Canada has seen an uptick in recent years, most of its stock is “super old” because they were primarily built in the sixties, seventies and eighties.
But demand for these homes is sizable with immigration climbing — Canada’s population hit 40 million Friday — and many just want a roof over their head.
“But because we haven’t invested in purpose-built rentals there’s just not enough supply to meet the demand,” Bowers said.
CMHC has tried to spur more of these units with a rental construction funding initiative, which provides low-cost funding to borrowers during the most risky phases of rental apartment development.
But purpose-built rentals can be a long-term proposition, in Toronto it can take up to 8.5 years to build one from conception to move-in. Many builders just want to construct something, sell it and move on, so there’s less of an incentive to make these properties.
CMHC feels we could get even more built if every level of government collaborated on solutions.
Without the collaboration, the country is left in a tale of two housing crises, said Bowers: one where the most vulnerable people face a dire socioeconomic situation and another where the middle class are also struggling in the real estate market.
While each can be helped by supply, a shift in attitude may also be required.
“We have this idea that success means getting your own four-bedroom, two-storey home with a yard and that kind of thing,” said Dugan.
“I think we have to move away from that in large cities.”
While density is often villainized, it has been crucial in providing housing for so many other major cities like Hong Kong and London.
For Canada to replicate this, it would need people to come around on their NIMBYism, and for developers to build larger condos where people feel they have the ability to bring up children or have space for hobbies and visitors, said Dugan.
But how hopeful is CMHC that Canada can achieve any of this?
Bowers feels the challenges we face are solvable. Dugan agrees it will take action.
“Crisis often leads to innovation and new ways of doing things, and so I think I’m optimistic that we’ll find sort of solutions to build more efficiently,” he said.
“We will improve the situation, but it’s hard to build that into your forecast when you don’t know when that’s going to happen or what that innovation is.”
This report by The Canadian Press was first published June 16, 2023.
Tara Deschamps, The Canadian Press