Ontario Construction News staff writer
Policymakers need to take actions to accelerate residential construction, such as cutting development fees, easing zoning restrictions and approval processes and leveraging partnerships between governments and developers, a new report concludes.
Without new measures, housing inventory may reach a crisis point in major Canadian centres, says RE/MAX Canada.
The report is raising red flags as levels in major Canadian housing markets have been dwindling over the past decade and active listings in July running below the 10-year average in almost all markets surveyed based on Canadian Real Estate Association data.
Also, a decrease in the seasonally adjusted annual rate of housing starts in Canada’s urban areas in July of 2022, driven by lower starts in the single-detached category, is a “dangerous” trend that is most pronounced in the GTA.
According to the Q2-2022 Condominium Market Survey by real estate research firm Urbanation, approximately 35,000 new condo units were anticipated to launch for pre-construction sale in the GTA in 2022. In the first half of the year, close to 16,000 units launched and it’s estimated that at least 10,000 new units will be put on hold this year.
“The phenomenon of scrapped or paused development projects is a serious concern, and various stakeholders are taking stock and assessing future impacts,” says Alexander. “The challenge is that we need a new development and growth strategy that is geared toward the long-term outlook.
“There simply isn’t enough stock to keep pace with demand now, and the need for housing is intensifying with population growth. Although demand is currently softer that we’ve seen in the last two years, it is expected to rebound, and our market is not prepared for when that happens. We’re seeing fewer housing starts at a time when we should be getting ready for the next inevitable upswing.”
Purpose-built rentals, new-home construction and policies that support and accelerate residential building activity – including factors such as zoning, development fees and levies, approval processes, government partnerships, interest-free loans and incentives) are paramount to avert a deepening of the inventory crunch impacting Canadian housing markets. Without action, affordability will, without question, move further out of reach.
“The trouble is that housing development is a slow process, and experience tells us the only thing slower might be government processes,” says Alexander. “Removing barriers and cutting red tape is necessary. A crisis is looming, but the outcome is not cast in stone. There is a short runway to reverse course before the impacts become very real for Canadian homebuyers and renters.”
The RE/MAX Canada Housing Inventory Report examined active listings in July from 2013 to 2022 in eight Canadian centres—Greater Vancouver, Calgary, Winnipeg, Hamilton-Burlington, the Greater Toronto Area, Ottawa, Montreal (CMA) and Halifax-Dartmouth—and found inventory levels have fallen short of the 10-year average in seven markets in 2022.
Double-digit declines are noted in Halifax-Dartmouth (65.5 per cent below the 10-year average); Ottawa (down by almost 42 per cent); Montreal (down 40 per cent from the nine-year average); Calgary (26 per cent below average inventory levels); Winnipeg (down 23 per cent), and Greater Vancouver (down 16 per cent). The housing inventory was down almost seven per cent in the GTA from the 10-year average and Hamilton-Burlington reported a nominal 3.2-per-cent increase over the 10-year average.
“Supply was far more robust in the early 2000s in centres such as Greater Vancouver, the Greater Toronto Area and Hamilton-Burlington,” said Christopher Alexander, president, RE/MAX Canada. “That stability lent itself to healthy sales and price appreciation year-over-year and provided an anchor for the Canadian housing market during the Great Recession.
“Population growth and household formation have played a significant role in depleting inventory levels from coast to coast over the most recent decade, triggering chronic housing shortages in large urban centres that resulted in mini ‘boom’ and ‘bust’ cycles. If we don’t move now to build more housing in the current lull, it’s expected that this same scenario will continue to resurface over and over again.”
Another factor is immigration with Canada committed to bringing 1.2 million immigrants into the country between 2021 and 2023.
“The truth of the matter is that we probably need more than the CMHC estimate to create the desired level of affordability,” Alexander said. “During this window of softer demand, building efforts should be ramped up, not down. The offshoot effect is straining rental markets and contributing to ever-rising levels of homelessness throughout the country.”
New housing starts and purpose-built rentals continue to fall short.
“Current market realities have upended the economic viability of many developments, causing new residential projects to be cancelled or put on hold indefinitely,” says Elton Ash, executive vice president, RE/MAX Canada. “The feasibility of many new or planned housing starts is now in question, but the ones that already had smaller margins—affordable housing and starter homes—are at the top of the chopping block. If we’re already experiencing an inventory crisis, what will the consequences be when demand rebounds?”