June 24, 2022
Real Estate News
RYPM
The Canada Mortgage and Housing Corp. (CMHC) says 3.5
million more homes need to be built by 2030 to reach affordability.
The agency released a report Thursday explaining the need
for a different approach to the housing supply shortage at a time of rising
demand and affordability concerns.
"Increasing supply will be difficult. Critically, increasing supply takes time because the time to construct is significant, but so is the time to progress through government approval processes," the report reads. "This delay means that we must act today to achieve affordability by 2030.
If current rates of new construction continue, CMHC said the
country's housing stock is expected to increase by 2.3 million units by 2030,
reaching close to 19 million units total. But in order to achieve affordability
for all Canadians, the agency said an additional 3.5 million homes are needed.
Softening housing market conditions and a labour shortage in
the construction sector could get in the way of bringing Canada's housing stock
to more than 22 million by 2030, however.
"There are supply issues, labour shortages at the
moment and the cost of financing is going up, so clearly there are short-term
challenges," said CMHC deputy chief economist Aled ab Iorwerth during a
conference call.
BMO economist Robert Kavcic says it will be tough to achieve
what the CMHC wants to achieve.
"The jobless rate in construction is near a record low;
vacancies are at a record high, we have a deep shortage of skilled trades, and
the cost of building materials is already rising quickly," he said.
"So, unless the economy really rolls over and is in need of stimulus,
effectively doubling the rate of new construction over the next decade will be
extremely difficult without significant inflationary pressure."
Regulatory systems must be more efficient, CMHC says
There were 81,500 construction job vacancies in the first
quarter of 2022, more than double the number observed in the first quarter two
years ago. Meanwhile, home sales dropped nearly 22 percent in May compared
with last year, and almost nine percent between April and May, as the average,
non-seasonally adjusted price of a home slipped almost five percent to
$711,000 during that period.
The CMHC says achieving housing affordability for everyone
in Canada will require developers to become more productive and make full use
of land holdings to build more units.
The housing agency also says governments need to make
regulatory systems more efficient so projects are approved faster.
The CMHC notes that two-thirds of the supply gap is found in
Ontario and British Columbia, two markets that have faced major declines in
affordability.
Around 2003 and 2004, an average household would have had to
devote close to 40 per cent of their income to buy an average house in Ontario,
and close to 45 per cent in British Columbia. As of 2021, that number is close
to 60 per cent.
The report says additional supply would also be required in
Quebec, as affordability in the province has declined over the last few years.
Situation to worsen before it gets better
RBC's latest housing affordability report released Thursday
reveals that the situation is the worst its been since the early 1990s, and
will worsen before it gets better.
RBC's aggregate affordability measure for Canada went up 3.7
percentage points to 54 percent in the first quarter of 2022, as home
ownership costs rose across the country.
"The Bank of Canada's 'forceful' interest rate hiking
campaign will further inflate ownership costs in the near term, putting RBC's
national affordability measure on a path to worst-ever levels," RBC senior
economist Robert Hogue said in the report. "However, we see the burgeoning
price correction eventually bringing some relief to buyers."
RBC believes property values will fall more than 10 percent
in the coming year.