BARBARA SCHECTER (VANCOUVER SUN) - New housing starts have struggled to keep up with population growth in some of Canada’s large cities, especially Toronto, making affordability a “significant” challenge, according to the Canada Mortgage and Housing Corporation’s first in a series of reports to get a better handle on the country’s housing supply and its impact on affordability.
“The biggest issue affecting housing affordability in Canada is that supply simply isn’t keeping pace with demand,” the CMHC declared in the report, which was released Tuesday afternoon.
But the housing authority added that the situation is complex, with several reasons behind steep, continued price escalation in recent years.
“Work is currently underway at CMHC to estimate the number of housing units needed in many parts of the country in order to make the real estate market more affordable,” the housing authority said. “In addition to demographics, several economic factors are considered in this analysis, such as the effect of household income on housing demand.”
The CMHC reports over the next couple of years will focus on the country’s six largest census metropolitan areas: Toronto, Montreal, Vancouver, Calgary, Edmonton and Ottawa. They will look at trends and conduct analysis of factors including the relative growth in the housing supply per capita over time, the intensity of development including units per structure and building height, and how much new housing is apartments and rentals versus single-detached homes.
In the first report, CMHC found that apartments dominate construction in large urban centres including Montreal, Toronto, and Vancouver, where constraints such as land and bylaws are “significant” factors in pushing up land prices.
“Toronto prevails in the construction of high-rise apartment buildings with hundreds of units,” including those for rent or ownership, the CMHC said, noting that different types of buildings have different construction times and costs, which in turn influences affordability.
It is a different situation in Calgary, Edmonton, and Ottawa, where new supply of single-family, semi-detached, and row houses remains strong.
Calgary experienced the strongest expansion of housing starts in 2021, with a surge in construction of both single-detached homes and apartments combining to push housing starts up 63 per cent from the year before. Though some of the increase was attributable to slower construction in the first year of the pandemic, declining inventories and strong demand also played a role in the expansion, the CMHC report said.
Vancouver stood out as the only city where single-detached construction declined last year, slipping 2.3 per cent. High apartments construction drove overall housing starts up 16 per cent in British Columbia’s largest city.
“This is an ongoing trend that developed over the past decade due to high land prices rendering new single-detached development largely uneconomical,” the housing authority said.
Apartment construction was also active in Montreal, which registered its highest pace of housing starts in over three decades. The CMHC said prices (or rents) and demand both accelerated.
Toronto, Canada’s largest metropolitan area, added the most housing units in 2021 in absolute terms, up nine per cent from a year earlier. However, the CMHC noted that this did not translate to the most units relative to its population.
Toronto, Montreal, and Ottawa generally have the lowest levels of residential construction per capita, measured as housing starts per 10,000 people. But Toronto, contrary to the other two cities, has shown a slight downward trend in this ratio for the past few years, the CMHC report said.
“This indicates that, despite a high number of housing starts, construction has not been sufficient to keep pace with population growth,” the housing authority said, noting that this situation “has certainly not helped reduce affordability problems” in Toronto and the surrounding area.
Both the federal and Ontario governments included promises to address housing affordability and construction in budgets delivered last month.
Avery Shenfeld, chief economist at CIBC Capital Markets, said the CMHC report joins a “chorus of other studies that have identified a shortfall in supply as a key factor in driving house prices higher.” And while there are remedies in the works, such as changes to zoning and approval processes, it won’t be an easy fix.
“In the near term we’re dealing with a tight supply of skilled construction workers that could limit our ability to ramp up the pace of building,” Shenfeld said.
Bob Schickedanz, president of the Ontario Home Builders’ Association, said the new home construction industry faces challenges including access to land, labour, infrastructure, and supplies.
“The province anticipates 2.27 million more people to call Ontario home in the next ten years and it’s an economic and social imperative that we have the resources, and development approvals system in place which is needed to construct at least one million homes in the next decade to meet this anticipated demand,” he said.
SARAH ANDERSON (DAILY HIVE) Wondering when, if ever, is the right time to buy? Many Canadians are, and the numbers are promising more price increases to come.
The Royal LePage House Price Survey was released on Tuesday, April 19, 2022, and it looks at the state of the Canadian real estate market, giving a comprehensive view of what’s changed year-over-year and what the future market could look like.
According to the new report, the aggregate price of a home in Canada increased 25.1% year-over-year in the first quarter of 2022. That’s the most significant increase since they started keeping records.
Housing prices in Vancouver
Royal LePage said in its report that the aggregate price of a home in Greater Vancouver increased 18.2% year-over-year in the first quarter of 2022. Additionally:
Ryalls said Greater Vancouver remains in a strong seller’s market, and listings are being sold quickly.
“These market conditions are self-perpetuating. Lack of supply causes hesitation in sellers who hold off listing their home until they can buy.”
In the City of Vancouver, the aggregate house price increased 14.6% year-over-year in the first quarter of 2022 to $1,478,100. Additionally:
Vancouver housing prices predictions
Driven by solid buyer demand that’s consistently outpacing supply in virtually every Canadian market, Royal LePage predicts “continued strong seller’s market conditions this spring.”
Phil Soper, president and CEO of Royal LePage, said that “entering 2022, we had anticipated a strong first half, and moderating real estate markets thereafter.”“Call it buyer fatigue or easing demand, these periods of uncomfortably high home price appreciation do run their course. We are seeing the first signs of moderation in some regions, as more inventory is becoming available and competition eases slightly.”
“The first quarter of the year was so strong, however, that we are bumping up our 2022 outlook. And, home prices will continue to climb in the months ahead as a result of our relentless low supply-high demand imbalance.”
Royal LePage is forecasting that the aggregate price of a home in Canada will increase 15% in the fourth quarter of 2022, compared to the same quarter last year.
They also say Greater Vancouver home prices will increase 15% in the fourth quarter of 2022 compared to the same quarter a year previously.
Homes to get multiple offers
The report points out that listings commonly receive multiple offers before selling above the listing price in popular neighbourhoods.
“There is a notable difference in buyer sentiment and behaviour today,” Soper said.
“Consumer confidence is being challenged as the lingering impact of the pandemic, and worrisome geopolitical situation in Eastern Europe raises questions about the stickiness of inflation and the trajectory of interest rates.”
“Yet, while there may be fewer bids on accurately priced properties, housing supply is so tight that multiple-offer scenarios remain the norm in most communities.”
BC’s new “cooling-off” period
According to the report, the potential effects of BC’s new cooling-off period on the market remain unclear.
On Monday, March 28, the province announced that changes introduced to the Property Law Act are paving the way to create a new five-day Homebuyer Protection Period. It’s a direct response to concerns about a high competition market where buyers could feel pressured into submitting offers on homes without having basic conditions met to protect them. When it’s brought in, it could allow buyers time to “reconsider their offer, secure financing and obtain a home inspection,” said Ryalls.
The new rule is one piece of the puzzle contributing to shifts in buyer behaviour in combination with rising interest rates and sustained price increases, according to Royal LePage.
“The new legislation is causing a lot of uncertainty among industry professionals and consumers,” Ryalls said.
“With few details revealed, and no clear indication of how this policy will be implemented or monitored and by whom, it is difficult to predict what impact this will have on the market.”
“We believe that with the collaboration of industry leaders, the province would have been able to devise a policy that better serves Canadians during one of the most important decisions of their lives.”
Instead of a cooling-off period, which could create a supply backlog, he suggests that a mandatory pre-offer period that would allow buyers time to conduct due diligence would be more beneficial.
BANK OF CANADA RELEASE - The Bank of Canada today increased its target for the overnight rate to ½ %, with the Bank Rate at ¾ % and the deposit rate at ½ %. The Bank is continuing its reinvestment phase, keeping its overall holdings of Government of Canada bonds on its balance sheet roughly constant until such time as it becomes appropriate to allow the size of its balance sheet to decline.
The unprovoked invasion of Ukraine by Russia is a major new source of uncertainty. Prices for oil and other commodities have risen sharply. This will add to inflation around the world, and negative impacts on confidence and new supply disruptions could weigh on global growth. Financial market volatility has increased. The situation remains fluid and we are following events closely.
Global economic data has come in broadly in line with projections in the Bank’s January Monetary Policy Report (MPR). Economies are emerging from the impact of the Omicron variant of COVID-19 more quickly than expected, although the virus continues to circulate and the possibility of new variants remains a concern. Demand is robust, particularly in the United States. Global supply bottlenecks remain challenging, although there are indications that some constraints have eased.
Economic growth in Canada was very strong in the fourth quarter of last year at 6.7%. This is stronger than the Bank’s projection and confirms its view that economic slack has been absorbed. Both exports and imports have picked up, consistent with solid global demand. In January, the recovery in Canada’s labour market suffered a setback due to the Omicron variant, with temporary layoffs in service sectors and elevated employee absenteeism. However, the rebound from Omicron now appears to be well in train: household spending is proving resilient and should strengthen further with the lifting of public health restrictions. Housing market activity is more elevated, adding further pressure to house prices. Overall, first-quarter growth is now looking more solid than previously projected.
CPI inflation is currently at 5.1%, as expected in January, and remains well above the Bank’s target range. Price increases have become more pervasive, and measures of core inflation have all risen. Poor harvests and higher transportation costs have pushed up food prices. The invasion of Ukraine is putting further upward pressure on prices for both energy and food-related commodities. All told, inflation is now expected to be higher in the near term than projected in January. Persistently elevated inflation is increasing the risk that longer-run inflation expectations could drift upwards. The Bank will use its monetary policy tools to return inflation to the 2% target and keep inflation expectations well-anchored.
The policy rate is the Bank’s primary monetary policy instrument. As the economy continues to expand and inflation pressures remain elevated, the Governing Council expects interest rates will need to rise further. The Governing Council will also be considering when to end the reinvestment phase and allow its holdings of Government of Canada bonds to begin to shrink. The resulting quantitative tightening (QT) would complement increases in the policy interest rate. The timing and pace of further increases in the policy rate, and the start of QT, will be guided by the Bank’s ongoing assessment of the economy and its commitment to achieving the 2% inflation target.
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