Housing inventory may reach crisis point
By Adam FreillConstruction Residential
Re/Max report indicates significant inventory level shortfalls, eliciting housing demand concerns in major Canadian centres.
According to Re/Max Canada’s recently released 2022 Housing Inventory Report, inventory levels in major Canadian housing markets have been dwindling over the past decade, and even with lower levels of real estate activity this year, affordability will be a going concern alongside and availability as household formation and immigration continue to fuel demand.
The report looked at active listings in eight Canadian centres (Greater Vancouver, Calgary, Winnipeg, Hamilton-Burlington, the Greater Toronto Area, Ottawa, Montreal and Halifax-Dartmouth) between 2013 and 2022. The findings indicate that active listings in July were running below the 10-year average in almost all markets surveyed, including a staggering 65.5 per cent dip in Halifax-Dartmouth, as well as declines of 40 or more per cent in Montreal and Ottawa. Hamilton-Burlington was the only market to buck the trend, reporting 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 of 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.”
He warned, “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.”
According to Statistics Canada, the nation is poised to experience increase further population growth from Canada’s commitment to welcome 1.2 million immigrants into the country between 2021 and 2023. While the immigration strategy is aimed at propelling economic growth and reducing labour shortages, the report warns that in the context of the housing stock shortage, the increase in newcomers combined with new household formation overall is expected to intensify the inventory shortfall further, especially in the major urban markets of Vancouver and Toronto.
Adding comment based on the recent report from Canada Mortgage and Housing Corporation that concluded that the country needs to build 3.5 million new homes by 2030 to tackle the affordability issue, Alexander stated, “The truth of the matter is that we probably need more than the CMHC estimate to create the desired level of affordability. 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.”
Canada is currently averaging between 200,000 and 300,000 new units per year.
With new housing starts and purpose-built rentals continuing to fall short of demand, Re/Max warns that housing supply issues could push even more buyers into the rental pool, adding more pressure to a segment already under pressure and experiencing price increases. And such additional factors as rising lending rates, a tight labour market, and supply chain shortages are further exacerbating the situation.
“Current market realities have upended the economic viability of many developments, causing new residential projects to be cancelled or put on hold indefinitely,” explained Elton Ash, executive vice-president of 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?”
Developer pullback is evident in light of softening demand in the short term combined with current economic and market realities. CMHC noted a decrease in the seasonally adjusted annual rate of housing starts in Canada’s urban areas in July of 2022. 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. With less than 10,000 units expected during the remainder of 2022, it’s estimated that at least 10,000 new units will be put on the shelf.
“The phenomenon of scrapped or paused development projects is a serious concern, and various stakeholders are taking stock and assessing future impacts,” stated 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.”
As such, the company is suggesting that a focus be put on purpose-built rentals, new-home construction and policies that support and accelerate residential building activity.
“The trouble is that housing development is a slow process, and experience tells us the only thing slower might be government processes,” said 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.”