Canadian home starts will rebound over the next two years because of strong economic conditions, but the new supply will not make housing more affordable in the most expensive cities of Toronto and Vancouver.
The Canada Mortgage and Housing Corp., in an annual forecast released Thursday, increased the upper end of its housing starts estimate by 4 per cent to 204,300 for 2020, after a few years of slower activity.
Population growth, rising incomes and strong employment will underpin the increase in new supply, especially in British Columbia where housing starts will reach as high as 44,700 next year compared with an estimated high of 42,300 for this year. In Ontario, the estimate is for a high of 69,800 next year compared with a high of 64,700 this year, according to CMHC data.
Added supply is not expected to dampen house prices, however. CMHC provides a range for expected price increases, and at the top end of the range the national average selling price is expected to rise 7 per cent next year, to $531,000. That’s faster growth than in Ontario and B.C., although the average selling price in those provinces is considerably higher – by $100,000 in Ontario and more than $200,000 in B.C.
High prices have sparked concern about housing affordability, which became an issue in the recent federal election. “It’s not so much that we need prices to come down,” said Bob Dugan, CMHC’s chief economist. “What we need is more supply of homes that are affordable.”
In the Toronto region, which includes the city and its outskirts, the composite benchmark home price hit a record high of $806,700 in September, according to the Canadian Real Estate Association. In the Greater Vancouver Area, the composite benchmark price was $986,500 last month. That price, an industry representation of the typical home sold, includes all types of housing such as condos, townhouses and detached houses.
Although CMHC data show that 60 per cent of the new housing supply across the country is condos, townhouses and other multiresidential properties, Mr. Dugan said there are not a lot of affordable options for families, such as two- and three-bedroom condos. “Even if you have some supply, it is not necessarily the right kind of supply,” he said.
With land prices increasing around the Toronto and Vancouver areas, federal planners and developers have been pushing for denser living arrangements, similar to those in other major urban centres such as London and Manhattan.
“People in these larger cities accept that higher density is a way of life when you are living that close to a major urban centre. Toronto and Vancouver still have a way to go to get there,” Mr. Dugan said.
CMHC is forecasting a rise in home starts in Alberta, Saskatchewan and Manitoba, but slower activity in Quebec and Atlantic Canada owing to fewer people forming households.
National housing starts are expected to rise again in 2021 to between 192,900 and 206,300, according to CMHC. This year’s estimate is a range between 188,500 and 196,000.
CMHC predicts that home resales will increase from between 453,000 and 467,800 in 2019 to between 480,600 and 497,700 next year.
The government agency said high levels of household debt, which have been driven by a combination of high prices and ultralow interest rates, continue to be a “vulnerability” as they increase the risk of economic and housing instability.
“If interest rates or unemployment were to rise more than expected, heavily indebted households could face greater budgetary constraints, leading to downward pressure on the economy and housing activity,” CMHC said in its outlook.
It predicted that the Bank of Canada would increase the key lending interest rate of 1.75 per cent “gradually” in the latter half of 2020 and forecast a five-year fixed mortgage rate of between 5.4 per cent and 5.5 per cent. That compares with between 5.2 per cent and 5.3 per cent this year.
Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.