There are a record number of homes under construction in Canada.
Amid a housing market in turmoil – sky-high prices, lofty interest rates, and a rental market with barely any homes to rent – this is good news. But good news in housing these days is relative. The new homes have not been nearly enough to alleviate the dizzying cost to rent or buy.
Still, in the past, when interest rates shot higher, the housing market cratered. Higher rates in the late 1980s led to a crash in housing starts of 27 per cent over two years.
This housing market, with its lack of supply and continuing demand from a rising population, is different. Housing starts in 2023 were down 11 per cent from the record set two years earlier in 2021. Economists expect a decline this year – but, even so, starts are set to remain well above prepandemic levels.
The longer-term trend in starts is also positive. During Stephen Harper’s decade as prime minister, starts were about 200,000 annually. In Justin Trudeau’s eight years, they have averaged about 230,000.
That has helped boost the number of homes under construction to their highest level ever, at more than 350,000. But as big as that number may look, it is still not close to what Canada Mortgage and Housing Corp. says is needed to ease prices – roughly double what’s being built.
Data on housing under construction and completions also look, relatively, good. One major shift in recent years is the move to what CMHC and Statistics Canada call “multiples” – everything from duplexes to, more importantly, apartment/condo buildings.
During the building boom of the 1970s, multiples often exceeded detached houses. But from 1983 through 2007, Canada dedicated itself to sprawl: detached homes outnumbered multiples every year. That flipped in 2008 and multiples each year thereafter have exceeded detached homes, a gap that continues to grow.
The result is homes under construction have been buoyed by demand but also the time it takes to erect larger buildings. Housing under construction, according to limited CMHC data, rose 6 per cent in 2023 from 2022 – which bodes well for a steady supply of new homes over the next few years – and housing completions in 2023 rose 11 per cent.
The numbers are limited because CMHC last year decided to collect less housing data. CMHC now only counts new homes being built or finished in larger cities. CMHC claims the full data were “not frequently used.”
This leaves an inexplicable gap in Canada’s housing data. For example, CMHC lists housing completions in 2022 at 168,920. The actual full number was 219,942 – more than 51,000 higher than the CMHC number. For 2023, there no longer are full data on completions. CMHC’s limited data showed 187,630.
One problem with the winnowed data is comparing the present with the past. Housing completions in 2023 cannot be directly assessed against the 1970s building boom, when they peaked at 257,243 in 1974. With no official total for 2023, it can be estimated that full housing completions last year were roughly 235,000, the highest since the late 1970s.
Beyond specific numbers, the housing market is as tight as ever. It’s overly expensive to buy or rent. The latest increase in homes helps – but the supply gap remains huge. The problems are clear in a CMHC report this week on a Hunger Games-like rental market. The national vacancy rate hit a record low of 1.5 per cent. Rents, predictably, shot up, by $1,200 a year for an average two-bedroom.
One deeply problematic outcome is more people are stuck where they live. The turnover rate, a measure of people moving, fell again in 2023, because a move likely means much higher rent. That prevents people from pursuing opportunities. It’s a loss, on a personal basis, and it’s a loss for the economic prospects of the country.
Short-term pressures must be better managed but the real solution is more housing. That’s happening, the 2023 data make clear. But much more is necessary, from provinces such as British Columbia undertaking major zoning reform to allow more density to the federal Liberals doing deals with cities to loosen their zoning rules.
Foundations for change are being put in place but the benefits will not be instant. It underscores the hard reality of Canada’s housing squeeze.