The false starts in Canadian housing

As the year 2023 draws to a close, a reflective analysis of the housing sector within Canada reveals a complex and challenging narrative. Housing remained unaffordable or became less affordable for many more Canadians than before. Housing prices may not have escalated rapidly, but punishingly high interest rates made mortgage payments unaffordable for new and existing homebuyers.

Renter households faced even greater hardships with shrinking choices and escalating rents. As housing sales declined, those who would have bought and moved to homeownership instead extended their tenures as renters, resulting in a higher demand for rental dwellings than usual, pushing rents upwards. With significantly lower incomes than homeowners, even a small jump in rental prices affects renters deeply.

Housing woes finally shook the feds into action. From the prime minister suggesting that housing was not a federal concern and the former housing minister blaming the earlier Conservative government for Canada's housing problems (after Liberals being in power for about eight years) for Canada's housing problems to the newly launched $4 billion Housing Accelerator Fund and Sean Fraser, the new housing minister, dusting off old catalogues of housing designs, much seems to be happening in Canada on the housing front.

Provinces have also been active on the housing front. In Ontario, at least, housing actions led to more adverse reactions. The province's haphazard and dubious decision-making that transferred huge swaths of protected land from the Greenbelt surrounding Toronto to a few developers for new housing development was questioned by the province's auditor general and integrity commissioner. The result: the provincial housing minister and his trusted chief of staff lost their jobs, the province reversed the land transfer, and the few builders who had recently bought the Greenbelt land anticipating they could develop the land are left with some very expensive open green space.

The real victim in Ontario is the trust people lost in the Ford government and the building/development industry.

However, the central question remains: Do these federal and provincial endeavours translate into tangible housing solutions that can keep pace with the escalating demand? It's crucial to recognize that Canada's housing shortages have been a half-century in the making, exacerbated by the recent significant influx of immigrants, students, temporary workers, and refugees. Despite these challenges, the federal policy of welcoming these groups, though commendable for its inclusivity, has inadvertently intensified the housing crisis.

A statistical analysis offers a sobering perspective. The pace has not kept up despite the rhetoric around increasing housing construction. Housing starts, a key indicator of new construction, have declined in 2023. From 320,000 seasonally adjusted (annualized) housing starts in March 2021, the figure plummeted to 213,000 units by November 2023. This decrease highlights a disconnect between policy intentions and real-world outcomes.

The initial surge in housing starts post-2020 was lauded as a triumph of strategic planning, but this uptick was short-lived. The decline in housing starts commenced even before the escalation of interest rates in early 2022, indicating that factors beyond borrowing costs are at play.

Addressing this crisis necessitates a collaborative approach between the public and private sectors. This would involve creating new land development opportunities, repurposing existing land for higher density projects, streamlining international trade worker certification, enhancing supply chain efficiencies, expediting planning approvals, facilitating affordable construction financing, and innovating in prefab modular home manufacturing.

As we usher in the new year, Canada must confront the reality that existing efforts have been inadequate in catalyzing housing development. An investment exceeding two trillion dollars from public and private entities is imperative to achieve the ambitious target of constructing five million new homes over the next decade. Additionally, construction engineering needs to be revolutionized to meet these ambitious goals. In this context, China's experience in rapid housing development could offer valuable insights. Instead of trying to reinvent, maybe we brush up on Mandarin to learn about and practice 'fast housing.'

Regionomics Inc. is a Canadian consultancy specializing in applying data science and machine learning to find solutions for urban challenges. For more information, please write to [email protected].