Bleak home construction outlook was worsening even before the Iran conflict broke out
Even before war erupted between the US and Iran and stirred global economic chaos at the end of February, Canadian homebuilders were confronting a worsening construction crisis that threatened to undermine near-term activity and future building capacity.
That geopolitical shock sent oil prices skyrocketing and raised fears of a potential big hit to the growth outlook for multiple economies.
The conflict may have complicated the path ahead even more for Canadian homebuilders, but their overall picture was far from rosy to begin with, according to Canadian Home Builders’ Association (CHBA) chief executive officer Kevin Lee (pictured top).
He told Canadian Mortgage Professional that the uncertainty and instability sparked by that conflict have only added to the woes of a market already weighed down by fragile confidence and weak demand.
“Things were already not good and already trending in the wrong direction. And that’s very much been a function of consumer confidence, to a large degree,” Lee said. “The Iran war has no doubt eroded consumer confidence a little bit more, but we were already not in a great situation.”
Lee was speaking to CMP a day before prime minister Mark Carney promised to deliver “good news” in an April 28 economic update amid global headwinds and economic volatility.
At the time of writing, it remained unclear whether that could include further measures to bolster the construction outlook and improve prospects for homebuilders.
But Lee said there are no easy answers to reverse a grinding construction downturn that’s deepened over several quarters – and ominously, appears to be spreading beyond the hotspots of Ontario and British Columbia.
The Prairies and Atlantic Canada kept homebuilding at a robust pace even as Ontario and BC slowed, but that resilience now appears to be fading. Lee said new CHBA data shows a clear deterioration in those regions, eroding one of the few bright spots in the national outlook.
“Ontario and BC were dismal, but the Prairies and Atlantic Canada were doing OK despite everything going on internationally,” he said. “We finally saw those numbers start to dip – not as bad as BC and Ontario, but that downward trend is hitting them as well. So even they are going to expect a slower year this year ahead.”
Delays on expanded HST rebate ‘holding up purchases’
The federal government in conjunction with the province of Ontario recently announced an expanded HST rebate for new homebuyers, a measure that advocates say has the potential to coax hesitant purchasers off the sidelines and inject some momentum into the market.
For homebuilders, the announcement resulted in “some immediate pickup” in interest, according to Lee – but a big remaining hurdle is the fact that the final regulations haven’t been published and lack of clarity over the policy’s final form is gumming up the process.
“It’s holding up purchases,” he said. “Some builders and buyers are finding a way to move forward despite the uncertainty, but many are still having to wait on the sidelines until that gets all in place.
“So it definitely has generated a little bit of momentum in the marketplace, but we really need all of those forms to be in place in order for it to meet its full potential.”
Layoffs raise further questions for homebuilding outlook
Another alarming signal from CHBA’s recent survey: as projects are shelved or slowed, layoffs are rippling through the construction sector, with nearly half of surveyed members having already reduced staff. That crisis is especially acute, Lee said, in Ontario.
“About 47% of our respondents have laid off workers. And in Ontario, it’s up to 65%,” he said. “The problem with that is not only the obvious where it’s not good when workers are getting laid off for the economy and those workers – but on top of that, we might not get them back if and when the market turns around.
“And we already have a very tight labour market when things are in normal conditions. So if and when the market turns around, it’s going to be hard. We’re going to have even less capacity to build moving forward. It’s all the more reason why we’re looking for governments to take action now.”
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