Are renovations set to spike amid continuing supply shortages?

Housing starts are up – but supply is still at a 20-year low

Are renovations set to spike amid continuing supply shortages?

It’s no secret that Canada’s housing market continues to face a chronic inventory shortage, with lack of supply long viewed as one of the most pressing issues facing would-be buyers.

Across the country, the number of newly listed properties on the market edged upwards by 1.6% last month compared with March – but supply remains at a 20-year low, according to new figures released by the Canadian Real Estate Association (CREA).

With that scarcity of inventory, Canadians may opt to renovate their homes instead of looking to purchase another property, particularly since current affordable lumber prices indicate favourable conditions for remodelling, according to a wood market expert.

Russ Taylor (pictured top) told Canadian Mortgage Professional that a robust repair and remodelling scene had proven one of the few bright spots for lumber prices amid a sluggish overall market to date in 2023.

“Looking ahead, there’s a pent-up demand for new cars, new homes, repair remodelling, although the household debt is increasing and disposable income is less,” he said. “For people that aren’t going to move, lumber prices and panel prices are really cheap.

“So you would think that there could be a little bit of an offset there with repairing and remodelling – and that’s been pretty active this year already. Repair and remodelling is probably the shining star compared to new residential construction.”

How have higher interest rates and a cost-of-living crisis impacted Canadians’ renovation plans?

Still, a difficult economic climate has also complicated many Canadians’ plans to renovate their current home, according to a January survey.

FinanceIt’s Consumer Lending Survey of Canadian homeowners showed that almost 40% of respondents said affordability issues had caused them to delay their renovation plans for at least a year.

Younger homeowners were particularly likely to cite the fraught economic climate as a reason for shelving their renovation plans, with 48% of the 18-34 cohort describing affordability concerns as the main reason for their decision.

Still, FinanceIt CEO Michael Garrity told CMP at the time that high interest rates and home prices would likely push many Canadians towards renovating their property rather than purchasing a new one.

“Higher interest rates that have accompanied inflation have meant that engaging in the housing market might not be viable for some Canadians,” he said. “This may make renovating the home, rather than selling it, a potentially more attractive option for some.”

With no end in sight to the housing market’s supply challenges, a growing number of Canadians are turning to home renovation as a means of converting their property into a multigenerational residence.

Nearly one million Canadians had more than one generation living in their household in 2021, according to the latest census, with the federal government having also recently introduced a multigenerational home renovation tax credit to incentivize such remodelling.

When will inventory finally arrive in Canada’s housing market?

The national housing agency has recently highlighted the depth of Canada’s supply challenges, indicating that home starts for this year and next are likely to fall significantly below 2021 levels.

Canada Mortgage and Housing Corporation (CMHC) said at the end of April that it anticipated about 212,000 starts in 2023 and around 224,000 next year, well short of the 271,000 achieved in 2021.

That 2023 estimate marked a noteworthy downgrade of its October forecast for the year, when CMHC said it expected this year to see approximately 244,000 starts.

The agency has already indicated the near certainty that 2030 supply targets for Ontario, Quebec and British Columbia will not be met.

On the plus side, the annual pace of starts in April spiked by 22% – and there was further good news with a “burst of new supply” entering the market at the beginning of May, according to CREA senior economist Shaun Cathcart.

That development suggested that some April buyers were “existing owners now looking to sell their homes,” he said, noting it could contribute to “the kind of virtuous circle that might ultimately get more first-time buyers into the ownership space this year.”

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