Could Canada's housing supply crisis ease next year?

Flurry of new policies is tackling supply shortage – but demand is also expected to rise

Could Canada's housing supply crisis ease next year?

It’s no secret that Canada continues to face an acute housing supply crisis, with the inventory shortage likely to remain an issue well into the coming years.

The challenge is a daunting one, according to the national housing agency. Canada Mortgage and Housing Corporation (CMHC) says an additional 3.5 million additional housing units are required by 2030 to restore affordability across the country – and, at present, its projection for overall housing stock by that year is even smaller than previously envisaged.

In September, CMHC said it had revised its expectations for available 2030 stock downwards from its projections a year earlier, with the current sluggish pace of home construction the reason for that change.

The agency’s 2022 estimates indicated 18.6 million units would be available by 2030 – with that projection slipping to 18.2 million this year.

While plummeting demand has helped available inventory post a mild uptick across many markets this year, the middling pace of home construction, coupled with an expected drop in interest rates at some point next year, could once again expose the supply shortage in 2024.

That’s according to RE/MAX Canada president Christopher Alexander (pictured top), who told Canadian Mortgage Professional that supply had not improved noticeably across the country even despite a cooler market this year.

“It’s going to be tricky. I think we’re going to get to a point sometime in the next year to three years where the low number of new housing starts catches up, and we’re in a serious shortage again based on demand,” he said.

“The interesting thing about this year is relatively speaking, inventory has been really tight still, with declining sales and even falling prices in some places. And once you get more consumers in a position that they feel confident they can buy and aren’t going to face increased borrowing costs, it’s highly likely that we’ll see a big return to the market and that’ll put a lot of pressure on pricing.”

Are government actions having an impact in alleviating the housing crisis?

The federal government’s recent fall fiscal update placed a strong focus on addressing Canada’s housing crisis, with policies including a further $15 billion in financing for apartment construction – bringing the Apartment Construction Loan Program to over $40 billion in funding – and a pledge to build more affordable housing across the country.

The feds are also increasing the annual limit of support for low-cost financing by $20 billion per year and plan to speed up financing approvals for home construction, as well as repurposing further federal land for housing.

Meanwhile, Ottawa’s recent exemption of rental construction from GST appears to have been greeted favourably by developers, with Toronto’s Dream Unlimited to move ahead with 5,000 new units of purpose-built rental housing following the announcement.

Still, plenty remains to be done to make a dent in the national housing shortage amid a housing starts pace that’s still hovering below expectations.

The government’s priority, Alexander said, needs to be “continuing to find ways to incentivize building new homes, whether it’s affordable housing, rental units, or even just general housing starts.

“I think we need to find a way to speed that up. And that’s been a big topic for discussion at multiple levels of government, so hopefully that does materialize in the near future.”

Canadians remain committed to homeownership despite market challenges

While Canada’s housing market has been plunged into quieter activity since the beginning of interest rate hikes last year, Canadians’ appetite for homeownership remains largely undimmed, according to RE/MAX’s latest housing market outlook.

That survey revealed that 73% of Canadians believe homeownership is the best investment they could make, a figure that’s remained unchanged since 2022 despite challenging economic conditions since then, while 72% believe governments at all levels must consider the diversity of new housing that’s developed across the country.

“That was the one piece that was very surprising” about the survey, according to Alexander, “because there’s been so much media around falling sales, softening market trends, rising interest rates, and that’s all you’re seeing. The fact that Canadians are still believing in real estate is really encouraging.”

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