Canada’s one stop platform and the #1 National voice to the rental housing industry

CANADA’S HOUSING PLAN ‘BUMPING UP AGAINST’ CAPACITY RESTRAINTS, INTEREST RATES: ECONOMIST

Posted in

CANADA’S HOUSING PLAN ‘BUMPING UP AGAINST’ CAPACITY RESTRAINTS, INTEREST RATES: ECONOMIST

A new report from TD Economics says the federal government’s ambitious housing plan faces supply-side capacity constraints and demand measures that are not expected to have a significant impact.

In a report Monday, TD Bank Economist Rishi Sondhi evaluated the federal government’s plan to address housing affordability. Canada’s Housing Plan, released last month, includes several measures intended to impact demand, supply and productivity. By 2031 the plan sets out to build 3.87 million new homes, requiring several years of record-high homebuilding.

“Supply-side measures are perhaps the boldest, but efforts to boost the country’s housing stock are bumping up against challenges such as elevated interest rates and capacity constraints. Meanwhile, demand measures contained in the plan are unlikely to move the needle in a significant manner,” Sondhi said in the report.

On the demand side of the issue, the report said “it could be reasonably argued” that Canada’s federal government should refrain from stoking demand amid poor affordability conditions. As such,  Sondhi noted the proposed measures are not expected to significantly alter resale housing forecasts.

“However, overall construction productivity could be enhanced through the plan. This would be good news for an industry where productivity has lagged for many years,” the report said.

Despite a muted impact on demand from the federal government’s housing plan, the report noted the plan to lower the percentage of non-permanent residents in the overall population by 2027 will have a “considerable impact.”

“If realized, this policy will have a meaningfully negative impact on rent growth, challenging the economics of such projects for investors. This type of demand has been important, with Bank of Canada data showing that 25 per cent of mortgaged home purchases were done by investors in 2023 Q3 (third quarter),” the report said.

On the supply side of the issue, Sondhi said the federal government’s housing plan is expected to increase the Canada Mortgage and Housing Corporation’s (CMHC) measure of housing starts, but delving 550,000 new units annually “is an extremely daunting task.”

He said the degree and timing to which housing starts will rise are unclear and face several headwinds, including interest rates, capacity constraints in an industry already operating at an “elevated pace” and also that the plan hinges on other levels of government.

“Homebuilding is facing worker shortages, the workforce appears stretched-thin as is, and residential developers must compete with non-residential projects for tradespeople,” the report said.

Sondhi also highlighted that several provinces have stated concerns regarding the plan.

“For example, most of the $6 billion put towards critical infrastructure is supposed to go to the provinces, the effort towards unlocking surplus public lands requires coordination across governments, and the federal government will modernize the National Building Code, but can’t force the provinces to adopt it, as they have their own,” he said.

 

Story by: BNN Bloomberg