Canada's developers are building less housing despite crunch, a new study says. That could keep prices up
CBC
Despite a desperate need for new housing, Canada's developers are building fewer homes than they were at the height of pandemic lockdowns, a new study says – and experts say that could mean a generation of Canadians won't be able to afford homes for most of their adult lives.
Inflation and the Bank of Canada's response to it, has been the main reason for the slowdown, according to David Macdonald, a senior economist with the Canadian Centre for Policy Alternatives (CCPA).
The new decline in housing development started last year, when the Bank of Canada started to raise interest rates to cool the economy and combat inflation, Macdonald found in a new report for CCPA.
Compared to April 2020, when lockdowns shut down part of the development industry, investment in new single-family homes is down 21 per cent, the report says. New apartment construction is down two per cent from that time and row house development is down eight per cent.
"The impact of Bank of Canada rate hikes have been breathtaking," Macdonald wrote in his report.
They're also unsurprising, he says.
"If you have to take out a loan to engage in a type of economic activity, higher interest rates matter," Macdonald wrote.
"This means that higher interest rates increase carrying costs for businesses looking to build things like residential housing or consumers looking to buy those houses."
The Bank of Canada has raised its benchmark interest rate 10 times since March 2022, when it sat at 0.25 per cent. In that time, housing development has slowed substantially, Macdonald wrote.
The rate is now five per cent, and bank officials say they're prepared to raise it further if necessary.
Even if rates drop, developers and the housing market might not have seen the worst of existing hikes yet, Macdonald says. As fixed-rate mortgages are renewed under higher rates, he says development could slow even more.
The cool-down comes at a time when Canada desperately needs more housing.
Canada could need upwards of 3.5 million new homes built by the end of the decade, according to Aled ab Iorwerth, deputy chief economist with the CMHC.
He says Canada is nowhere near on track to meet that goal, and that means most Canadians, particularly those in major cities, will continue to struggle to afford housing.
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