News: Canada Needs Fresh Approach to Build New Homes

In this week's Industry News (Week of 10 Jan 2022).

Canada needs a fresh approach to build desperately needed new homes | Financial Post "The Liberals will serve Canadians better if they realize that increasing the housing supply is not just one of the solutions, but the most critical missing piece of the housing puzzle," write Murtaza Haider and Stephen Moranis. A new year has dawned but the same old housing challenges remain. Most forecasts suggest housing prices will continue to increase, although more slowly than before, since the demand for housing will exceed the supply of available homes even if the expected rise in mortgage rates takes some heat out of the market. The federal and provincial governments are actively consulting experts on putting the housing genie back in the affordability bottle since it’s clear that doing more of the same is unlikely to deliver relief. But there is already some expert analysis out there. Building more housing above and beyond the business-as-usual scenario must accompany measures directed at curbing housing demand. This is even more relevant for Canada because it has plans to admit over 400,000 immigrants each year. So far, the Liberal government has allocated $4 billion for a Housing Accelerator Fund to construct 100,000 homes targeted at mid-income earners by 2025. Another $2.7 billion has been earmarked to refurbish existing or build new affordable dwellings. And $600 million is available to convert underutilized office buildings into rental dwellings. The government intends to transfer these funds to municipalities willing to increase housing supplies by reducing development approval times, allowing higher density in built-up areas, and building more dwellings near public transit infrastructure. Finding the right partners in local governments to deliver more housing by 2025 will be a challenge Liberals continue to face. But leaving decision-making in the hands of officials and representatives in the three tiers of government is unlikely to deliver more housing. The dispersed mandate to approve new developments has not served Canada well. An overhaul of the development approval process is needed to consolidate decision-making for new housing development under one authority. See full article here.

Next wave of immigrants likely to fuel an already overheated real estate sector | The Globe and Mail After a frenetic 18 months when Canadians pushed up home prices in a quest to ride out the pandemic in comfort, another influx of buyers is set to provide more fuel to the overheated real estate market. The federal government has increased its annual immigration targets to the highest levels on record, creating the conditions for a surge of new permanent residents, which Canada desperately needs to fill job vacancies. These new immigrants will add to the country’s population and immediately boost the need for housing in major job centres and nearby cities. This will ramp up competition for homes at a time when national real estate prices have jumped 40 per cent in the past two years. "Canada’s strong population growth is a factor driving our home prices upward at a faster pace than in many other economies," said Bank of Montreal chief economist Douglas Porter, who analyzed the relationship between population growth and home prices in 18 developed countries. He found that countries with faster population growth have had greater home price inflation than those whose populations have remained stable, or decreased. Today, there is an acute shortage of housing in [smaller cities]. The flow of new permanent residents will put even more pressure on those places. Anthony Passarelli, a CMHC senior analyst, said that if immigration reaches these record-high levels and Canada doesn’t respond by increasing its housing supply, the effects on the housing market could be noticeable. "We will likely go through a similar situation, where you see another price surge and the ripple effects of people getting priced out of the larger population centres and moving further out," he added. Asked whether Canada should slow the pace of immigration until the country has enough affordable housing, BMO’s Mr. Porter said: "I suspect policy will be little swayed by housing market concerns. Having said that, at the very least the impact on housing should be taken into consideration when determining immigration targets." See full article here.

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Shael Soberano, CFA Konfidis Inc. Chief Investment Officer

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