Net-zero home retrofits would cost up to $6.3 billion per year: study

Frank O’Brien
Western Investor

Study from CD Howe Institute says Ottawa would need to retrofit more than 500,000 homes per year to hit 2030 net-zero target

 How a typical house needs to change to meet net-zero use of fossil fuels by 2030. | Efficiency Canada

A federal government plan to reduce greenhouse gas emissions from Canadian homes to zero within eight years would cost up to $6.3 billion annually and require the refrofitting of more than 500,000 homes every year, according to a startling new study.

“Federal targets for reducing greenhouse gas emissions from Canadian homes face major challenges,” says the new report from the C.D. Howe Institute.

In Only Hot Air? The Implications of Replacing Gas and Oil in Canadian Homes, authors Charles DeLand and Alexander Vanderhoof provide a reality check on Ottawa’s plan to bring down 2030 building emissions in Canada by 42 percent compared to 2019, with the entire economy producing net-zero emissions by 2050.

Canadian homes emit about 6  percent of Canada’s total greenhouse gas (GHG) emissions. Under the federal government’s 2030 Emissions Reduction Plan (ERP), residential emissions should fall from about 44 MT (megatonnes) in 2019 to 25 MT in 2030, note the authors.

To assess the target, the authors examined current sources of emissions from Canadian homes and present a scenario in which homes using gas or oil to heat air and water are retrofitted with electrical heat pumps.

“Our modelling finds that Canada would need to retrofit over 400,000 dwellings per year to fully electrify all dwellings by 2050 and meeting 2030 targets requires even more aggressive action: over half a million retrofits would be required per year,” said DeLand, C.D. Howe Institute associate director, research. “Even in an extreme scenario where no new emitting buildings came on the market after 2022, emissions only fall by about 26 percent to 2030, still not enough to meet government targets.”

To further put the federal government’s 2030 targets into perspective, the number of retrofits needed each year alone is more than the entire housing stock of Saskatchewan, according to the authors.

DeLand and Vanderhoof determine that to meet the 2030 reduction target of 42 percent, not only would no zero new emitting homes need to be built after 2022, but the annual rate of retrofits would need to rise to 516,000 per year.

On a Canada-wide basis, they find that meeting the 2050 target will cost between $4.5 billion to $6.3 billion per year, roughly equivalent to two or three modern hospitals. On a cumulative basis from 2018 to 2050, this represents a total of $143 billion to $203 billion (in 2022 dollars).

“Numbers like these show that other emissions-reducing measures will have to bear more of the burden,” says DeLand. “These include energy efficiency improvements to homes, building code revisions, and combining heat pumps with traditional natural gas furnaces.”

The goal of a net-zero residential buildings sector is ambitious and won’t be cheap, concludes DeLand. “Federal and provincial governments need to acknowledge and understand the very real costs and trade-offs needed to achieve their ambitions with minimum harm to Canadians.”

 

© 2022 Western Investor

Whats’ behind the rise of credit unions in Canada?

Fergal McAlinden
other

Loan originations by those lenders posted a noted increase this summer
Credit unions and private lenders accounted for just 3.7% of Canada’s mortgage origination activity in 2021 – but the popularity of the former appears to be on the up.
Those lender types saw their market share rise to 6.7% by May, RATESDOTCA data showed, with originations by credit unions posting a marked increase over the summer (4.1%) between March 31 and June 30, according to Canadian Credit Union Association data.
That trend is developing as borrowers face greater challenges qualifying for a mortgage at the bank thanks to higher interest rates – and credit unions have demonstrated their ability to continue cutting into larger lenders’ market domination while maintaining a low level of risk, according to an author of a recent study on the challenges facing credit unions.
Marc-André Pigeon, director and strategic research fellow at the University of Saskatchewan’s Canadian Centre for the Study of Co-operatives, co-authored the C.D. Howe Institute’s recent report on how to build resiliency for Canada’s large credit unions alongside Murray Fulton, professor emeritus at the same university’s Johnson Shoyama Graduate School of Public Policy.

Pigeon told Canadian Mortgage Professional that larger credit unions’ aptitude for loan underwriting meant their loan loss ratios were usually better than banks in the small business lending space.
“Credit unions have shot their lights out,” he said. “They’ve grown their market share and they’ve done it without taking on a lot of risk. If you look at big empirical studies of credit unions – also elsewhere, but especially in Canada – their members tend to pay back their loans even if they’re struggling, and it’s partly because they have an attachment to the credit union.”
Read next: Credit unions, private lenders on the rise amid rate increases
That’s also because credit unions tend to have more of a local focus than major banks in Canada, with closer proximity to decision-making and better knowledge and information of the local region as a result.
“Decisions get made [locally], not in Toronto,” he said. “If the loan’s being made in Saskatoon… they don’t have to send it up the line – they’re not constrained by what Toronto does. They have better on-the-ground intelligence, and there’s a huge literature that backs this up.”
In fact, CFIB (Canadian Federation of Independent Business) member surveys commonly show that credit unions are able to manage lower loan losses as they grow their market share, Pigeon added.
In RATESDOTCA’s May analysis, Toronto-based mortgage broker Sung Lee noted that credit unions can offer more favourable conditions than traditional lenders. “With credit unions, they offer more flexibility, where you could qualify at just your five-year contract rate or in some cases, if it’s a variable, like a contract [rate] plus 1%.”
By the end of 2021, Canadian credit unions held nearly $280 billion in assets outside of Quebec, according to the C.D. Howe survey, which reviewed the practices of board composition at several of the country’s largest credit unions and made recommendations for improvements and better practice.
Read next: Could mortgage delinquencies increase as rates rise?
That said, despite a recent uptick in origination activity by credit unions, it’s important not to get carried away with their growth, Pigeon cautioned. While their loan volume has indeed increased, seasonal variation could be at play – and the figures may also be skewed somewhat by credit unions’ disproportionate popularity and market shares in Manitoba and Saskatchewan, and to a lesser extent Alberta, compared with other provinces.
“These are commodity play provinces that are not suffering like Toronto and Vancouver,” Pigeon said. “They’re not seeing the same price dynamics in housing. It’s a different economy, and they have big market shares here. And so those aggregate numbers may be a reflection of that.”
Credit unions may also have compared favourably to banks in recent months because the latter have taken something of a beating on the investment banking side, with the cash infusion that usually generates good bottom-line results for ROA (return on assets), efficiency, and capital somewhat weaker than it has been historically.
“So I’d say this is more of a pattern that I think is consistent with dynamic long-term perspectives,” Pigeon said. “Credit unions’ market share has been very stable – [but] I’d be surprised if it was changing dramatically, notwithstanding what we saw last quarter. I think it’s really dangerous to make too much of that.”

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How are Canadians coping with plummeting housing affordability?

Fergal McAlinden
other

Homes are now less affordable than at any point in over three decades, research shows

 Among the many challenges facing new buyers in the Canadian housing market in recent years, one of the most prominent has been affordability, and the increasing difficulty of keeping up with runaway home prices.

While property values have dipped notably in many markets this year to date, they remain substantially higher than pre-COVID levels, with the onset of the pandemic having helped precipitate a housing market boom in Canada.

In August, the Bank of Canada’s Housing Affordability Index showed that homes were now less affordable for Canadians than at any point during the previous 30 years, a stark indication of how far out of reach homeownership has become for many prospective buyers.

That index, which measures the disposable income required for housing-related expenses, surged to 42.8% in the first quarter of this year – and had ballooned to 48.2% by Q2.

Banking giant National Bank has sounded an even more alarming note on Canadians’ declining ability to afford a home purchase, saying in August that Canada had experienced its “worst deterioration” of affordability for 41 years in the year’s second quarter.

With affordability having posted a sixth successive quarterly decline in Q2, National Bank estimated that 63.9% of income was now required to service a mortgage on a representative home in Canada, a level not seen since 1982.

Read next: No ‘one-size-fits-all’ solution for mortgage clients, says VP

That trend was spurred by rising interest rates, National Bank said, and also contributed to a significant slowdown in the resale market, which saw home sales slide 12.8% below their 10-year average.

Toronto, Victoria, and Vancouver all witnessed sizeable deterioration in the second quarter, according to National Bank, with Edmonton, Calgary and Quebec registering the most modest declines in affordability of 10 markets covered.

That said, the bank also noted that falling home prices, and stabilization of the benchmark five-year mortgage rate, were likely to improve affordability before 2022 comes to a close.

Royal Bank of Canada (RBC) economist Robert Hogue predicted last week that Canadian home prices were likely to hit their lowest point in spring, at around 14% lower than their February levels. Perhaps unsurprisingly, Ontario and British Columbia – which saw some of the most dramatic home price appreciation during the pandemic – are likely to account for especially significant price declines.

Mounting obstacles on the affordability front have seen many homebuyers explore the option of securing a co-signer for their mortgage, according to a prominent broker based in Toronto.

Drew Donaldson (pictured top), founder and CEO of Donaldson Capital, told Canadian Mortgage Professional that while traditionally viewed as an unconventional option, the co-signing route had grown in popularity as a means of getting around steep affordability challenges.

“When you get a co-signer, that helps the mortgage industry as a whole,” he said, “because as much as it’s not fun to get parents to co-sign or a friend to co-sign, if that gets you into the market, [it’s worth it].

Read next: What should a mortgage holder do if they lose their job?

“We have to think about the lending side as well: That’s going to reduce the risk on their side. Not only are they loaning to you, a first-time homebuyer who’s got one income, one job. If you lose your job tomorrow, but you’ve got a co-signer on the file, that co-signer is going to step in and make the payments for you. The lender at least has additional security over somebody else.”

Buyers are also increasingly relying on the so-called “Bank of Mom and Dad” to get a leg up in the homebuying process, with Canadian Imperial Bank of Commerce (CIBC) revealing near the end of last year that nearly 30% of new buyers had relied on help from family members when purchasing a home.

New entrants to the market who have not yet built up equity in an existing property face some of the biggest hurdles in putting together the money required for a down payment.

The average gifted amount also surged as prices spiked upwards, hitting $82,000 in 2021 compared with $52,000 in 2015. Two-thirds of new buyers that received a financial gift used that as the principal source of their down payment, while over $10 billion was provided in gift payments in the 12 months prior to the CIBC report’s publication.

Over 5% of relatives who provide gift payments do so through debt, according to that CIBC report, with the figure unsurprisingly climbing in the most expensive markets of Vancouver and Toronto.

 

Copyright © 1996-2022 Key Media, Inc.

Canada’s inflation rate falls again

Fergal McAlinden
other

Annual price growth has now declined for two consecutive months

Canada’s annual inflation rate was down again in August, falling to 7% as gas prices posted a noted decline.

Figures released by Statistics Canada on Tuesday showed that last month’s decrease in the inflation rate was even greater than economists, who expected the rate to hit 7.3% on average, had anticipated.

Gas prices plummeted by 9.6% in August on a month-over-month basis, although food prices saw a 10.8% spike compared with the same time last year.

The national statistics agency said that multiple factors had contributed to that surge in the cost of food including extreme weather, the Russia-Ukraine crisis, higher input costs and supply chain snarls.

Read next: Economists weigh in on BoC’s future rate hike path

StatCan’s announcement marks the second consecutive month that Canada’s inflation rate has fallen, having hit its highest rate for 40 years (8.1%) during the summer.

Core inflation – which does not account for items like food and energy – also fell compared with July, from 5.4% to 5.2%.

The news comes just two weeks after the Bank of Canada announced a fifth consecutive interest rate hike aimed at bringing inflation down, with the central bank having now increased its trendsetting rate by a full three percentage points since March.

While inflation has been the Bank’s foremost concern throughout the year to date, the news that it has fallen for two consecutive months appears to be a vindication of its rate-hiking path so far in 2022.

 

Copyright © 1996-2022 Key Media, Inc.

Home sales plunge by 32% since March rate hikes Scotiabank

Micah Guiao
other

Rising Interest Rates Causing Shifts in Calgary Area Property Sales: CREB

Carrie Lysenko
other

 Across Canada, the real estate market has seen dramatic fluctuations from all-time price highs in early 2022 in the Greater Toronto and Vancouver areas to significant price drops due to the 300 basis point interest rate hikes by the Bank of Canada.  The Calgary area, however, has followed a bit of a different trend line.  Oil price highs this year have positively impacted sales in the region with August posting only a modest dip year-over-year (y-o-y) of -0.5% in volume but a more impressive combined y-o-y benchmark price increase of 11% across all property types.  Comparatively, sales volume in the GTA has dropped by 34% versus 2021.  Sales activity driving growth in Alberta, specifically the Calgary area, is seen especially in the apartment condominium sector which is providing more affordable housing options despite the higher interest rates.  

• Read: National Home Sales Hold Steady for First Time Since 2022 Peak: CREA

The Demand for Apartment Condos is Growing Rapidly

Apartment condo sales have increased a whopping 58% y-o-y in August 2022 and over 65% year to date in Calgary.  Month-over-month (m-o-m), sales increased by 2%.  While condo prices in August were relatively flat versus July, they have increased 10% y-o-y.  Price points for condo apartments, however, have yet to reach the peak set back in 2014.  

Detached homes in the area are falling a bit out of favour as national inflation is driving up the price of almost everything.  Sales of single-family homes continue to trend down versus July and post a y-o-y decline of 18%.  Prices have also trended downwards for detached homes since the high in May, however, the benchmark of $633,000 still records a 13% growth over 2021.  Demand for homes under the $500K mark is extremely high and there is an increasing pinch on supply at this price point.  Months of supply for all property types has dropped by almost 21% y-o-y and now sits at 2.24 months. This is 36% less than the national average of 3.5 months of property inventory.  With supply down, the average property days on market has dropped almost 17% y-o-y as demand and competition amongst buyers heats up. 

• Read: Hidden Gems for Sale in Edmonton, Alberta Under $325,000

 

 

Home Buyers are Exercising their Options, Keeping Sales Activity Strong

While inventory gains in the surrounding areas of Airdrie,  Cochrane, and Okotoks provide more promising conditions for buyers, the market conditions remain tight.   Airdrie and Okotoks have also experienced price declines in the past few months while Cochrane’s benchmark prices are holding relatively stable.  

According to the Calgary Real Estate Board’s Chief Economist, Anne-Marie Lurie, “higher lending rates have slowed activity in the detached market, [but] we are still seeing homebuyers shift to more affordable options which is keeping sales activity relatively strong…this makes Calgary different than some of the larger cities in the country which have recorded significant pullbacks in sales.”

 

© 2015 – 2022 Zoocasa Realty Inc.

Which Canadian cities are seeing home prices fall the fastest?

Micah Guiao
other

“It’s abundantly clear where the worst spots are,” says BMO economist

Real estate prices have been falling in almost every market, but Toronto is bearing most of the brunt as its surrounding cities and regions experience a correction like never before, according to BMO Capital Markets.

After prices peaked in March, the typical home price fell 12.4% to $760,400 in August. Southern Ontario was the hardest hit based on the February peak in the national benchmark price.

“Home prices are correcting across the country, but the speed and depth varies,” Robert Kavcic, senior economist at BMO, said. “It’s abundantly clear where the worst spots are – suburbs and exurbs of Toronto, where prices are now officially off nearly 20% in some areas. These markets were also the first to break (speculative psychology was arguably the worst in these areas).”

Read next: Economists highlight the Toronto housing market’s 2022-23 prospects

Select markets nearing a 20% price fall include Oakville, Kitchener-Waterloo, and London, while Hamilton and Barrie fall within the 10-15% range. Earlier this year, the Bank of Canada found that Toronto’s suburban real estate price surge had far surpassed the city, which could explain the significant pain concentration in Ontario.

Meanwhile, select markets with moderate price gains like Montreal and Ottawa are “correcting in an orderly fashion,” Kavcic said, as they experience slower price drops. Homebuyers in the quieter parts of Canada are also less affected by the rate hikes.

“Keep in mind that a market like Calgary had already struggled for a number of years before COVID, so prices there never really got stretched,” Kavic said.

 

Copyright © 1996-2022 KM Business Information Canada Ltd.

The Bank of Canada is losing money for the first time ever on rising rates

Stephanie Hughes
other

Central bank anticipates losses for the next three years, depending on how its inflation fight goes

 The Bank of Canada’s historic fight against deflation during the COVID recession, and now the startling inflationary surge that has come in the recovery’s wake, will likely bring to an end the central bank’s untarnished streak of profitability.“We expect the bank’s net interest income to be negative when our third-quarter results are published on Nov. 29,” the central bank said in a statement that was initially provided to the Toronto Star. “The bank’s interest expense is growing because of increases in the interest rate that we pay on deposits.”

It’s easy to forget that central banks are set up to operate like any other financial institution. The Bank of Canada has a board of directors that oversees management (governor Tiff Macklem and senior deputy governor Carolyn Rogers) on behalf of its shareholders (taxpayers, via the federal government) and it has a balance sheet with assets and liabilities.

Typically, the Bank of Canada’s balance sheet makes money because the liabilities consist almost entirely of bank notes, which don’t pay interest, while on the other side, the central bank earns interest on its assets. The Bank of Canada Act says the central bank must send its profit to the federal treasury at the end of each fiscal year. Recently, that’s been about $1 billion a year.

But the Bank of Canada Act predates quantitative easing, or QE, an anti-deflation tactic that involves creating deposits in the form of deposits for creditors at the central bank, and then using those newly created deposits to buy bonds and other financial assets. The Bank of Canada deployed QE for the first time during the COVID crisis, flooding the financial system with the equivalent of hundreds of billions of dollars to help keep downward pressure on interest rates and to increase the capacity of banks to lend money.

An unintended consequence of that policy is that for the first time in its 87-year history, the Bank of Canada is on track to lose money for an extended period, as interest expenses on deposits climb in tandem with the benchmark interest rate, which Macklem has raised by three percentage points since March in an attempt to cool demand that has helped push annual inflation to about eight per cent, the highest level since the early 1980s.

QE worked, and maybe a little too well, as the economy appears to have entered a phase of “excess demand” at the same time acute supply-chain snarls limited supply of goods, and Russia’s invasion of Ukraine sparked a surge in commodity prices. Canada’s consumer price index is hovering around an annualized pace of eight per cent, compared with the Bank of Canada’s target of two per cent. Policymakers are now executing a hard pivot to get inflation under control by raising interest rates and reversing QE by ending purchases and letting the assets on its balance sheet roll off as they mature.

Some economists think that containing inflation will require triggering a recession. While that remains to be seen, it’s clear that one casualty will be the Bank of Canada’s net interest income, or the difference between revenues from interest-bearing assets and liability costs. The large-scale asset purchases that remain on the balance sheet happened at a time when interest rates were much lower than they are today, and the coupon rate on bonds was relatively higher than the rate paid on deposits.

Initially, QE represented a profitable strategy. The Bank of Canada reported net interest revenue jumped nearly 20 per cent in 2021 from 2020, to about $3.1 billion. The statement, provided by spokesman Paul Badertscher, noted that the the central bank sent the federal government an additional $2.6 billion over those two years. But now, the situation has reversed. The statement said the central bank anticipates losses for the next three years, depending on how its inflation fight goes.

 

The U.S. Federal Reserve building in Washington, D.C. Photo by Chris Wattie/Reuters

It’s a new challenge for the Bank of Canada, but it’s not alone, as most of the world’s major central banks resorted to QE to fight the recession, and now find themselves battling to keep inflation from hitting double digits.

In New Zealand, the government simply covers potential losses for the Reserve Bank of New Zealand. But the Bank of Canada Act doesn’t allow Macklem to retain net income from previous years to handle shortfalls in the future, nor is there a provision that requires the federal government to make the central bank whole. The issue will almost certainly get sorted; in the meantime, the Bank of Canada said in its statement that it has stopped paying interest on government reserves as a way to reduce liabilities, noting that other central banks have done the same.

Benjamin Tal, deputy chief economist of CIBC Capital Markets, said the Bank of Canada is not in the business of making money and absorbing a loss to stave off what could have been a terrible recession is an acceptable trade-off.

“That’s their way of looking at that and there is no impact on the economy,” Tal said in an email. “They do not lose sleep over it.”

The Bank of Canada reiterated that its focus would be trained on tackling high inflation and that the large-scale assets purchases the bank underwent over the past two years coincided with its mandate to preserve the country’s financial well-being.

“The bank makes policy decisions based on our mandate to keep inflation low, stable and predictable,” the statement said. “We do not make policy decisions to manage our balance sheet.”

 

© 2022 Financial Post

National Home Sales Hold Steady for First Time Since 2022 Peak: CREA

Patti Cosgarea
other

 National home sales were down only 1% month-over-month in August, marking the smallest dip we’ve seen this year since the February peak. Annually, sales are down 24.7%, less than the 30% drop we saw in July. The Canadian Real Estate Association (CREA) suggests that these may be signs that the market is settling as rising interest rates are beginning to moderate. 

• Read: What’s in Store for Fall 2022? Zoocasa’s Market Predictions

For Buyers: Inventory is Improving Following 2022 Record Low

At the beginning of the year, we saw record low inventory at 1.7 months. In August, inventory was up to 3.5 months; although this is still below the long-term average of five months, this is an improvement and another sign that supply is slowly catching up to the demand. “August saw national sales hold steady month-to-month for the first time since February which, along with a stabilization of demand/supply conditions in many markets, could be an early sign that this year’s sharp adjustment in housing markets across Canada may have mostly run its course,” said Jill Oudil, Chair of CREA.

For Sellers: Canadian Cities Experiencing a Split in Price Gains and Declines

The actual (not seasonally adjusted) national average home price in August was $637,673, down 3.9% year-over-year. Canadian markets were at an even split between markets where prices were up or down, but as we’ve seen in previous months, many Ontario markets including the Greater Toronto Area (GTA) are driving the gains. On the other hand, Greater Vancouver, Calgary, Edmonton, Winnipeg, and Halifax-Dartmouth were some of the major markets that experienced declines. 

• Read: Hidden Gems for Sale in Edmonton, Alberta Under $325,000

Many Still Waiting on the Sidelines as Fluctuations Continue 

The number of new listings dropped by 5.4% from July to 67,775 properties. Some sellers are choosing to wait out the market until more buyers are active. The increase of 300 basis points in the Bank of Canada interest rate this year has some buyers anxious about mortgage qualifications. The sales-to-new-listing ratio is currently signaling a balanced market at 54.5%, which CREA states is close to the long-term average of 55.1%.

• Read: Variable or Fixed-Rate Mortgage? 4 Tips to Help You Decide Which to Choose While Interest Rates are Rising

Shaun Cathcart, CREA’s Senior Economist, explains that the Bank of Canada’s interest rate hikes have put downward pressure on the housing market and Canadians are struggling to catch up. “The stress test was unpopular with some when it was introduced. But as we have all now watched the Bank of Canada raise its key interest rate by 300 basis points in the space of five months, it’s clear many Canadians were protected by it,” says Cathcart. 

“But should there not be a flipside to the coin? The overnight rate is now officially above the Bank of Canada’s “neutral” range and not expected to go too much higher. This is not about “looser” or “tighter”, it is about what is appropriate given where rates are and where they are likely to go moving forward. OSFI is likely thinking hard about what makes sense given the new realities, and how to balance the community of interests they are tasked with securing.”

 

© 2015 – 2022 Zoocasa Realty Inc.

Housing supply crisis: Time for “alarm bells, s”ays RE/MAX president

Fergal McAlinden
other

A long-standing issue in Canada’s housing market only appears to be getting worse

 The time has come to “ring the alarm bell” on Canada’s lack of housing supply, with no end in sight to the inventory shortage that’s been a constant theme in the market in recent years.

That’s the view of Christopher Alexander (pictured), president of real estate giant RE/MAX Canada, who told Canadian Mortgage Professional that the company’s recently released 2022 Housing Inventory Report aimed to shine a light on the chronic supply issues facing many urban centres across the country.

That report found that inventory levels have dipped below the 10-year average in seven major Canadian markets in 2022, with double-digit declines recorded in Ottawa, Halifax-Dartmouth, Montreal, Calgary, Winnipeg, and Greater Vancouver.

While the Greater Toronto Area (GTA) saw a much less dramatic figure on housing shortage, with supply around 7% below the 10-year average, only one of the markets studied – Hamilton-Burlington – registered an increase over that average. That area’s housing inventory levels were up 3.2% compared with the 10-year average in 2022.

The “deep-rooted” issue requires urgent action from all levels of government to help bring more inventory to the market, according to Alexander, particularly with the number of new homes being constructed falling well below the levels required to welcome record numbers of new Canadians in the coming years.

Read next: What impact have speculation taxes had on Ontario home price growth?

Significant growth in the number of single-person households also highlights the need to act swiftly, Alexander said, with the Vancouver metropolitan area seeing a 30% increase in those types of household in the last 15 years.

“You’re not [just] having people buying homes when they get married – they’re doing it a lot sooner,” he said. “You’ve got more people buying homes that aren’t in a couple, so that’s exacerbating the challenge.

“Twenty-nine per cent [29%] of new Canadians are going to Toronto and about 10% are going to Vancouver, and another 10-12% are going to Montreal. So our big cities [face] an immense pressure to have inventory, and we’re short.”

Sky-high demand and lack of supply have helped to drive up the price of homes in the country’s hottest markets in recent years, with Alexander describing Toronto and Vancouver as the two areas of most concern because those two urban centres have seen the most dramatic price increases during that time.

Montreal, Calgary, and Halifax aren’t far behind; in fact, the latter had just 1,100 total listings for sale in July for a population of just under 500,000, Alexander said.

No one-size-fits-all solution can be applied to Canada’s housing inventory problem, according to Alexander, particularly with each city home to unique factors that aren’t the same across the board.

Still, the process could be streamlined and accelerated by reducing bureaucracy and other barriers to construction, he said.

“There are different factors for different cities, but I think what is critical is we’ve got to find a way to incentivize more developments,” he said. “Get rid of as much red tape as we possibly can while still being responsible and find a way to speed up the process for approvals.

Read next: Canada house prices: How will they be impacted by rising rents?

“If you think of the City of Toronto, it takes years to get a project approved and then more time on top of that to build it because there’s just so much bureaucracy and hoops you’ve got to jump through to get anything going. And then on top of that, you’ve got a labour shortage. So it’s a really deep issue.”

Canada Mortgage and Housing Corporation (CMHC) has indicated that the country needs 5.8 million new homes to be built by 2030 in order to bring house prices back to more affordable levels – a target that Alexander said the country is extremely unlikely to meet at its current pace of construction.

While interest rate increases have caused house prices to level off or decline across many markets, the fact that rates remain relatively low by historical standards will have big repercussions for the overall trajectory of home prices in the coming years, according to Alexander.

“I think it’s important to point out that ‘yes’, interest rates are rising. But we’re probably going to land at 5.25% to 5.5%,” he said. “That is an extremely low interest rate when your amortization periods are between 25 and 30 years. And when you have such an inventory shortage, prices really only have one way to go with rates being that low.”

 

Copyright © 1996-2022 Key Media, Inc.