Canadian Home Starts Decreased By 30,000 In 2023, Says CMHC

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Despite the fact that millions of new houses are needed to restore housing affordability in Canada by 2030, rising interest rates caused housing starts to fall by around 30,000 units in 2023, according to national housing agency.

As deputy chief economist Aled ab Iorwerth highlighted major problems in both the short and long terms for housing, Canada Mortgage and Housing Corporation (CMHC) recently warned that the rate of new home construction likely slowed by 10% to 15% year over year.

The reduced full-year forecasts showed the short-term effects of rising interest rates, but Iorwerth also highlighted the "critical long-term housing shortages" that were negatively affecting the future.

"The only option to address the current structural gap in the housing market is through significant private sector investment. In order to address the middle class's affordability issues, this is especially important because the private sector in Canada provides almost 95% of housing. For ownership or for renting purposes, ab Iorwerth said.

Economic Upturn Required To Accelerate Housing Starts

Prospects for new home construction are being negatively impacted by the present economic slowdown, and the rate of new construction, especially in the condo market, is directly impacted by the willingness of investors and individual buyers to take out loans. "Once about 70% of apartments are presold, developers proceed with construction," according to ab Iorwerth.

Except for Alberta, where demand was boosted by a robust economy, the country as a whole saw a reduction in the number of new condo constructions due to the fall in housing starts in 2023.

Meanwhile, ab Iorwerth stated that the CMHC was worried that starts had not yet fully taken into account the effects of increased rates and borrowing prices in Toronto.

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He also made the point that, if the trend toward greater supply continues, lower loan rates in the future would encourage the start of new housing projects once more.

Public investment has also been recognized as a possible catalyst for future expansion.

The government policies must also support private-sector initiatives by enhancing regulations and approval procedures that reduce uncertainty for developers, according to ab Iorwerth,

What Is Housing Crisis?

In Canada, the housing crisis is not brand-new. Not only has the housing crisis continued, but it has gotten worse over the past century. The convergence of various housing vulnerabilities has impacted individuals from many backgrounds.

For example, renters are suffering displacement and evictions in addition to rent rises quadruple that of inflation.

People of color, those with disabilities, and Indigenous and Black people are disproportionately affected by the rising rate of homelessness.

The security of home ownership is deteriorating. More than one-third of Canadian households have a mortgaged home, and of those, two-thirds struggle to make ends meet.

Due to the compromise of privacy, comfort, stability, and location, many Canadians now face hidden housing vulnerabilities such as unfavorable living conditions, overpopulation, and discontent.

Widening intergenerational wealth gaps can result from young persons deferring homeownership, prolonging their stay in their parents' homes, delaying raising families, or depending on parental financial support to purchase properties.

Why Is There A Housing Crisis In Canada?

Although the housing problem affecting Canadians is getting worse, there is disagreement over its precise nature. The prevalent discourse centers on the affordability crisis in homeownership, which is ascribed to either an overabundance of demand from overseas purchasers and immigrants or a scarcity of available inventory.

Among OECD member states, Canada has one of the highest house-price-to-income ratios, making its housing market one of the most expensive. Between 2000 and 2021, housing prices climbed by almost 355%, whereas the median nominal income increased by only 113%.

However, the housing issue of today goes beyond a lack of affordable homes and a scarcity of supply. Its foundation is a highly financialized housing system that views houses more as financial assets than as social goods, idealizing homeownership.

In Canada, the federal government stopped subsidizing social housing programs in 1993, which resulted in the end of the country's robust housing welfare system of the 1960s and 1970s. It moved in the direction of a commercialized system that prioritized personal accountability.

Two major tenets of neoliberalism drove this change. The first belief is that housing is best served by the private market, on the theory that older homes will eventually become more cheap as newer ones are constructed through a process known as filtering.

In actuality, the expense of renovations and speculation can drive up the price of older homes, and land values have a greater influence on affordability than on property values.

The second one, which contradicts this reality, is that by accumulating property assets, homeownership fosters autonomy and lessens dependency on governments.

As a result of public divestment, the social housing sector has been isolated and disadvantaged, constituting approximately 4% of the overall housing stock. It is mainly used as a final choice by the "deserving poor," such as those with complicated housing requirements. The stigmas associated with this sector are further reinforced by the concentration of poverty and vulnerability within it.

After the Canada Mortgage and Housing Corporation (CMHC) switched from developing homes to insuring mortgages in 1999, the financialization of housing has accelerated. With the help of CMHC's mortgage securitization schemes, more people could now obtain mortgages, which increased demand and fueled real estate speculation by transforming home into a tool for capital accumulation and asset construction. Homeownership was further encouraged by federal subsidies.

The percentage of people who own a home increased from 63% to 69% between 1991 and 2011. In the interim, median home prices rose by 142%, but wages increased by just 7%. Between 2002 and 2017, household debt increased dramatically, with debt-to-income ratios jumping from 109% to 173%. Since then, the number of homeowners has begun to decline.

Current Housing Regulations

There has been a growing coordination between government levels in addressing housing difficulties as evidenced by recent housing policy initiatives.

The three main goals of the federal government's 2017 National Housing Strategy (NHS) were to decrease homelessness, increase the number of rental units, and offer rent assistance.

Access to suitable housing was made a human right by the 2019 National Housing Strategy Act. The 2024 Canada Housing Plan seeks to safeguard renters' tenure security and establish 3.87 million new dwellings by 2031—all while acknowledging tenants' rights for the first time. Provincial administrations adopted a similar strategy.

Legislation was also enacted to end single-family zoning, restrict short-term rentals, and encourage density in the vicinity of public transportation.

Municipalities enacted policies to reduce red tape, expedite the creation of new housing, encourage densification (e.g., through inclusionary zoning laws in Montréal), and standardize the design and construction of new housing.

More Actions Required

These laws are a step in the right direction toward recognizing renters' rights and housing as a human right. Construction of rental housing, particularly cooperative housing, has been aided by increased funding. In order to maintain the aging social housing stock and assist those who are most in need, programs for communal housing and homelessness are also essential.

Still, the majority of policy initiatives are driven by the market, giving private developers and market suppliers priority. 57% of the $115 billion NHS budget over ten years is allocated for loans, less than 40% for budgetary outlays, and a little amount is used to support community housing.

Private developers who construct housing over market rate have mostly profited from the largest financing scheme, the Apartment Construction Loan scheme.

Programs for securitizing mortgages continue to be essential to how the federal government finances homeownership. The 2024 Housing Plan keeps extending mortgage availability.

Although market supply may assist moderate affordability, the effects won't be as great if community housing programs don't expand the sector. Furthermore, it ignores more serious housing vulnerabilities.

Since the NHS's founding, there has been a rise in homelessness. It is anticipated that halving chronic homelessness will require a seven-fold increase in funding. There is still a severe lack of community housing, despite calls for at least tripling its size.

The hierarchy between rentership and homeownership, as well as between the market and non-market rental sectors, must be overturned in order to end the impasse over the housing issue. Housing needs to be de-financialized and de-commodified. This entails building more communal housing, giving community-based solutions first priority, and guaranteeing everyone's long-term security.