Insights into housing supply in Canada's largest cities

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(Visual: Government of Canada logo, and CMHC logo fade in together. A series of images featuring housing construction across Canada.)

00:00:01

Renée: There are several factors making housing less affordable, but the biggest issue is supply. Simply put, Canada is facing a housing shortage. CMHC has highlighted the challenge the country is facing and the importance of filling the supply gaps to help us increase affordability. As part of our extensive work and analysis to better understand supply trends and needs, we’ve published the third edition of our housing supply report.

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(Visual: Three people are shown in a virtual conversation: Renée Nat, Communications & Marketing, CMHC. Francis Cortellino, Market Analysis, CMHC. Eric Bond, Market Analysis, CMHC.)

00:00:26

Renée: Hi, I’m Renée Nat and pleased to be hosting today’s conversation all about supply, we’ll be diving into our housing supply report which looks at new residential construction across Canada in our 6 largest markets so Vancouver, Calgary, Edmonton, Toronto, Ottawa and Montreal. The research is based on data from 2022 with the hopes of shedding light on the trends that can influence our future needs. Joining me today for our conversations are the co-authors of the report: Eric Bond, who is CMHC’s economist and market analyst based in Vancouver and Francis Cortellino, our economist based in Montreal.

They both have in-depth knowledge of their respective markets but can also speak to the wider market dynamics and supply needs across the country. Eric, Francis, thanks so much for being here today and speaking with us. Let’s get right into it. Can you tell us a little bit about some of the key findings of this report?

00:01:21

Francis: So, about a year ago, we published a new report where we showed basically that there was a lack of housing units in the Canadian housing market and one way to increase the number of housing units in the market is to build those new dwellings. This is why we are publishing right now the housing supply report. And if we go back in time in 2021, there was a lot of housing starts across Canada, across major CMAs, even some part of the country reached a record high level of housing starts. 2022 was a bit different so we’re seeing an increase in housing starts in some urban centers like Calgary and Edmonton which are markets that are more affordable so maybe a bit less sensitive to the increase in construction costs or financing costs to do new projects.

In Toronto as well, we had an increase in the housing starts but that would reflect past demand because basically 2 years ago, one year ago, there was a lot of demand in the market, people were buying condo, pre-sale condo and now those condos are being built. And if we look at the data, 2023 data or 2022, those condo sales are going down so that would reflect past events for Toronto. Vancouver the housing starts were stable so in Montreal there was a decrease in housing starts but if you look at the level, it was comparable to what we had before in the pandemic. So yes, a decrease but still a level of housing starts. If we look at other interesting findings would be apartment starts.

So, some of those apartments will go to the rental market, some of them will go to the condo market. In the last few years, we saw rental starts turning up so more and more apartments would go to the rental market and less to the condo market. That was the case for all CMAs with the inevitable exception of Toronto because in Toronto they’re still doing a lot of condos but if we look at the rental market, it’s not only Montreal right now, it’s even Edmonton.

If you look at Edmonton in 2022, 85% of apartment starts were going to the rental market and a couple of the last few years was much lower than that. Even Vancouver was doing a lot of condos in the past, now 50% of apartment starts are going to the rental market so we can see more and more rental starts in the market and maybe less condo starts in the 2022 data.

00:03:29

Eric: We also found that inventories of new homes that are ready to buy, those are now at historic start lows and actually in the case of Toronto and Montreal, they haven’t been this low since the 1990s. That inventory was actually especially low for a semi-detached and row units which are usually some of the more affordable housing options in those cities as well compared to single detached homes. Low inventories you know, they mean that households in our major cities may find it harder to access housing that meets their needs.

Finally, we also present apartment starts visually using maps and we find that many apartment starts are located near new transit investments which is inline with many regional growth plans across the country. This type of visualization that we present in the report you know, helps us understand how our cities are growing spatially since the location of new housing matters quite a bit.

00:04:28

Renée: Yeah, that last concept, the location of new housing, that kind of jumped out for me in the report and sort of this idea that we want to look at increasing both the quality and the quantity of the amenities around us. Do you think you could speak a little bit to why that’s so important?

00:04:45

Eric: Sure! You know as I was saying, where we build new homes matters since we not only need to build them in regions where affordability challenges are the greatest but within each region, we need to ensure that residents of new housing have access to services and amenities you know, like healthcare, like public transit in order to create you know, those complete communities with a high standard of living. So in the housing and supply report, we highlight some work that was recently completed at UBC and it examined this very issue namely you know, what is the quality of the location of new housing that’s being created in Canada.

They found that over the past 5 years, about 80% of housing starts in Canada’s 6 largest cities were actually located in low amenity neighbourhoods so meaning residents had access to fewer services or needed to travel further to receive them. In contrast, fewer than 10% of units were located in high amenity neighbourhoods but apartments tended to be more optimally located while it was single detached housing that was actually located almost exclusively in low amenity neighbourhoods. So overall, we see this as quite revealing data that I think demonstrates the opportunities we have to improve the locational quality of the new housing that we’re creating in Canada.

00:06:10

Francis: And that also brings the complex question on affordability and proximity to amenities. So often where housing starts to occur and there’s a lot of amenities, land is not available, land is expensive so it’s going to be more costly to produce those new housing units. On the other hand in areas where land is more available where it’s less costly to provide new units to the market, there’s not a lot of amenities close to those new housing starts which would be more affordable but at the same time if you live in an area where there’s lots of amenities, maybe you don’t need a car, maybe you don’t need 2 cars, maybe you have access to public transportation so you can maybe save money on that and that could be more affordable so for sure more research are needed on that topic to better understand the trade-off between affordability and proximity to amenities.

00:07:02

Eric: Yeah, that’s a great point and you know, we think it’s you know, critical that a larger percentage of the nation’s future housing starts be delivered in areas you know, that provide that higher quantity and higher quality of amenities and you know, I think part of the work to get us there will include you know, first ensuring that we track the amenities that are present in areas where we add new housing so some reporting and second, to also focus on delivering higher density housing which can then of course support more amenities in the area.

00:07:36

Renée: Yeah, that’s really interesting and you’ve sort of hit exactly on what I was picking up which was that you know, we know that land can be difficult to find in high amenity areas so can we talk a little bit about that densification element you know, what role does it have in helping us improve locational quality?

00:07:53

Francis: So in previous editions of the housing supply report, we look at new data on a number of units per building per structure and also the number of storeys per structure and wanted to know if there was any difference between the CMAs because that’s going to have an impact on construction cost, high rise structures with concrete is more costly probably than small structures that you’re going to build maybe in other CMAs as well that’s going to impact the time of construction.

So if you build a lot of high-rise structures that’s going to take years to build but if you construct a lot of small structures with a limited number of storeys, you’re going to provide more units more rapidly to the market. So what we look at in the previous edition is that there were in fact differences among the biggest urban centers in Canada. In places like Montreal, Calgary, Edmonton and Ottawa, there were a lot of small structures with a limited number of storeys and a lot of them once again bringing more units to the market and removing a bit of the pressure that the housing market was having.

On the other hand in Toronto, you had a lot of high-rise structures with 20-25 storeys and those buildings can take 3-4 years to be completed so those units would be completed and then arrive to the market but you had to wait 3 to 4 years and Vancouver would be I would say between those 2 situations, between Toronto and the situation of Montreal, Calgary and Edmonton.

00:09:16

Eric: So just to look a little bit more in what happened in 2022, it’s certainly still the case that Toronto produces the largest and tallest residential buildings among the Canadian cities that we studied. In Toronto about 175 units per building, 15 storeys on average and as Francis mentioned, that leads to a long construction time. What we also found in 2022 is that the proportion of mid-rise apartment buildings, so those between 4 to 6 storeys and then 7 to 20 storeys actually increased in the Toronto area and meanwhile, actually the number of very tall buildings decreased.

So mid-rise buildings you know, have shorter construction times and as a result they could you know, help increase the number of units on the market more quickly. In other cities, we saw that buildings in Edmonton and Ottawa for example had an additional 20 units on average per building last year compared to the year before and you know, those buildings still tended to be lower rise but the additional density in the additional units could help bring more housing to market at a lower cost.

00:10:24

Renée: Yeah, that’s really interesting and it will be interesting to watch how that progresses. You know we know in 2022 again that towards the end of the year we saw a little bit of a slowdown in construction and part due to increasing inflation and interest rates and we just thought maybe we could ask you guys, I know we can’t get too much into forecasting, but maybe just getting a sense of where things are at now in 2023.

00:10:49

Eric: So, we see the interest rate increases over the course of 2022 leading to lower housing starts this year. You know, that was arguably the most significant economic stray of last year and it impacts you know, new construction both you know, developers and homebuilders you know, throughout Canadian markets. What’s interesting is that most projects that started in 2022 you know, even those in the second half of the year, were likely financed while lower interest rates were still available earlier in the year so that means that we haven’t yet seen you know, the full impact of those interest rate increases on new home construction and so as that plays out this year and you know, into the following years, some projects may become unviable at current financing rates or construction financing might be harder to obtain and so we’ll see housing starts slowing in many cities this year.

00:11:45

Francis: And on that in the next few weeks, we will be releasing our new Housing Market Outlook for a lot of CMAs across Canada so we’re going to be able to see if there are any differences among the CMAs we’re covering as well to have more precise numbers on the housing starts that we could have in 2023 so we’re seeing housing starts trending down a lot of CMAs across Canada. Will that continue in 2023, how long will that continue, so a lot of answers to those questions in the upcoming edition of our new Housing Market Outlook.

00:12:13

Eric: And in terms of what’s next for the housing supply report, we’ll certainly continue to review trends and you know, new construction both within and across markets in Canada when we publish the next edition this Fall. In the medium term, I think what will be most exciting is actually integrating the targets for the amount of housing supply that’s needed between now and 2030. So, as we complete the next phase of our housing supply gaps research, we hope to present those gaps for each of our major cities where so far we’ve done that work for Canada and for provinces. So, in this way, we’ll then be able to use the housing supply report to monitor our progress toward those targets for increasing housing supply.

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00:12:56

Renée: Thanks so much to both of you, this has been such an interesting conversation and these insights are super valuable and ultimately we hope to help influence affordability moving forward. And thank you also to our listeners and viewers today. Please see the description below for a copy of the full report and we do want to hear from you so feel free to leave a comment and any feedback regarding the report or this conversation here today. Stay tuned for more conversations like this one with our housing market experts and for the Housing Market Outlook report which will be released later in April. Be sure also to subscribe to our newsletters and social media channels. Thanks so much and we look forward to chatting with you next time.

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