A 2023 recap of new home construction trends in Canada

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

(Visual: Two people are shown in conversation. They sit across from one another at a boardroom table. The two individuals are Joelle Hamilton, Communications & Marketing, CMHC, and Aled Ab lowerth, Deputy Chief Economist, CMHC.)

00:00:06

JOELLE: We all know Canada's grappling with the housing shortage. For the last 20 years, our supply hasn't kept up with demand, especially in our six biggest cities. Welcome everyone, Joelle Hamilton here, and I'm thrilled to have you on the podcast with us today. We're tackling a topic that's on a lot of people's minds: Canada's housing supply. Here with me today is Aled Ab Iowerth deputy chief economist at CMHC. And together we're going to dive into the latest insights of our spring 2024 housing supply report. Thank you for joining me, Aled.

00:00:37

ALED: Thank you.

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00:00:38

JOELLE: My first question focuses specifically on housing construction data. What was the state of housing data in 2023?

00:00:47

ALED: Well, we actually ended up with quite a lot of housing supply. A lot of housing was built. So overall it was a record, or close to a record. But there's sort of a little bit of worrying signs, under the surface. So it seems that some types of housing, particularly single detached, started reacting to higher interest rates. That was a little bit offset by, more construction of apartment buildings. And so overall, that saved the day a little bit. And so we had fairly strong, housing starts in Toronto, Vancouver and Calgary. Toronto and Vancouver apartment starts held up, quite strongly. Calgary, the economy seems to be booming in Alberta. And so, housing starts held up. It was a little bit of a different story in other big Canadian cities, Ottawa, Montréal, Edmonton. Things are a little bit cooler in those cities, particularly in Montréal. And so overall, it was a fairly good picture, but I think we're still a little bit worried that, not enough housing is being built. And even though, yes, this was quite a lot of housing, we need a lot more, we need to fill that supply gap that we have, in order to get back to affordability.

00:02:05

JOELLE: So, you mentioned a surge in purpose built rental construction and also a decline in, single detached or ground oriented homes. Can you expand on what's behind these trends?

00:02:17

ALED: Well, our hypothesis is that, we've had a lagged response to interest rates. So obviously, the Bank of Canada raised interest rates in order to combat inflation and some parts of the housing system, react faster than other parts. So single detached housing, they react very quickly to, higher interest rates. Demand goes away. It becomes more expensive to get financing very quickly because these are built fairly rapidly. And so you had a quick response to higher interest rates. What's a little bit different with apartment buildings is that it's a long process. They need to get the financing to gather over maybe a couple of years in order to start construction. And then construction itself takes two years. So our hypothesis is that, apartments that got their financing in line before the interest rates went up, and so you're seeing a lagged effect. And so construction went ahead fairly, well. And last year in 2023, a lot of rental was built, which was a very good thing because we have a desperate need for rental. But, you know, we have concerns now that that lag the fact of higher interest rates may impact, apartment construction this year.

00:03:37

JOELLE: And I read in the report that Montréal saw a 37% drop in housing starts last year. Can you explain this 20 year, like, record low, like what happened?

00:03:47

ALED: Well, we believe it's part of this continuing story that, smaller structures, the construction of them react more quickly, faster to higher interest rates in general. The structures in Montréal are smaller. You don't have so many of the very high rise apartment buildings you have, maybe more three four story structures, row housing and so forth. With more of that sort of housing in general, then the the housing system responds faster to interest rates. And so whereas in Toronto and Vancouver, you have a slow reaction to higher interest rates because they build these apartments. In Montréal you have a faster reaction because they're in, they build smaller structures. Our hope is that if the Bank of Canada overcomes, inflation and interest rates come back down, then we can see a rebound, in construction this year or next.

00:04:42

JOELLE: And my next question is about the increase in the average construction time for projects. In our report, we say that it reached ten months for a single detached home in 2023 and over 22 months for apartments, for apartment projects. What's driving that rise?

00:05:01

ALED: Well, we don't have precise data on that, but you know, what we are hearing is that it's difficult to get construction workers. There are there have been some supply chain challenges. All of these things are contributing to, more challenging conditions for builders. So stuff is taking more time in order to get built. This is again, a concern because obviously we need to increase housing supply. We need to get much more housing for each worker. We need to improve productivity in the industry. So to see these effects of, lagging of time it takes to build, this is a bit concerning. And so obviously we need to, think about, getting more construction workers, getting more technology, improving productivity. There's a lot of challenges, in the industry at the moment.

00:05:57

JOELLE: So last month, your colleague Kevin Hughes, who's also a deputy chief economist here at CMHC, he published a thought leadership article that discusses the impact of retiring baby boomers and the lack of specialized labor. What impact is that going to have on construction productivity?

00:06:17

ALED: It's a major concern because, you know, the numbers are not precise, but we have something like a quarter of the labor force retiring within ten years in construction. So, we already have a shortage of housing supply. We need to produce more. There's a lot of, workers retiring. There's a lot of specialized skill in the industry. So this is going to make, increasing housing supply a major challenge. And it's almost unavoidable that we'll have to develop some new techniques of construction, maybe more automation, somehow getting all of this AI and digitization to help, to improve productivity in construction. It's, I mean, this retiring of the baby boomers is inevitable. And so we're going to have to develop some new methods in order to increase housing supply.

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00:07:11

JOELLE: Well, that's a wrap on our podcast today. Aled, thank you so much for joining me and for providing us with, great insights on the 2024, Housing Supply Report. And thank you to our listeners today. We hope this discussion helped you get a deeper understanding of the current state of housing supply in Canada, and the challenging factors that are at play. Stay tuned for more conversations that matter here on our podcast. Until next time.

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