Housing affordability challenges in Canada persist as inflation concerns fade

The major economic issue we see now is housing affordability. Lower interest rates will help homeownership become more achievable because it makes lending more reasonable. But lower rates won’t solve the affordability challenge — not alone.

Using the Canadian condo market as an example, the condo market in many cities is currently frozen. Inventory is high, elevated interest rates are keeping investors out of the market and builders aren’t actively developing new projects. And because builders aren’t developing new projects, the supply of newly constructed condos is basically zero. Which means that 2 or 3 years from now, when the market will probably be back to semi-normal, investors will be back in the market and interest rates will be lower. But, the condo supply we have now won’t be there. Take all of these factors into account, and the most likely outcome will be even higher condo prices.

Concern about the price of homes makes housing affordability arguably our number one economic issue. The only way to solve this issue is to cut prices. How do you cut the price of homes? By improving supply. This includes building more homes at a faster pace in all municipalities across Canada. Thankfully, this is something all levels of government are now realizing. And this applies to both the low-rise, detached-homes segment of the market and purpose-built rental apartment buildings.

In terms of purpose-built rental construction, we’re already seeing some improvement because governments have started taking the right steps. The federal government removing HST and GST on new rental projects is a good example, but we have to do more.

One possible solution is incentives for developers to build purpose-built rentals. A second is to start thinking about factory-made houses. We’re still building houses the way we built them 50 years ago — there’s been little in the way of innovation here in Canada. However, this is something that should start to change because we have the technology to basically build houses in factories. Already in Sweden, 80% of the houses are made in factories. We also need more construction workers: 300,000 Canadian construction workers will be retiring over the next 10 years. It’s nice to have a building target, but if you don’t have the capacity to build, you won’t reach it.

Fortunately, all levels of government appear to be eager to solve this issue, and many policy changes are being made to tackle it. We have a generation of Canadians that can only dream about owning a home. It’s time to help them make their homeownership dreams come true by increasing supply in a very significant way and therefore increasing affordability.

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