It’s housing starts, stupid

March 4, 2020

Minor tinkering with government monetary policy and buyer incentives is not what is needed to create more affordable and accessible homes in Canada: It is an increase in the supply of homes that is the solution, analysts argue.
The federal government, for instance, recently tweaked the mortgage stress test, but the change increases home prices by $13,500 for qualified buyers—a less than 3 per cent improvement in purchasing power wrote Benjamin Tal, deputy chief economist with the Canadian Imperial Bank of Commerce, in a note to clients.
“It’s becoming more and more apparent that, short of drastic measures, it’s impossible to fight supply issues with demand tools,” Tal said. “Increased supply [rental or otherwise] is the only reasonable solution to the housing affordability crisis that many Canadians are facing.”
Tal’s comments were echoed by Neil McLaughlin, group head of personal and commercial banking at Royal Bank of Canada, who said on a conference call with analysts the stress test change will have “quite a minimal impact.”
McLaughlin added,  “The lack of supply in the major urban markets is still the real focus for where the policy needs to go.”
Ottawa is also looking at the First-Time Home Buyer Incentive, which was supposed to target  young buyers in high-priced markets but has flopped dismally. In Metro Vancouver, for example, only 29 buyers qualified for the program since it was introduced last September.
B.C. is seeing record immigration and the highest home prices in the country, yet housing starts are forecast to fall by 24 per cent, according to forecasts from the provincial government. Budget documents released this month suggest B.C. starts will fall to 35,000 units in 2020 and continue to decline over the next two years to around 32,000 starts. This compares with 44,923 starts in 2019.
Casey Edge, executive director of the Victoria Residential Builders’ Association, said the province and municipal governments have to shoulder most of the blame for falling new home construction. He cited increased provincial taxes and municipal delays in granting building permits as major barriers to B.C. home builders.
 “We are seeing a decline in housing starts despite the fact we have very strong population growth,” Edge said. “We need to accommodate this with new housing not less housing.”