As the Bank of Canada continues to hike rates, some key real estate vital signs are headed in the opposite direction. In Quebec, new housing construction is in “free fall,” according to the Canada Mortgage Housing Corporation.
It hasn’t been a question of demand, which has been strong ever since the Covid lockdowns began easing. The pandemic had the twin effect of building up demand pressure while also, in many cases, adding to household wealth. This was the result of government emergency spending that enhanced the safety net at a time when people could not commute to work. One result is that the rate of residential unit vacancies is near its lowest point ever in the province.
It’s also not a question of home prices, which have resumed their upward march across Canada, despite the higher cost of mortgages. Instead, the main factor seems to be the continuing shortages in supplies, materials and skilled labour. May recorded just 2,125 housing starts in the province’s main urban areas, defined as cities with at least 10,000 residents. That’s down 62 percent from May of last year. In fact, housing starts have declined for each of the past nine months in Quebec.
According to the Chamber of Commerce of Metropolitan Montreal, the Montreal metropolitan area would need to build 23,100 new units each year until 2041 to meet demand and restore balance to the markets. But the reality is that fewer than 13,900 units are likely to be added to the supply pool each year during this period.
Financial leaders have been sounding the alarm. Among them is Guy Cormier, CEO of The Desjardins Group (Mouvement Desjardins), the prominent Canadian financial service cooperative which is also the largest federation of credit unions in North America.
“At the end of the day, we have to build housing. We have to increase supply,” he said in a recent interview. “What are the solutions? We need to build, we need to work on the regulations and work with financial institutions. There is no single solution, but a multitude of elements. This is a complex problem that will be solved over the next five to 10 years. It won’t be solved in one year.”
He added: “When I talk of five to 10 years, we are not going to solve all the issues linked to the housing crisis. We need to find durable solutions that can be replicated from one municipality to the next.”
As construction lags, affordable housing is slipping out of the reach of many families in the province. According to a report issued by the Bank of Montreal in May, even a strong rebound in housing starts is unlikely to solve the problem, assuming such an uptick in the tempo of construction could occur.
“While most argue for a supply-side fix, our longstanding view has been that it’s wishful thinking to believe that an industry, already running at full capacity, can double output in short order, flood the market with new units and bring prices and rents down,” reads the report.