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Posthaste: Why Canada needs to come out 'full guns blazing' on housing

Housing construction in Ontario
Housing construction in Ontario

Good morning!

Canada’s housing market often feels hopelessly overheated.

Even now, as interest rates rise at the fastest pace in decades, and housing prices begin to ease slightly in some markets, nothing much has changed when it comes to affordability. Higher interest rates mean higher mortgage payments, and houses or condos in many major cities remain out of reach for all but the wealthiest citizens.

Part of the problem is there’s no single government policy that could make housing more affordable, market watchers say. An array of factors — years of low interest rates, expanding populations, lack of adequate new supplies of housing, zoning that makes building densely more difficult and so on and so forth — has created a situation that is difficult to fix.

Continued cooling in the housing market may not help either. Analysts predict rising interest rates could bring home prices down by 14 per cent, but those hikes could also lead to a recession, which is likely to decrease the number of houses being built, exacerbating supply challenges.

Around every corner there seem to be new headwinds that blow affordable housing farther and farther out of reach.

One other such headwind is population growth. According to Statistics Canada, the country’s population grew by nearly 285,000 people in the second quarter. That amounts to a 0.7 per cent increase — the largest Canada has experienced since 1949, when Newfoundland and Labrador joined Confederation, according to a recent note frome Canadian Imperial Bank of Commerce’s chief economist Avery Shenfeld.

Today much of Canada’s population growth comes from immigration, which has become necessary to address an even more pressing issue than housing: baby boomers aging out of the workforce. As that trend picks up speed and more boomers retire, there will be an increasingly smaller pool of workers available to tax in order to pay for the rising health-care costs that come with an aging population.

Canada needs immigrants to fill the gap, but it also needs housing that people arriving in this country — to say nothing of the people already here — can actually afford.

“The immigrants coming into this country aren’t turtles,” Shenfeld wrote. “They don’t carry their housing on their backs. To continue to attract these inflows, and to avoid squeezing out those already here from their housing needs, we can’t afford much of a lull in housing construction.”

Rising interest rates may cause housing prices to moderate through 2023, and perhaps even 2024, but as soon as rate increases slow down, pent-up demand is likely to drive prices right back up. That means people looking to buy their first home may not get much relief anytime soon.

The best way out of this morass is to get all levels of government to put their full weight behind policies that lead to more housing, Shenfeld said.

“Strong population growth suggests that in the next cycle, lower mortgage rates could just be countered by a recovery in prices, unless we can add a lot more new units than we’ve seen in recent years,” he wrote.

“We’ll need full guns blazing on policies aimed at building more housing, including apartments, if we’re going to have room for the crowd of immigrants our economy needs for its labour market.”

— Gabriel Friedman

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TRUTH AND RECONCILIATION Theresa Sims, traditional Indigenous Knowledge Keeper and Elder, embraces Mgiizi Wright before he performs a hymn for all the children who died at the residential schools, during a community gathering at the Ojibway Prairie Complex in Windsor, Ont., to mark the National Day of Truth and Reconciliation, on Friday, Sept. 30, 2022. Photo by Dax Melmer/Windsor Star

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  • Quebec general election

  • Former CannTrust Holdings Inc. leaders court hearing in Toronto

  • Calgary Real Estate Board releases September home sales

  • Harjit Sajjan, minister responsible for the Pacific Economic Development Agency of Canada, announces funding for University of B.C. projects to advance mRNA vaccine research

  • Today’s data: Canadian S&P Global manufacturing PMI, auto sales; U.S. S&P Global manufacturing PMI, ISM manufacturing PMI, construction spending, auto sales

  • Earnings: Advance Lithium Corp.

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Acute labour shortages are likely to become a chronic source of economic pain thanks to a wave of retirements hitting the workforce, writes the Financial Post’s editor-in-chief Kevin Carmichael.

According to a study from Deloitte, the drop in the labour participation rate since 2019 is mostly due to workers aged 55 and older exiting the workforce. Royal Bank of Canada economists Nathan Janzen and Claire Fan observed in July that if left unchecked, demographic trends will drop the participation rate to its lowest since the 1970s by the end of the current decade. Trevor Tombe, an associate professor of economics at the University of Calgary, said a further decline of the participation rate to 62 per cent by 2040 — which current trends predict — would reduce average annual GDP growth between now and then by 0.3 percentage points, the equivalent of $4,500 per person. “This is large. Very large,” Tombe wrote at The Hub, a policy and politics website. “It is the rising wave of retirements — rather than the not-so-Great Resignation — that deserves our attention.”

 

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Developing a financial plan seems easy enough, but sometimes you find out that they are neither very useful nor predictive of where you are in life and your investment portfolio when you review them. Portfolio manager John DeGoey says we should remember that financial planning is an ongoing, iterative process, not a one-time event — a movie, if you will, not a snapshot. He offers a few tips to help make your plans more useful in the latest FP Answers column.

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Today’s Posthaste story was written by Gabriel Friedman (@GabeFriedz), with additional reporting from The Canadian Press, Thomson Reuters and Bloomberg.

Have a story idea, pitch, embargoed report, or a suggestion for this newsletter? Email us at posthaste@postmedia.com, or hit reply to send us a note.

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