The Canadian government’s plan to alleviate volatile housing prices by rapidly increasing the pace of housing construction risks increasing construction costs in the short term and could lead to oversupply in the long term, experts said.
Promising to double housing to keep pace with population growth and address the shortage that helped boost the real estate boom, Prime Minister Justin Trudeau’s Liberals last month outlined plans to build 3.5 million homes over the next decade. .
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However, experts say the housing shortage in Canada is not as acute as the government suggests, noting that the start is at historic levels – about 250,000 a year – with a record number of homes under construction, although completion is delayed. .
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“I think we definitely need new supplies to meet the growing growth of households as a result of immigration. I believe that 3.5 million is an exaggeration, “said Steve Pomeroy, a housing policy consultant and professor at Carlton University in Ottawa.
There are many real risks of trying to increase the pace of construction too quickly, he added.
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“The consequence, if we try to increase it, is that we will face a whole bunch of problems in the supply chain – labor, land and materials – and we will actually push home prices even higher,” Pomeroy said.
Alarms are already ringing in the Canadian construction industry, which is facing severe labor shortages and a pension crisis, not to mention rising costs for timber and other raw materials due to the global supply chain crisis.
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Housing construction also generally falls under the jurisdiction of provincial and municipal governments, which makes it difficult to develop a national strategy.
National housing prices have more than doubled since Trudeau took office in late 2015, with profits far ahead of those of other US and Canadian Group partners in the past 15 years.
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The rise in prices has made housing in cities such as Toronto and Vancouver inaccessible to many residents, prompting authorities to take steps to ease the pressure. The Trudeau government recently announced a two-year ban on foreign buyers.
“We simply did not have enough housing in Canada to reflect the dramatic increase in our population compared to our G7 partner countries,” Canadian Housing Minister Ahmed Hussein said in an interview.
Hussein cited OECD data showing that Canada has fewer homes per 1,000 people than the G7 average. The current shortage is about 1.8 million homes, according to Scotiabank estimates.
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As immigration has increased and more young people are starting new households, the current pace of construction is barely bridging the gap, said Bob Dugan, chief economist at the Canadian Mortgage and Housing Corporation, the national housing agency.
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“It will take 36 years to get there at the current pace of housing construction,” Dugan told reporters late last month. “And we have some internal estimates that suggest the need is much greater than that 1.8 million,” predicted by Scotiabank.
But critics of this assessment say Canada needs fewer homes in general because it has more people per household than the G7 average, because of young children and intergenerational life. And the housing-to-population ratio in Canada is on par with the United States and the United Kingdom, which have not seen nearly the same price increase.
“Consider me skeptical about how huge the supply shortage is, perhaps outside of a few big centers,” said Doug Porter, chief economist at BMO Economics.
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More intense construction blitz also risks oversupply in the market. The last time Canadian housing prices fell for a significant period of time was in the early 1990s, after a sharp rise in prices over the previous decade led to a construction boom and subsequent oversupply.
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With rising interest rates cooling demand and housing starting to rise, this is a situation that could happen again – to some extent – if construction intensifies too much.
“It’s entirely possible that you’re in oversupply,” Porter said. “I personally don’t lose so much sleep because of this… but I wouldn’t dismiss it as a concern.”
– Report by Julie Gordon in Ottawa
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