Home building slumps as construction costs soar up to 30%, says CMHC
Rising costs threaten to make housing affordability even worse
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Canada’s metropolitan areas experienced a five per cent decline in housing starts in the first half of 2022 as construction costs soared and concerns about supply and affordability dominated debate.
The Canada Mortgage and Housing Corporation’s semi-annual Housing Supply Report attributed the decline in large part to a nine per cent decrease in apartment starts (including condominiums), which have accounted for almost two thirds of all housing starts in census metropolitan areas (CMAs) since January 2022.
The slowdown, which followed strong growth in 2021, was not felt equally across the country, with Edmonton, Calgary and Toronto experiencing an uptick in starts and Vancouver, Ottawa and Montréal posting declines.
Increases in construction costs were widespread, but also varied by market.
“Depending on the CMA, the cost of constructing a residential building had increased anywhere from 15 per cent to 25 per cent over the same quarter in the previous year,” the report found. Some centres even experienced successive increases of around 30 per cent over previous quarters.
Rising costs can complicate efforts to improve affordability, the agency said, because they end up reflected in the cost of units coming to market and the rents owners demand.
“This lack of predictability or control over costs can reduce the number of housing starts or the speed with which new housing units come onto the market,” the CMHC noted.
Eric Bond, CMHC’s Vancouver senior specialist and economist, said rising rents were a problem in B.C. markets.
“There is rent control for existing tenants in British Columbia but if that tenant was to move to a new construction, they are facing quite a change in their housing expenditures because they are, of course, going to pay market rent,” Bond said in an interview.
In Toronto, the cost of building towers, which are generally cheaper than lower-density building, has been accelerating, the agency said.
“We’re seeing the rising cost to build is also likely pushing the asking rents for new projects higher and that’s also kind of eroding affordability,” CMHC economist Dana Senagama said.
Home prices have risen sharply in many parts of the country in recent years, and the Bank of Canada’s interest rate hikes have made homeownership more difficult. Even condominiums have moved further out of reach cost-wise.
The environment has stimulated the construction of rental units, one category that saw consistent growth in starts across the country.
In June, CMHC concluded that the country would need to build 3.5 million new homes by 2030 to reduce its shortfall and improve affordability. Canada is averaging only 200,000 to 300,000 new units per year.
CMHC said the impact of these challenges will be felt most by units currently under construction and will affect the construction cost and time.
“I think we should all be worried about affordability,” Senagama said.
“I don’t think there’s many options if you’re looking to enter into ownership or even rental for that matter right now. The concept is prohibitive for many, so affordability is a key factor.”
Housing start data for September that was released separately Tuesday was a bright spot.
The annualized rate of housing starts jumped 11 per cent to 299,589 units for the month from 267,443 in August, reaching its highest monthly level since November 2021.
• Email: shcampbell@postmedia.com
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