Canadian home builders are increasingly pessimistic about the prospects for the construction sector in the year ahead, something that could throw a wrench in the federal government’s plans to encourage growth in housing supply.
Thirty-six per cent of builders anticipate a decline in housing starts in 2024 compared to the previous year, a survey by the Canadian Home Builders’ Association found. The report cited financial constraints due to higher interest rates and an uncertain economic climate the main concerns.
The survey was released as part of the CBHA’s Housing Market Index, which measures attitudes about the state of the industry on a scale from 0 to 100. For single-family home builders, the latest reading of 24.6 marked an all-time low.
The unease comes after 2023 during which 64 per cent of home builders reported a reduction in starts due to the prevailing high-interest rate environment. An additional 30 per cent had to cancel ongoing projects, attributing the decisions to economic headwinds.
The CHBA report was released a day after deputy prime minister Chrystia Freeland unveiled additional measures to encourage the construction of new housing to combat a supply shortage that has driven up housing costs across the country.
Freeland told an audience in Ottawa on Jan. 29 that the feds are aiming to “unlock billions” in new financing to build “more homes, faster.”
“What we’re doing is making the math work for builders, creating incentives for them to build more homes that would otherwise not move forward to construction,” Freeland said.
Kevin Lee, the chief executive of the CBHA, said financing for developers is helpful but that it is the home buyers who truly need the help.
“Financing that’s principally construction financing for apartments and rentals is good,” Lee said. “We do need more rental units.”
High interest rates, however, have priced out too potential home buyers, especially first timers. Lee said the association’s top recommendation to stimulate housing activity would provide “immediate results” and would be at “no-cost-to-government.”
“Introduce 30-year amortizations for insured mortgages on new construction homes and lower the mortgage stress-test qualifying rate in general and still more so for longer seven- and 10-year term mortgages,” he said.
The suggested changes aim to distribute mortgage payments over an extended period, providing relief for aspiring homeowners. Additionally, the CBHA argues that a recalibrated stress test would more accurately reflect economic realities, potentially encouraging lending institutions to support home buyers.
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“The takeaway is that the interest rates are directly lowering the feasibility of building much needed new housing supply. We saw this in 2023 and it will continue in 2024,” Lee said.
“The 2022 federal budget set a target of building 5.8 million homes over the next decade — that’s 3.5 million more than we normally would build — yet total housing starts have fallen in two consecutive years thanks to high interest rates and insufficient policy response.”
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