What should be done about Canada’s red-hot housing market has long been a source for spirited debate among policymakers, economists and cocktail party attendees (remember those?).
When there is common ground found during these discussions, it’s typically an agreement that the country just needs to build more homes. More housing supply would take heat off the market by dialling down bidding war intensity, reducing speculation and providing more affordable options for buyers.
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While it doesn’t take a market expert to know we have a supply problem in this country, a new housing report from Scotiabank exposes just how dire the situation is relative to the other large advanced economies of the G7.
In the report, published this week, Scotiabank Chief Economist Jean-François Perrault wrote that Canada has the lowest number of homes per 1,000 residents of any G7 country, a figure that’s actually been decreasing further in recent years as the country’s population rises rapidly.
Population growth took a hit during 2020 because of the pandemic’s impact on immigration, but as newcomers begin arriving in the county in much larger numbers again, there is no way around the fact that Canada’s housing supply has not kept up with its growing population.
According to data compiled by Perrault, Canada has 424 housing units per 1,000 residents, well below the G7 average of 471. That may not sound like a huge difference in those terms, but the economist says that just to catch up to the current average, Canada would need to build 1.8 million new homes. It would even be a major undertaking to catch up to the UK, with its 433 units per 1,000 residents, or the US with 427 units per 1,000 residents. Canada would need to build 250,000 homes and 99,000 homes to hit those ratios, respectively.
Perrault is quick to note that he’s not advocating for millions of new homes to be built quickly as a potential resolution. Instead, he calls for significantly more policy focus to be urgently dedicated to identifying ways for supply to better respond to demand.
“Most approaches to achieve this are politically challenging but must be considered. We propose the urgent creation of a national table composed of federal, provincial, and municipal authorities, along with real-estate developers, investors and civil society organizations to comprehensively identify and tackle the obstacles to more responsive supply in all segments of the housing market,” he wrote.
While Perrault acknowledges there’s no easy fix in the short term, he calls “macro-prudential measures” — presumably alluding to the more rigorous mortgage stress test likely coming in June — “ineffective band-aids that do not address the underlying insufficiency of supply.”