We need more housing to accommodate Canadians, yet the country’s builders are increasingly worried about industry conditions and the fact that housing starts will be further inhibited this year, the Canadian Home Builders’ Association (CHBA) Housing Market Index (HMI) reports.
The HMI indicates that Canada needs a policy and financial systems change to set itself up for building more supply.
Housing starts will decline without major change
In 2023, mortgage interest costs surged by an unprecedented 28.5 per cent, the highest annual increase recorded. The residential construction sector, sensitive to interest rate fluctuations, faces a deteriorating outlook due to sustained interest rate hikes, as reflected in builder opinions on selling conditions and sales office traffic.
This scenario forewarns that housing starts in 2024 will decline unless significant changes are implemented — critical with the pressing need to boost housing starts and capacity for the coming years.
HMI at record-low level
The HMI hit an all-time low for single-family builder sentiment at 24.6 (the previous record was 26.2 in Q4 2022). The multi-family HMI also declined to 29.1. In 2023, 64 per cent of builders built fewer homes due to high interest rates, and 30 per cent canceled projects.
Higher costs and a new normal for consumers
For this year, 36 per cent of builders anticipate even fewer starts than 2023 saw. Concerns about closing difficulties on past sales are widespread, too, with around one-third of builders making closing accommodations or seeking alternative lending solutions for buyers.
The impact of interest rates on housing affordability is compounded by higher construction costs: as the HMI reveals, building materials price hikes have added an average of $65,000 to the cost of a 2,400-square-foot home compared to pre-pandemic levels.
Despite lumber prices stabilizing, other materials continue to rise, and builders find themselves explaining these higher costs to potential homebuyers. Persistent supply chain disruptions suggest that these elevated construction costs may become typical.
“All levels of government need housing policy focused and coordinated on improving affordability and supply”
CHBA CEO Kevin Lee emphasizes that high interest rates are hindering the feasibility of building much-needed new housing supply, a trend observed in 2023 and expected to persist in 2024.
“All levels of government need housing policy that is focused and coordinated on improving affordability and supply through smart policy changes,” Lee explains. “In terms of the high interest environment, our top recommendations that would provide immediate results are no-cost-to-government policy options to help get well-qualified first-time buyers into the market: 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 7- and 10-year term mortgages.”
Get more details on last quarter’s HMI here.
