Building permits, February 2023
The total value of building permits in Canada advanced 8.6% to $10.7 billion in February, indicating robust intentions for both the residential (+7.9% to $6.6 billion) and non-residential (+9.8% to $4.2 billion) sectors.Seven provinces reported monthly increases, with notable gains in Ontario (+10.7%) and Alberta (+25.6%). On a constant dollar basis (2012=100), the total value of building permits went up 8.2% to $6.4 billion.
Residential sector breaks two-month dip, advanced by multi-dwelling permits
The multi-dwelling component sharply increased by 13.6%, led by a variety of large value permits in Ontario (+25.4%). Meanwhile, construction intentions in single-family homes remained stable (+0.5%). Overall, residential permits gained 7.9% to $6.6 billion. Permits were issued for 22,900 new units nationally, 3,600 more than the intentions reported in January.
All four eastern provinces saw gains in the value of permits, collectively advancing 25.7% month over month. Conversely, British Columbia (-13.4%), Alberta (-3.9%) and Saskatchewan (-40.6%) reported monthly declines in residential permits.
Alberta bolsters non-residential growth
The total monthly value of non-residential permits increased 9.8% to $4.2 billion, the highest non-residential value since February 2022. Much of this gain is attributable to several high-value projects in Alberta. Across the country, gains in the industrial (+42.0%) and commercial (+6.2%) components more than offset losses in the institutional (-7.6%) component.
Source: Statistics Canada
Real estate unit sales have hit bottom, RBC report finds — but we likely won’t see a recovery until 2024
Canada’s housing market won’t snap back to normal levels of activity until 2024, as home prices continue to drop and sales activity remains low, according to a recent report from RBC. Unit home sales are close to bottoming out, with February showing a slight 2.3% month-over-month increase after a year of steep declines, the report said.
But prices are still in free fall, with average national prices tumbling another 1.1% in February from January, marking the twelfth 12th straight monthly decline. Because of the sharp drop in new listings, further tightening of demand-supply conditions could signal home prices bottoming out sometime in the summer or shortly after, the report said.
“Activity is so low that there’s not much further for it to fall, especially in Ontario and the GTA where sales activity over the last few months has remained level, indicating there’s a floor there,” said Robert Hogue, senior economist with RBC and report author. “Sales activity might pick up a bit in the spring months and it will take a little longer for prices to catch up.”
Unit sales rose in all major markets, including Toronto, which was up 8.5% month over month. Vancouver was up 15.2%, Montreal up 3.7%, Ottawa up 2.1% and Calgary up 2.4%.
Still, activity remains generally depressed, at decades low levels in some cases — Toronto’s home resales were down 47% in February 2023 compared to the same time last year.
In addition, price trends were largely unchanged in February as the correction has been strongest in Ontario and British Columbia. Toronto’s prices are down 18% since the February 2022 peak.
“Once we reach the bottoming out of prices we won’t snapback in activity and there won’t be a sharp drive in prices,” Hogue said. “Affordability is still a big issue and it will keep the market from rebounding in short order.”
While home prices are down they still remain above pre-pandemic levels and mortgage rates are sitting around 5%-6% from their historic lows of 1.5% in early 2022.
RBC forecasts that the Bank of Canada will likely begin dropping the overnight lending rate in 2024 impacting mortgage rates. “We may see more people entering the market as interest rates fall over 2024,” he added.
Philip Cross, a senior fellow at the Macdonald-Laurier Institute and former chief economist at Statistics Canada, has a more dire forecast for the country’s housing market and believes the road to recovery won’t be easy. “The idea that after all of the distortions and the massive increase in housing we saw (during the pandemic) that we’ll have this quick soft landing and be able to turn right around and see prices increasing again, I find unbelievable,” he said.
High interest rates have eroded affordability and the economy is still in a state of flux, he said. While the housing market has gone through a “nice correction” it still hasn’t been impacted by potential job loss and economic turmoil, which could be hitting the world economy following the recent string of bank collapses, Cross said. “A lot depends on the course the economy takes,” he said. “Right now employment is strong, but we’ll really start to see a long-term impact on the housing market once people start to lose their jobs and default on their mortgage or have to put their house up for sale in distress.”
There have been reports from mortgage brokers of more forced sales in Toronto, but Hogue said on aggregate, there isn’t a wave of distressed sellers putting their homes up for sale just yet. “Household debt continues to be a tremendous stress, and we’ll continue to monitor the situation closely,” Hogue said. “It doesn’t mean forced sales won’t happen. It takes months to see the full effect of interest rate hikes.”
Source: The Star
Canada on Cusp of Rental Housing Crisis, Says RBC, as Population Growth Sets Record
Alarm bells are sounding again over a housing shortage in Canada, this time in the rental market. An analysis from RBC Economics warned that unless the pace of construction of rental housing accelerates, the current shortage of 30,000 units could quadruple to 120,000 by 2026. The report’s authors estimated that 332,000 new units will be needed between now and 2026 to achieve a balance between vacancy rates and rental affordability.
The rental market is being squeezed by a couple of factors, said authors Robert Hogue and Rachel Battaglia, including a massive wave of immigration and declining housing affordability due to rising mortgage rates. “With Canada’s immigration targets set at record levels and affordability poised to remain stretched, the pressure isn’t likely to let up,” they wrote.
Statistics Canada helped make their point. The agency reported March 22 that Canada’s population increased 2.7% in 2022, an increase of more than one million people, the biggest increase on record. Further, “immigration accounted for nearly all growth recorded (95.9%),” Statistics Canada said.
2022 was a record year for rental housing construction, with 70,000 units completed, the highest rate of completion in almost a decade. Yet Hogue and Battaglia estimate that construction will need to grow at an annual pace of 20% above 2022’s rate to avoid a serious shortage. Calgary and Ottawa-Gatineau recorded the biggest increases in rental stock at 7.4% and 5.5%, respectively. The smallest increases were in Toronto (2.1%) and Montreal (1.4%), even though the cities are the among the most popular destinations for newcomers.
Despite the increase in 2022, vacancy rates and rental prices have continued to deteriorate across the country, the economists said. For example, the vacancy rate for rental-built housing dropped to 1.9% in 2022, the lowest level in 21 years and the biggest one-year drop in more than three decades, they said. A healthy vacancy rate is 3%, RBC said.
Because vacancy is so tight, competition has intensified, lifting rental prices along the way. In Canada, rent for a two-bedroom unit rose 5.6% in 2022. Some of the highest increases were recorded in Ottawa-Gatineau at 9.1%, Toronto at 6.5%, and Calgary at 6%.
“With high levels of in-migration and a widespread shift to rental housing continuing due to affordability struggles, we don’t see Canada returning to that optimal 3%vacancy rate without a significant acceleration in supply,” Hogue and Battaglia said.
Still, a separate report from housing website Zoocasa showed that renting remained much more affordable than buying a home. Zoocasa calculated the monthly mortgage payments versus monthly rent for 21 markets across Canada. It found that owning was cheaper than renting in only two cities, Winnipeg and Quebec City. In Winnipeg, the average monthly rental payment was $1,435, compared with $1,360 for monthly mortgage payments. In Quebec City, rent was $1,355, compared with mortgage payments of $1,300. The largest spreads between rent and monthly mortgage payments were measured in Vancouver, $3,136 versus $4,361, and Toronto, $2,908 versus $4,499.
Rents have fallen approximately 2% over the past three months, Zoocasa said, citing data from Rentals.ca. However, the housing platform noted that population continues to “outpace” housing, meaning finding a roof to put over one’s head will remain top of mind for many Canadians. “The best way to meet current and future demand, as well as provide stability (and hopefully greater affordability) in the rental market is to considerably grow the supply of purpose-built rentals,” said RBC’s Hogue and Battaglia.
Ontario Budget Shows Lower Projections for New Home Construction
Projections in Ontario’s budget for housing starts show the province’s target to build 1.5 million homes in 10 years slipping further out of reach with each passing year.
Nearly 100,000 homes were built in the province in 2022, the first year counting toward the goal, but the forecast shows the number of housing starts in the next few years struggling to crack 80,000 annually. The projections are revised downward from what was expected in 2022’s budget, including an estimate of 79,300 homes built in 2024, down from the 87,300 expected for 2024 at this time last year.
Finance Minister Peter Bethlenfalvy said those private-sector forecasts reflect the economic environment, in which rising interest rates are hampering building. The numbers don’t reflect some of the government’s recent steps to spur new home construction, including a law that, in part, freezes, reduces and exempts fees developers pay on certain builds such as affordable housing, he said.
“One thing (that’s) certain is we’re not going to relent, regardless of the economic environment, regardless of the environment for construction, to continue to build and support building,” Bethlenfalvy said. Nearly all of Ontario’s municipalities have adopted housing targets set for them by the province, so the government will continue to work with cities, the private sector and others to build homes, he said.
Richard Lyall, president of the residential builders’ group RESCON, said he is pleased to see that the government is putting $75 million over the next three years to the Skills Development Fund and $25 million to the Ontario Immigrant Nominee Program, in part to increase skilled trade immigration. “With a massive skilled trades shortage looming, training the next generation of workers to build those houses is equally important (as a commitment to meeting the 1.5 million target),” he said.
Commentary on the budget from the Conference Board of Canada questioned whether Ontario’s path toward balance – notching a small surplus in the next budget and projecting a larger one the year after that – is “overly aggressive” in light of challenges such as housing. “The overall cost of home ownership remains high in Ontario, and rental rates continue to surge, but the province’s budget does little to address housing,” the conference board wrote.
“Canada welcomed over one million newcomers in 2022, and with many settling in Ontario and Toronto, the housing supply is likely to face increasing pressure. In fact, the budget highlights that the province is having trouble meeting its goal of building 1.5 million new homes over the next ten years.”
Tim Hudak, CEO of the Ontario Real Estate Association and former Progressive Conservative leader, said despite the government’s moves to boost housing supply, rising interest rates are dampening growth, so the province should redouble its efforts. “The city of Toronto recently took steps to prioritize ending exclusionary zoning to build housing, leveraging public lands to increase housing supply, and supporting the development of more rentals,” he wrote in a statement.
“These are the types of decisions that the Ontario Government must encourage in other cities and communities across the province if we want to solve the housing affordability crisis.” Ontario should also consider expediting the use of underutilized provincial properties for housing, as well as introducing stronger rules to intensify around transit hubs, he said.
The effects of rising interest rates hit the housing market hard last year, with average home resale prices in January of this year down 21.3% from their February 2022 peak, and the number of home resales was down 43.4%, the budget said. But housing market activity is expected to start stabilizing.
The number of home resales is expected to decline by nearly 9% in 2023, though they are expected to rebound 21% the next year before returning to more consistent levels, the government said in the budget. Average home prices are expected to decline 9.7% in 2023, before rising 2.2% in 2024 and continuing to go up in the two years after that, the budget said.
Luca Bucci, the CEO of the Ontario Home Builders’ Association – and a former chief of staff to Municipal Affairs and Housing Minister Steve Clark – said the budget takes important steps to accelerate the delivery of housing. “Making it easier to get into skilled trades and investing in crucial highway infrastructure will help make it possible for awaiting families to get the keys to their new home sooner and increase the volume and variety of housing options our province needs,” he said.
Source: The Star
Some Young Canadians Are Downsizing Their Homes to Cut Back on Their Expenses
In February, Chelsea Hunt and her husband concluded that the cost of living had skyrocketed to a point where they could no longer afford to stay in their apartment and needed to move. The family of four packed up their belongings from their Saint John, N.B. apartment and moved in with Hunt’s parents, roughly 30 minutes outside the city.
Despite having to sacrifice their privacy and independence, Hunt described the move as a weight lifted off her and her husband’s shoulders. She said it’s allowed them to focus on paying off their student loans and car payments since they’re no longer “racking up” their credit cards and paying for groceries, rent and hydro. Meanwhile, their kids get to spend more time with their grandparents.
Hunt’s story is not unique. A recent Statistics Canada survey, conducted between Oct. 21 and Dec. 4, 2022, found that more than one-third of Canadians were finding it difficult for their household to meet its financial needs within the previous 12 months.
The survey also found that due to rising prices, 44% of respondents aged 25 to 34 either wanted to purchase a home or move but did not, moved sooner than planned, or chose a more affordable house or rental. For Canadians aged 15 to 24, that figure was 33%.
Before making a move such as downsizing or opting for cohabitation with a loved one or roommate, it’s crucial to reflect and weigh your options and priorities, said Cindy Marques, a certified financial planner and co-founder of MakeCents. If you prefer to be a city dweller because it makes you happy and feeds your soul, Marques said you’ll have to accept that housing prices are going to “eat up” a larger percentage of your income and you’ll have to cut back in other areas like dining out or shopping in order to save.
But if the cost of living in a big city like Toronto, for example, is too high to bear, then you’ll have to consider moving in with your parents or with a roommate, or moving out of the city altogether to downsize your expenses, said Marques. “You really do have to consider all the options here,” she said.
Marques strongly encourages those who are choosing to make such moves to be mindful of why they’re doing so in the first place and to keep their sights set on their financial goals. “If you’re downsizing in terms of rent, is it because you’re saving up for a down payment? Or maybe you’re already an owner and you’re downsizing to a cheaper property because you want to expedite your progress to retirement. OK, write that down, crunch the numbers,” she said.
Anne Arbour, director of strategic partnerships for the Credit Counselling Society, agreed. “Have a firm plan and stick to it and hold yourself accountable,” she said.
Arbour recommends that people have a “very clear picture” of their individual finances and budget before deciding to move — disregarding what others in their social circle or age group are doing. “You should only do what is right for you and your plan and personal situation,” she said.
If you’re planning to move in with loved ones or roommates, she said it’s important to first establish a set of rules and expectations. “Friends and money or partners and money can bring a whole different level of emotion and stress, so you want to make sure that everybody is on the same page,” said Arbour.
She also noted that there are prices to pay for every move, such as moving costs, land transfer taxes, closing costs and realtor fees, which may add up quickly and cut into your savings. And if you’re moving municipalities, there could be other expenses like higher car insurance premiums, she said. “It’s not just a short-term solution because it costs money to move,” said Arbour.
Ultimately, if your living situation and finances are causing you “undue stress,” Arbour said you should reach out for help, “whether it’s a not-for-profit credit counsellor, a trusted friend, or older adults who can offer some perspective.You’re not the only one feeling this way — this is really common.”
Federal Rule Change Allows Foreign Home Buyers to Make Purchases Again
The federal housing minister has made amendments to regulations on foreign purchases of residential property, saying the move will give more flexibility to newcomers and businesses looking to add to Canada’s housing supply. The government announced the changes on March 27, which include increasing the corporation foreign control threshold and enabling those with work permits to purchase a home.
“These amendments will further support individuals and families seeking to build a life in Canada by pursuing home ownership in their communities sooner and address housing supply issues,” the government said in a press release.
The foreign homebuyer ban, which took effect on Jan. 1, blocks non-Canadians from buying residential property — either directly or indirectly — for two years. The ban carries the potential for $10,000 fines for violations. Officially known as the Prohibition on the Purchase of Residential Property by Non-Canadians Act, the ban was meant to take some pressure off home prices amid an affordability crisis only made worse by the rising cost of living brought on by inflation and elevated interest rates.
The changes to the regulations, which came into force on March 27, will expand exceptions to allow non-Canadians to purchase a residential property in certain circumstances, the government said. “These amendments strike the right balance in ensuring that housing is used to house those living in Canada, rather than a speculative investment by foreign investors,” said Ahmed Hussen, Minister of Housing and Diversity and Inclusion.
One of the amendments introduced will allow those holding a work permit or who are authorized to work in Canada to purchase residential property while working here. Work permit holders who have not purchased more than one residential property are now eligible if they have 183 days or more of validity remaining on their work permit or work authorization at time of purchase, it said. This will repeal current provisions on tax filings and previous work experience in Canada.
The existing provision on vacant land will also be repealed and the ban will no longer apply to all lands zoned for residential and mixed use. This means non-Canadians can now purchase vacant land zoned for residential and mixed use for any purpose, including residential development.
There will also be an exception allowing non-Canadians to purchase residential property for the purpose of development. This also extends the exception currently applicable to publicly traded corporations to publicly traded entities formed under the laws of Canada or a province and controlled by a non-Canadian.
Lastly, the threshold of corporation foreign control has been increased to 10% from 3%. This applies to privately held corporations or privately held entities formed under the laws of Canada or a province and controlled by a non-Canadian. The government said this aligns with the definition of “specified Canadian Corporation” in the Underused Housing Tax Act.
Mortgage expert Rob McLister said the foreign buyer ban was impulsively rushed into law without due consideration and will barely move the needle on housing affordability, with the long list of exceptions and low foreign ownership to begin with. “This whole ban is so loop-holed and illogical that its political impetus could not be more transparent,” McLister said, adding that policymakers should incentivize enough construction to house “the hundreds of thousands of immigrants they keep ushering in.”