Canada hasn’t seen this much housing being delivered in a very long time. BMO senior economist Robert Kavcic wrote to clients about July’s new housing completion data this morning. Canada hasn’t built this much housing in decades. While some supply-side issues remain, it’s less of the concern it was a few years ago. Instead, he suggests more focus be placed on the demand-side of the issue.
Canada Hasn’t Built This Much Housing In A Very Long Time
Canadian housing completions are running much higher than usual these days. Urban new housing completions hit just under 180,000 annualized units over the past 6 months. BMO said this was the highest total on record since the mid-1970s.
When including smaller and urban regions, that number gets boosted significantly. Canada has been averaging well over 200,000 annualized units over that period. “In other words, there is supply out there,” said Kavcic.
Canadian Housing Completions
The seasonally adjusted, 6-month annualized Canadian housing completions for urban areas (CMAs).
Source: CMHC; Haver Analytics; BMO.
Even adjusting for the population base, they note this is in line with the long-term average. No shortage of supply, but supply is actually coming in at one of the fastest rates in years. “Near the highest of the past two years, he said.
Canada Has The Fewest Homes Per Capita In The G7, But It’s An Irrelevant Point
The economist subbed another from a Big Six (the red one), addressing the G7 per capita argument. Recently the idea that Canada has the fewest homes per capita has become a point of discussion. It doesn’t really make any sense, but now some people think every country needs the same number of homes.
“There’s a common argument floating around that Canada’s housing stock is the lowest in the G7 on a per- capita basis, so therefore we don’t have enough”, he wrote.
That might make sense if Canada was similar to the old European countries it’s being compared to. “The problem with that is that each country has a different demographic profile and different housing preferences. For example, a younger population with more kids per household (like Canada), should probably have a lower per-capita stock,” adds Kavcic.
Canada Has Supply Covered, But Needs To Cool Demand
Now the supply-side is on track, with the most housing built in years. However, no one’s talking about the demand-side issues created. Canada has been stimulating demand beyond a natural mechanism, through programs like QE. This results in pulling forward demand into the current window. Ultimately creating a disorderly flow of buyers, resulting in excess demand.
There are a few issues that compound in this area, like down payment assistance. Most countries roll out buyer stimulus programs like this at the bottom of the market. When people won’t purchase a home, they provide incentive. Kavcic concludes,“There are certainly some supply-side issues, but the demand side of housing in Canada needs to stay in the conversation.”
Canada rolled-out demand stimulus along with record home sales, creating more demand on top of record buying. Saying it’s a supply issue is a little rich, to say the least.
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