The 2023 Q3 Housing Marketing Index (HMI), released by the Canadian Home Builders’ Association (CHBA), says the outlook is dim for Canada’s housing supply.
The HMI for single- and multi-family construction fell in the third quarter of 2023, and both are now at the lows seen in the first quarter of 2023 after the 2022 barrage of interest rate hikes resulted in sales traffic evaporating. CHBA’s Q3 single-family HMI fell 6 points this quarter to 33.9, and the multi-family HMI fell by 7.4 points to 33.6. This is the fifth consecutive quarter where both HMI readings are in negative territory and well below the neutral sentiment value of 50, said the report.
“HMI trends point to future starts, and the downtrodden HMI has been most reflected in single-family starts, which are down 30 percent year-to-date compared to last year, according to CMHC. And while the overall housing starts numbers this year have been buoyed somewhat by multi-family starts, which got the green light in better times, overall starts year-to-date are still down 8 percent. And projecting ahead, Q4 2023 and next year can expect a continued drop. Housing purchases and subsequent starts were buoyed earlier in the year by the spring’s optimism, thanks to the pause in interest rates hikes in the winter, but the June and July hikes ended that slight uptick in the HMI and we can expect to see much less housing supply created in the quarters ahead,” it said.
“There is a well-established link between the Bank of Canada’s policy rate path and HMI builder sentiment. A smaller pool of qualified buyers reduces sales of existing and planned inventory, which in turn directly reduces builders’ incentive and capacity to build more housing stock. At a time when Canada needs to build 5.8 million homes within the next ten years to close the current housing supply gap that is impacting housing affordability, 65% of CHBA’s HMI survey panel said interest rates are causing them to build fewer units, and a very concerning 37% stated they have now cancelled projects, which is up from 26% in Q2 2023.
“Another major factor creating pain points for the industry as reflected in the HMI is municipal processes. A majority of builders surveyed reported that municipal processes—regardless of the interest rate environment—are a large drag on their capacity to increase starts. Dependable access to labour also continues to be a challenge, with 44% of respondents saying that lack of labour is hindering their ability to build more homes.”
Kevin Lee, CEO for CHBA, said the interest rate increases being used to fight high inflation are having a severe impact on housing supply in Canada, and the knock-on effects will be felt even more in the quarters ahead.
“From a housing supply perspective, there is no doubt that rates should be lowered as soon as possible. It is equally critical for all levels of government to take action to implement housing policies that are supportive of increasing housing supply – not only to offset the current interest rate environment, but to further encourage an accelerated ramping up of development when interest rates eventually come back down. If we are to double housing starts as federal and provincial government statements rightly recognize we need to do to tackle affordability, we must have the policy environment to make that happen at all three levels of government—we’ve got a long way to go to get from here to there,” he said.
Mario Toneguzzi is Managing Editor of Canada’s Podcast. He has more than 40 years of experience as a daily newspaper writer, columnist, and editor. He was named in 2021 as one of the Top 10 Business Journalists in the World by PR News – the only Canadian to make the list)
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