Measuring progress on the housing crisis
If you can’t put a number to demand, what’s the value of saying we need to build more supply?
If you have a community of 1000 families, and 100 need affordable housing while 50 new families join the community each year, how many homes must be approved, started and finished for everyone to have affordable housing?
That’s the fundamental math question to the housing crisis.
How many? How soon?
CMHC’s Chief Economist Bob Duggan recently said we need “all hands on deck” to increase housing supply: “I hope my forecast is wrong, but the way things are looking right now, I’m not optimistic that we’re on track to doubling the pace of housing starts.”
Notice it is “housing starts” he mentions. A housing start is when a home is approved and shovels broke ground and concrete’s been poured.
But if the housing crisis is about not enough homes for people to live in that brings prices down, why not focus on finished homes, as measured through housing completions?
CMHC tracks housing supply as starts, under construction, and completions.
Compared to housing demand, supply is easy to follow. Supply is tangible with concrete numbers on land, materials, labour. It goes from successful approval processes through being finished and absorbed by the market, all of which are tracked.
Housing demand is less certain to just plunk out a number though. Demand includes population growth, big and little investors for long and short-term rentals, speculators, money laundering, among others no doubt.
It’s not easy to say how much demand is out there, though prices are a good indicator.
But it is silly to use price as the only indicator.
When we talk about housing supply, we are invoking the logic of supply and demand, where more demand for a product increases prices whereas more supply than demand lowers it.
How many homes do we need to build? How much demand is it competing against? When will shelter be affordable because we built enough?
If you can’t put a number to demand, what’s the value of saying we need to build more supply?
The questions we need to ask are around how we measure progress on the housing crisis, and then work to find those reliable metrics and indicators.
That’s why the housing starts and completions are useful. If we have x amount of families in need of affordable housing, and our goal is to build enough homes for people to have choices appropriate to their needs, prices to come down, then we know how many we have to build.
Canada has about 10% of its households in “Core Housing Need”, meaning their shelter is either unaffordable, inadequate like being too small, or unsafe due to structural and other issues. The majority of those households in Core Housing Need are in the “unaffordable” category.
So that is one number for demand.
Another is how many new households form in Canada each year? This would be a good indicator of population growth. RBC previously estimated an annual increase in the number of households at 240,000:
The bottom line: Together, immigration and shrinking households are among the forces that will bolster Canadian housing demand and protect against a full blown housing crash.
Anyone who has played a city/society management simulation game knows there are plates that have to be kept continually spinning, things like housing, medicine, resources, food, supply chains, and all these are highly interconnected. Imbalance can mean losing the game.
Right now Canada is witnessing the highest growth in immigration rates, which until recently was written about omitting numbers like international students, temporary foreign workers, and other non-permanent residents.
Just in terms of supply and demand and numbers, all have an impact on housing and rental markets because what other option is there than having shelter?
An article from May in Policy Options explores “Despite their success, Canadian immigration and settlement policies are producing some unintended negative effects on post-secondary education, housing, the labour market, and visa and immigration processes. Because these areas are interrelated, when one becomes compromised, others are also affected.”
Spinning plates.
As we are seeing in cities across Canada the prices for rents have skyrocketed, and more and more people, especially younger generations without family equity in real estate, are being priced out of the housing market.
Scarcity influences how people view one another. This has been known since forever. And since racism is a pre-existing condition in society, scarcity impacting people’s ability to see their individual futures favourably or impact their quality of life will view others with suspicion especially the more different they are.
With increasing frequency and concerning vitriol, people are blaming immigrants rather than immigration policy.
And population growth is one area of housing demand, not the only one.
In 2021, BC completed nearly 42,000 new homes. But it gained over 100,000 new people. Assuming two people per household, there is a shortfall just on population growth, not other factors like how much new housing goes to investors.
Currently about one in five of all mortgages is held by investors, according to the Bank of Canada, excluding cash or corporate purchases. One-third of all property stock, including apartment buildings, is owned by investors, according to 2020 StatCan data.
A 2023 analysis by StatCan described it rather neutrally as, “When properties are owned by investors, they can contribute to the rental housing supply—and therefore meet the population’s need for rental housing—but that can also limit the number of properties available to buyers who intend to use it as a primary place of residence”
This need for rental housing does not mean need for affordable housing. There is absolutely a connection between higher vacancy rates and lower rental rates, but this imagines a balance sheet favouring supply.
Right now the balance sheet favours investors.
A BMO analysis from May 2023 wrote of this:
A recent StatCan study of five provinces (including Ontario and B.C.) finds that over 25% of dwellings are owned by investors as of 2020. If anything, that share likely rose further during the pandemic. While it’s no shock that a high proportion of condos are investor-owned, much more eye-opening is the fact that almost 15% of detached homes are now investor-owned, or more than one in seven. Some analysts assert that investor demand helps create supply, so is thus not a big factor in the affordability issue. That may be the case in some new condo developments, but is clearly a spurious line of reasoning on existing houses, where investor buying is compounding a tough affordability situation.
This is doubly compounded if investors increase their rents in response to rising interest rates and their own cost of living increases. There are no limits for increasing rent between tenancies in Canada.
New Brunswick in 2023 is releasing their housing strategy, with rent caps conspicuously omitted, in a Global News article. From the article:
Liberal housing critic Benoît Bourque said a rent cap is needed in light of the high level of migration to the province driving up rents and reducing supply.
“So in these current conditions where you have this spike of rent increases, I really feel that a rent cap is very efficient,” he said.
The strategy includes a goal of having six thousand housing starts a year.
The New Brunswick Apartment Owners Association represented in the article responded to the housing strategy announcement: ““The private sector is dealing with additional cost increases and especially interest rates in the last year have gone up tremendously,””
Novara Media, a UK outfit in a viral video had a reporter interview landlords at London’s National Landlord Investment Show. One landlord said he “didn’t have to increase the rents, but just following the market trends, really.”
When Rivkah Brown, the reporter, asks “have you considered giving your renters a reduction because of the kind of cost of living crisis” the landlord responds “I should say yes. No. Ultimately, this is an income stream. I’ve worked hard to get that income in the first place.”
The Western Investor reported in early 2022 that now more than 60% of apartment buildings have been bought by corporate investors.
The Vancouver Sun has previously reported one corporate investor, a Real Estate Investment Trust (REIT), as increasing the returns from their investment dollars:
“Starlight has highlighted their business model in other markets, through their own materials and regulatory filings, the Globe and Mail reported in November, including a 174-unit Toronto rental building they’d acquired where they increased average rents by $411 a month over four years.”
Investors seeking greater returns is also a source of housing demand. And yet CMHC and StatCan told CBC last August that they do not track or report on institutional investors at all:
"For the moment, Statistics Canada does not publish information on institutional investors, and the type of residential properties they own," a spokesperson for the government organization told CBC News via email.
"CMHC does not collect the data that you are looking for," a spokesperson echoed.
This underscores the need for figuring out supply and demand with something more valuable than essentially “prices are high so we throw more supply”.
Where that supply goes to, particularly as it’s been priced out of reach for younger Canadians and most newcomers, certainly isn’t going to people in need of affordable housing either.
As CMHC explained in their 2022 report on achieving affordability by 2030 that the housing crisis as they see it: “Overall, the loss of affordability can be attributed to a housing supply not responding to demand in some of Canada’s large urban areas over the last 20 years.”
But how much demand? How could CMHC not be tracking investors when it’s an established source of rental supply and an obvious source of demand?
CMHC in that same report determined (prior to increased immigration and not counting the temporary foreign workers and international students) that BC needs 570,000 additional homes beyond what’s already projected in order to reach affordability by 2030.
If BC continued its high of 42,000 completed homes per year, it would take about 14 years to reach just 570,000.
So why is the head of CMHC talking about starts?
If anything, housing starts are great at measuring how fast approval processes are, but housing completions is a function of workforce capacity.
Due to Canada’s skilled trades shortage there is an anticipated 20-odd thousand deficit of skilled trades over the next few years, even with enhanced recruitment from immigration. There is no quick fix to the workforce pipeline (attracting, training, recruiting, retaining workers) or to the labour mobility issues sourcing skilled trades from abroad.
The BC Real Estate Association (BCREA) found in a May 2022 report titled “Bigger, Faster… More Affordable?”:
“Both the number of starts and the speed of completion affect prices in the resale market. If starts rise but construction durations also rise due to a lack of skilled labour, the benefits of those starts will be attenuated.”
CMHC has even admitted this hinders the affordability goals they made in their “Achieving Affordability by 2030” report from June 2022.
So why is CMHC’s focus on housing starts?
A recent Bank of Montreal analysis was blunt:
“it’s wishful thinking to believe that an industry, already running at full capacity, can simply double output in short order, flood the market with new units and bring prices and rents down.”
As BMO explains, “housing starts in 2021 and 2022 were the strongest on record for a two-year period, averaging 267,000 units, or 40% above the 50-year average pace” and housing completions were at 40-year highs, “and yet the affordability needle has barely moved.”
If we use housing starts as our key performance indicator, it puts pressure on local and provincial governments to set targets and remove barriers to building, but the building of homes will be—and is—unmoored from the problem it’s claiming to solve.
The scarcity of solutions is partly driving blame between levels of government. As reported in CBC:
When the [Ontario Premier Doug] Ford government began laying the groundwork for its housing plan, the premier and his ministers laid much of the blame for the slow pace of home construction on city councils not approving projects quickly enough.
There's been pushback against that argument. Planners across Ontario estimate that developers have yet to start work on some 1.25 million housing units that are already approved for construction.
…
Burlington Mayor Marianne Meed Ward says the CMHC's housing start numbers don't tell the full story of development in her city.
"We can't force developers to put shovels in the ground," Meed Ward said in an interview. "I do think there are larger issues at play and I think it's unfortunate that municipalities were made the sole scapegoat."
It’s not as though efforts are not being made, it’s that none are good enough.
That’s a fault of methodology and approach and planning, not for lack of commitment.
And so the status quo —the way things are— trends worse over time.
A recent Ipsos poll found six in ten Canadians who do not own a home have given up. The average rent in Canada surpassed $2,000.One in five single adults in Canada live in poverty and many are food insecure. 16% of renters in BC are spending over 50% of income on shelter.
Housing is so essential that every other problem becomes worse without it. People are more likely to remain homeless or become homeless again the longer they are on street. Mental health issues are exacerbated or triggered by the stress of survivalism, which impacts the public health system and costing money.
The Prime Minister spoke to this in the 2015 election: "We know that access to affordable and safe housing is part of the solution to many social issues, such as child poverty, student debt and our ability to help people with serious mental health issues and addiction."
And yet here we are.
Why? Why does the housing crisis continue despite all this attention, media focus, and campaign promises?
Most recently, Pierre Poilievre, leader of the federal Conservative Party was covered in a soaring article vowing to tackle the housing crisis by describing the problem people are feeling but arriving at the same solution as everyone else with power: “He blames “too much government bureaucracy” for adding “hundreds of thousands of dollars” of costs to each new home build.”
“I’ll give financial prizes to the cities that give the fastest and cheapest building permits for construction,” said Poilievre.
“We need to build homes and that’s what we’re going to do,”
As though we are not already doing that.
The answer to why this is not working can be found in the breakdown of how we measure progress.
Excellent! Thanks for this independent analysis.