House prices jump, housing starts slide as affordability takes a blow to start the year

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Canadian home prices rose by nearly three per cent on a month-over-month basis in January and new home construction trended down to start the year, exacerbating concerns about affordability and housing supply that are being felt across much of the country.

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Housing starts came in at a six-month moving average of 254,133 units to start the year, an approximate three per cent decline from 261,352 units for December, according to data from the Canada Mortgage and Housing Corporation.

CMHC chief economist Bob Dugan told the Financial Post that though both trend and standalone housing starts have been high from a historical standpoint, a number of factors, including labour shortages, have been weighing on new home construction.

“If you take the standalone numbers for the month of January of (230,754) that’s a very high level historically, it’s not high compared to what we’ve seen over the past year,” Dugan said, referring to the single-month figure reported for January.  “Labour shortages, material shortages because of supply chain disruptions, are surely part of the story.”

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Countrywide, single-detached starts were higher overall with nine-per-cent growth from December while multi-family-unit starts lagged in January, dropping by eight per cent. Dugan attributed the faster growth in the single-detached category in part to the speed at which those types of properties can be developed compared to apartment complexes, which take much more time from start to finish.

Montreal was the only one of the country’s three major urban areas to post rising housing starts, largely due higher single-detached and multi-family construction. Montreal’s total housing-start growth hit 16 per cent while Toronto starts decreased by 27 per cent and Vancouver’s fell by 17 per cent.

Low supply has been one of the factors driving up prices across the country, and January data released by the Canadian Real Estate Association on Tuesday bore that out.

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CREA’s benchmark home price index rose a record 2.9 per cent month-over-month and a yearly record of 28 per cent. This boost came as the number of newly listed properties declined by 11 per cent and as total national home sales edged up one per cent from December to January.

The actual, not seasonally adjusted, national average price rose 21 per cent to a record of $748,450 year-over-year, the organization added.

A lack of supply has been an often-quoted culprit in the country’s housing affordability crisis. During a Feb. 3 interview with Financial Post’s Larysa Harapyn, RE/MAX Canada president Christopher Alexander pointed to record-low inventory as a factor keeping prices lofty, particularly in recent months.

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“The frenzy that we’ve put in for the last six, seven months with inventory being so tight and demand being so strong, it has been frenetic in a lot of ways and, nationally in January, we had less than 1.6 months of inventory across Canada,” Alexander said. “That is huge. We’ve never seen anything like that.”

Alexander added that high demand and low inventories are putting buyers in a difficult position when it comes to finding a home.

“If we can, you know, get that inventory up to just over two months to three months on average would be a good thing for everybody,” Alexander said. “You don’t get into buyer’s market territory unless you have over six months of inventory and we haven’t seen those levels in Canada for a very long time.”

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Royal Bank of Canada senior economist Robert Hogue also identified lack of supply as a problem in an RBC Economics report in late January, in which he estimated that the Canadian market was short between 180,000 to 250,000 listings at the end of 2021, and would need triple the number of active listings to bring it closer to balance.

“The supply side will continue to be crucial to Canada’s housing story. So far in the pandemic, supply has been dwarfed by supercharged demand,” he wrote.

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RBC analysts expect that supply increases will start to cool the market in the second half of 2022, though activity is expected to remain strong throughout the year.

A more recent RBC report revealed that Toronto recently took the top spot as the country’s priciest market, which had been held by Vancouver for decades. The Greater Toronto Area’s composite MLS HPI benchmark edged over Vancouver with a $1.260 million average price compared to Vancouver’s $1.255 million.

Supply issues prompted the recently formed Ontario Housing Affordability Task Force to recommend 55 new measures in a report released in early February. Some of the measures include overcoming NIMBYism (not in my backyard) to fast-track housing development and overriding municipal policies that prioritize preserving “neighbourhood character” over bringing new developments to market.

Overall, it would be a strategy to reduce red tape and tackle exclusionary zoning. It’s a strategy that Alexander argues is a step in the right direction.

“There sounds like there’s going to be some out-of-the-box thinking when it comes to zoning,” Alexander told Harapyn. “So, on the surface, it all sounds very encouraging because we have such a backlog to get projects approved for development and finding a way to speed those up is a huge step in the right direction.”

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