High interest rates, delays in municipal approvals are impeding industry’s ability to ramp up housing starts
The Canadian Home Builders’ Association (CHBA) latest Housing Marketing Index (HMI), which covers the third quarter of 2023, paints a gloomy picture for both single- and multi-family construction sectors. HMI readings reached levels last seen in the first quarter of 2023, following a series of interest rate hikes in 2022 that drastically impacted sales traffic.
In the third quarter of 2023, CHBA’s single-family HMI plummeted by six points to 33.9, while the multi-family HMI saw a decline of 7.4 points, reaching 33.6. These figures mark the fifth consecutive quarter where both HMI readings have remained in negative territory, significantly below the neutral sentiment threshold of 50.
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HMI trends indicate future housing starts according to CHBA, with the downward trajectory in single-family starts particularly evident. According to the Canada Mortgage and Housing Corporation (CMHC), single-family starts have decreased by 30 percent year-to-date compared to the previous year. Despite some support from multi-family starts, which were initiated during more favourable times, overall housing starts year-to-date remain down by eight percent. Looking ahead to the fourth quarter of 2023 and beyond, the decline is anticipated to continue as housing purchases and starts were hurt by interest rate hikes in June and July.
Another significant factor contributing to industry challenges, according to the HMI, is the municipal approval process. A majority of builders participating in the survey voiced this concern, stating that regardless of the interest rate environment, municipal processes impede their ability to ramp up housing starts. Furthermore, again according to the HMI, dependable access to labour remains a persistent issue, with 44 percent of respondents citing a shortage of labour as a hindrance to increasing home construction.
“The interest rate increases being used to combat high inflation are significantly impacting housing supply in Canada,” said CHBA CEO Kevin Lee, “and their ripple effects will become even more pronounced in the upcoming quarters. From a housing supply perspective, there is no doubt that interest rates should be lowered as soon as possible. Equally critical is the need for all levels of government to implement housing policies that promote increased housing supply. This is not only to counter the current interest rate environment but also to facilitate an accelerated surge in development when interest rates eventually normalize. To meet the ambitious goal of doubling housing starts, as recognized by federal and provincial governments, comprehensive policy support is needed across all levels of government. We have a long journey ahead to bridge the gap from the current situation to our desired future.”
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