In his latest interest rate announcement, Bank of Canada Governor Stephen Poloz expressed concern about household debt and the housing market, and hinted at a future rate cut. How would a lower cost of borrowing impact the future housing market? Christopher Alexander, Executive Vice President and Regional Director, RE/MAX of Ontario-Atlantic Canada, told BNN Bloomberg that Canada’s housing market shortage is the bigger concern, and warns that without a national housing strategy to address supply, the housing affordability problem will persist.
“The real story is the serious lack of housing supply that we have,” Alexander told BNN. “There’s a huge delta between [supply] and demand, and there’s no national housing strategy to alleviate some of that pressure.”
With Canada’s population expected to grow by about 10 million people over the next 25 to 35 years, the currently unaddressed supply-and-demand issue will continue to erode housing inventory and affordability beyond levels that many Canadians already view as problematic.
“In Ontario alone, particularly southern Ontario, we’ve had about 110,000 to 115,000 people move to the Greater Golden Horseshoe in 2019 and new housing starts can only keep up by about 40,000 to 45,000 units a year. That’s a significant shortfall year after year. There’s no real incentive for developers to build more affordable housing or more rental units, especially with rent control rules right now. We’ve got some significant issues that we’ll need to tackle so people have a place to live, and they don’t have to compete like crazy to get into a home.”
Alexander warns that the housing shortage has been occurring for 10 years now, and if left unaddressed, will only exacerbate the issue of affordability further.
Affordability Issues Will Continue
Certain segments of Ontario, British Columbia and potentially Calgary, where oil prices have rebounded a bit, could experience double-digit price growth.
Will that be enough for governments to raise the red flag? They’ve already shown a willingness to step in, with policies such as the much-criticized mortgage stress test – which is currently under review by Finance Minister Bill Morneau in an effort to make it “more dynamic.”
Alexander says the mortgage stress test cooled the market when it needed cooling, but he questions its purpose under current conditions. “In my opinion, the stress test doesn’t make sense anymore because it was put in place due to where interest rates were projected to go, and that was up. Now that they’re probably going to come down, it doesn’t make sense.”
Blanket Policies Aren’t the Solution
Local economies play a huge role in their respective markets, making federal “blanket policies” a tough call, affecting everyone across the country. When the runaway housing markets in Toronto and Vancouver needed cooling, the Prairies and Atlantic Canada had completely different challenges and needs.
Fixing Canada’s Housing Market Shortage
Alexander maintains that the solution to the shortage will be found in a collective effort from all levels of government. “Different provinces have different challenges and they’re facing different market situations, but all levels need to work together to figure out how to meet the demands of the marketplace.”
“If we don’t find a long-term strategy that will bridge the gap between supply and demand, we are going to continue seeing price appreciation and continued affordability issues in the foreseeable future.”
“Any international city, like Toronto, is expensive to buy a home, and there’s good reason for that. There’s high demand, great quality of life, people want to be close to the action, near amenities, and it continues to go back to the supply versus demand issue. We don’t have a national, provincial or municipal strategy right now that’s going to alleviate that.”