The housing crisis in Canada requires emergency action, even as some studies indicate that developers are building less housing. Action now may depend on direct government involvement that may be able to overcome the financial barriers restricting private development.
David Macdonald, a senior economist with the Canadian Centre for Policy Alternatives (CCPA) suggests inflation and the Bank of Canada's response to it, has been the main reason for the slowdown. Macdonald says interest rates will only continue deterring private development. In his CCPA report, Macdonald says governments need to start building public housing as private development stalls.
"This means that higher interest rates increase carrying costs for businesses looking to build things like residential housing or consumers looking to buy those houses." (Lang, 2023)
But Shaun Hildebrand, president of Urbanation, a consulting and research firm that focuses on condo and rental markets in Ontario, disagrees.
"I think relying on the government entirely to build social housing is unrealistic,"
He says the government doesn't have the tools that private developers have to build quickly.
Governments should partner with private developers to offer affordable housing, said Hildebrand, but the long-term solution is incentivizing and accelerating private housing developments – and lots of it. He says that will take big changes.
"Given the current trajectory for demand and supply, I would say it's unrealistic to expect that we'll see any real improvement in affordability over the next 10 years." (Lang, 2023)
The Economist, commenting on the situation in Britain, notes that policymakers are not the only people who matter. The folk who will have to meet these goals—the developers—are planning to cut back, not expand.
The timeliest official data, covering only England, reported completions falling by 3% in the year to June. In a trading update in October, Barratt Developments, Britain’s largest housebuilder, said that it expected to finish between 13,250 and 14,250 homes in 2024, a fall of around 20% on its expectations for 2023. The Royal Institute of Chartered Surveyors (rics), a trade body, reckons that building activity is the weakest it has been since the start of the pandemic. “Housing supply is likely to fall at least for the next year,” according to Simon Rubinsohn, rics’s chief economist.
Builders are reluctant to increase supply into a weak market. The talk now is of “carefully managing building activity”. Building rates, says one boss, have long been depressed by supply-side issues around the planning system and, in recent years, by rising prices for materials and a shortage of skilled labour. But now “the problem is on the demand side. People just can’t afford the mortgages.”
As a result, private-sector homebuilding is likely to remain weak for the coming 18 to 24 months. If Labour is serious about building 1.5m homes, in other words, it may have to step up government-supported social housing (though that would be hard to square with the party’s current fiscal rules). The politicians certainly cannot assume that developers will be there, diggers at the ready, to build. “We need to see a more stable and robust market before we accelerate again,” says one insider. (Britain Needs More Houses. Does the Industry Want to Build Them?, 2023)
Aaron D'Andrea, of Global News, reports that Housing Minister Sean Fraser confirmed that the minority Liberals were taking the nearly 80-year-old program off the shelf and revamping it. The program, which was run by what was at the time known as Wartime Housing Ltd., provided standardized housing blueprints to builders.
“In many instances, these homes were being built in a period of about 36 hours, and we intend to take these lessons from our history books and bring them into the 21st century,” Fraser told reporters in Ottawa.
“We are going to be moving forward with a catalogue of pre-approved designs at the federal level.” (D'Andrea, 2023)
The program from Wartime Housing and its successor, Canada Mortgage and Housing Corp. (CMHC), saw hundreds of thousands of homes built from thousands of pre-approved plans between the 1940s and the late 1970s.
Mike Moffatt, senior director of policy and innovation at the Smart Prosperity Institute, a national research network and policy think tank based at the University of Ottawa who deliver world-class research and work with public and private partners – all to advance practical policies and market solutions for a stronger, cleaner economy, believes pre-approved housing plans could cut down construction timelines by as much as 12 months. Moffatt proposed the idea directly to the federal cabinet during meetings in Charlottetown this summer.
Standardized plans particularly benefit companies like 720 Modular. Project manager Craig Mitchell notes they build their homes inside a warehouse, and then deliver them in shipping container-sized portions to the location of the home. That process is known as modular or prefabricated building, which Mitchell describes as faster, cheaper and greener than traditional building techniques.
“If we can move to a standardized framework, all of a sudden now we have a fighting chance to accelerate housing pace because we’re not having to redesign every time we go and build a building.”
“If the internal guts of the building itself structurally and the layouts are all similar, now we can really move forward and start industrializing construction, by moving some of that work offsite, for example,” he said.
Moffatt believes that builders using standardized designs should lead to more favourable terms from lenders and insurance companies.
“Imagine if you wanted car insurance and you were trying to go to your insurer on a type of car that they had never seen before, that you’d put together yourself,” he said.
“They would have a lot of trouble pricing that insurance.” (D'Andrea, 2023)
The catalogue of pre-approved designs is part of the government’s overall housing strategy, Housing Minister Sean Fraser said.
“This particular piece touches on several pillars of that plan, including the development of an industrial strategy. What you’re going to see is an alignment of the municipal approval process with CMHC access with these pre-approved designs that will mirror, for example, the as-of-right zoning for fourplexes in big cities across Canada, which we’re incentivizing through the Housing Accelerator Fund,”
“We’re essentially trying to unclog the pipeline at every step of the way to create a much faster construction process using cost efficient, and labour efficient and energy-efficient designs that are going to allow us to build the kinds of homes that will solve the housing crisis more quickly and more cheaply without comprising on quality.” (D'Andrea, 2023)
The long lead time for developers to provide needed and affordable housing in Canada has been explained by interest rates, labour shortage, approval delays, and supply chain issues. The efficiencies cited in factory built modular homes based on building codes and approved designs and managed by CMHC with accelerated municipal approvals has the best potential of addressing the housing crisis in the shortest possible time.
References
Britain needs more houses. Does the industry want to build them? (2023, December 11). The Economist. Retrieved December 19, 2023, from https://www.economist.com/britain/2023/12/11/britain-needs-more-houses-does-the-industry-want-to-build-them?utm_medium=social-media.content.np&utm_source=twitter&utm_campaign=editorial-social&utm_content=discovery.content
D'Andrea, A. (2023, December 12). Canada revives a war-time housing program amid crunch | Globalnews.ca. Global News. Retrieved December 19, 2023, from https://globalnews.ca/news/10164221/ottawa-pre-approved-housing-plans/
Lang, E. (2023, October 8). Canada's developers are building less housing despite crunch, a new study says. That could keep prices up. CBC. Retrieved December 19, 2023, from https://www.cbc.ca/news/canada/toronto/housing-development-slow-canada-1.6989582
