Earlier this month, I wrote about why Canadian house prices are proving to be bulletproof, despite high interest rates and heavily-indebted consumers.
In the last 20 years, Canadian home prices have utterly crushed those in the US.
The problem, simply is that Canada doesn’t have enough homes. The country is adding 1 million people per year and isn’t building nearly enough homes in large part due to draconian regulations.
Today, CIBC dives deeper into a problem that I suspect will soon topple governments throughout the country. How does this sound:
Guesstimating the size of the housing shortage in Canada
is rapidly becoming a national sport. There is no shortage of
estimates using different methodologies and assumptions. The
reality is that there is no one correct number. It really depends
on what you are trying to measure. But what is common to
all those estimates is that they are all big. CMHC suggests
that we will need an extra 3.5 million units by 2030 to restore
affordability, and the province of Ontario is calling for a doubling
in the annual pace of housing construction in the province to
150,000. And the reality is that, as big as those numbers are,
the real gap is even larger, as official figures (upon which those
estimates are based on) grossly undercount housing demand by
students and non-permanent residents, as we have illustrated
in previous research. Even worse, the gap is growing with every
day that passes without meaningful action.
The problem starts with the lack of construction workers, and if you ask people in the industry — with falling productivity from current workers. Worse yet is that 20% of construction workers are over the age of 55 compared to 12.5% at the turn of the century.
Finally, Trudeau has touted more immigration as a solution to the shortage of construction workers but Canada’s immigration system highly favours white collar entrants. As a result, just 2.0% (and falling) of construction workers are new immigrants.
Add it all up and you have a recipe for a generational housing problem that could take decades to fix. Worse yet is that the Bank of Canada is hell-bent on breaking the backs of mortgaged home owners to mask a supply issue.