OTTAWA— The Canadian Home Builders’ Association’s latest Housing Market Index (HMI) reports builders are increasingly worried about the state of industry conditions, and fear that housing starts will be further repressed in 2024.
The CHBA argues in a statement that Canada needs a course correction through policy and financial and mortgage system changes in order to create an environment conducive to building more housing supply.
In 2023, the annual average increase in mortgage interest costs was 28.5 per cent, measured by the consumer price index, the largest annual rise on record.
The HMI, which is measured between 0 and 100, reached an all-time low for single-family builder sentiment, at 24.6, surpassing the previous low recorded of 26.2 in Q4 2022. The multi-family HMI declined to 29.1. And reflective of the falling HMI previously, 2023 saw 64 per cent of builders surveyed build fewer homes because of the high interest rate environment and 30 per cent said they cancelled projects.
Looking ahead, 36 per cent of builders anticipate fewer starts in 2024 compared to 2023. Builders are also experiencing widespread concern about closing difficulties on past sales; around one-third reported having to make closing accommodations for buyers or reported buyers seeking alternative lending solutions. These problems with closing previously sold builds will also influence builder decisions about going ahead with developments in 2024, suggests the CHBA.
The interest rate impact to housing affordability is compounded by the higher costs of construction that builders face. The survey found building material price increases have added an average of $65,000 to the cost 2,400 square foot home compared to prior to the pandemic.
“The takeaway is that the interest rates are directly lowering the feasibility of building much needed new housing supply — we saw this in 2023 and it will continue in 2024. The 2022 federal budget set a target of building 5.8 million homes over the next decade – that’s 3.5 million more than we normally would build – yet total housing starts have fallen in two consecutive years thanks to high interest rates and insufficient policy response,” said CHBA CEO Kevin Lee in a statement. “All levels of government need housing policy that is focused and co-ordinated on improving affordability and supply through smart policy changes.”
CHBA recommendations include helping get well-qualified first-time buyers into the market by introducing 30-year amortizations for insured mortgages on new construction homes and lowering the mortgage stress-test qualifying rate in general and still more so for longer seven- and 10-year term mortgages.