After seven months, the pace of housing starts in 2023 is approaching the historic low of 1998 despite the housing shortage. Montreal stands out in this regard, with Toronto and Vancouver on track for a record year.
This is very bad news for Montreal households looking for a roof compatible with their budget at a time when the question of housing is on everyone’s lips.
The annualized rate of housing starts in the census metropolitan area (CMA) of Montreal, from January to July 2023, is approximately 12,000 dwellings. “You have to go all the way back to 1998 to get a lower figure, with 10,700 new constructions,” said Francis Cortellino, senior Montreal market analyst at Canada Mortgage and Housing Corporation (CMHC).
The city, then led by Pierre Bourque, had an unemployment rate twice as high as today.
The comparison is imperfect because in 1998 the CMA was smaller than it is today; for example, it did not include Saint-Jean-sur-Richelieu.
If this figure of 12,000 new homes were to be maintained by December 31, the drop would be spectacular, around 50% compared to the 24,000 homes built last year.
Obviously, the Montreal CMA, which represents about 50% of the province’s population, is dragging Quebec down.
After falling 15% in 2022, the number of housing starts in the province will drop another 40% this year. This is not encouraging for households looking for a roof. Desjardins plans 35,000 new housing units in Quebec this year. Two years ago, nearly 68,000 were built.
“It’s still a huge drop. The problem currently in Quebec is the financial capacity of promoters to launch projects,” comments Hélène Bégin, economist at Desjardins.
The surprise is that while Montreal is near an all-time low, Toronto and Vancouver threaten to shatter 30-year-old records.
The annualized pace of housing starts in the Toronto CMA from January to July 2023 was about 53,500, and in Vancouver 35,100, according to CMHC. At this rate, 2023 could see the best performance for these two CMAs since at least 1990.
However, the two cities which are also struggling with a housing shortage should not rejoice too quickly, if economists are to be believed.
In the first half of the year, about 50% of housing starts were condos in Vancouver and Toronto, while condominiums accounted for 12% of new housing in the Montreal CMA, according to CMHC.
“Toronto and Vancouver are building big condo towers,” Francis Cortellino points out. These projects span several years. They may represent conditions of the past. It takes a long time to get all the necessary permits. It is also necessary to have the level of presales required [often equivalent to half of the dwellings] to launch the project. These pre-sales were able to be made two or three years ago [when the financing conditions were better]. »
Reality may catch up with them next year, they believe.
Lower interest rates or not, the resumption of housing starts in Quebec is not for tomorrow, supports Gilles Ouellet, specialist in real estate marketing and follower of cycles.
According to this theory, he says, a cycle lasts 20 years on average, separated into two roughly equal phases of growth and decline. Conditions may change from cycle to cycle, he says, but their reality remains unrelenting.
The year 2021 with its 68,000 housing starts marked the last peak in Quebec. The previous peak was observed 17 years earlier, in 2004, with 58,500 housing starts.
“I do not expect a significant increase in housing starts before the end of the decade, supports the octogenarian, in an interview with La Presse.
“I have bad news for developers who believe that as soon as mortgage rates come back down, housing starts will quickly rebound to 2021 levels,” said the president of real estate marketing firm Go Solutions. It will not be the case, there are too many obstacles to overcome. »
He lists the cost of land, the shortage of labour, the high costs of materials which make the construction of rental housing unprofitable, the chronic citizen opposition to residential towers, the reluctance of cities to accept densification, their slowness in issuing permits and the fees they impose on developers.
“I partly agree with him,” said Thomas Dufour, co-president of promoter Groupe HD. It will be done in two stages. Next year, there will be an upturn in housing starts as financing conditions ease. But for a significant major recovery, I agree that it will take another five years, “says the man whose group launched a 350-unit condo project last May at 2600 Cavendish Boulevard.
Data on building permits, a leading indicator of housing starts over the next two years, seem to confirm the pessimistic scenario.
A comparison of permits issued in the city center during the first half of the years 2022 and 2023 carried out by the Urban Development Institute of Quebec (IDU) shows that the borough of Ville-Marie authorized 3,040 housing units in 2022, but only 45 this year.
Across the territory of Montreal, the drop in permits in the first half of the year is 61%, with authorized housing falling from 6,354 in 2022 to 2,451 in 2023.
“I also don’t think that housing starts will go up for the trouble any time soon,” said Mario Fortin, professor of economics at the University of Sherbrooke. It’s going to be more complicated than a simple rate cut. Empirically, contractors do more construction when it pays to do so. »
Hélène Bégin was startled when she learned of Gilles Ouellet’s remarks. “If interest rates were low, housing would be built in Quebec,” says the Desjardins economist. It points to 68,000 housing starts in 2021, a period when interest rates were at their lowest.
The financial institution forecasts a first rate cut around the second quarter of 2024. They will not, however, return to the level of 2021, it is careful to specify. It expects 1- and 5-year mortgage rates to fall back below 5% in 2025. That year, Desjardins forecasts 46,000 housing starts, up 30% from the low expected this year.
“Would that be enough?” the economist wonders aloud. Lower rates will help a little in properties intended for owner-occupiers. In the rental, that remains to be seen. It is certain that more injection of public funds is necessary, especially in social and affordable housing. »
“The government will have to get involved in one way or another,” corroborates Gilles Ouellet. Which will take time and will not go smoothly, according to him. He cites the example of seniors’ homes, the delivery of which has been delayed. Their state-sponsored construction costs $800,000 and more per unit.
Another example is Canada Mortgage and Housing Corporation’s (CMHC) popular APH Select program, which is bogged down. It grants advantageous financing conditions to rental projects that meet certain qualitative requirements.
“Files submitted at the moment are not processed for six months,” says Marc-Antoine Chevalier, president of Groupe Chevalier Séguin. His company plans to build a 72-unit building in Saint-Amable, in Montérégie. He filed his application with CMHC on May 20. He is now expecting a response in November.
The longer timelines stem from changes that came into effect on June 19, the Crown Corporation explains in an email, which “contributed to a large and abnormally high influx of requests.”