Canada is facing a housing construction boom, but not where it’s most needed

The recent report by the Royal Bank of Canada says the country is facing a record housing construction activity. However, it looks like Toronto isn’t in the midst of it.

As you know, Canada has been dealing with the lack of housing supply for a long time already, but in case of the previous year, the issue is not a lack of building. According to RBC, housing starts over the previous 12 months showed their strongest pace since 1977, and the number of new housing units under construction is record high.

During the past year, 260,500 housing units began construction, marking a 26% increase from the average pace reported in 2015-2019. The last time we’ve seen such an activity was back in the mid 1970s.

In addition to it, there have also never been so many housing units under construction (almost 320,000). Robert Hogue, senior economist at RBC and author of the report, believes the housing completions pace will grow in 2022.

“It’s the highest result, and a 12% (or more than 30,000-unit) hike from the end of 2019. Approximately three-quarters of the total are apartments (condos and rental),” – he says.

Although numerous factors may slowdown the pace, RBC analysts expect 240,000 unit completions in Canada next year.

Smaller urban areas will see the first pace increase due to the type of real estate being built in these areas – single-detached houses that have a faster turnaround time than in case of larger multi-unit units popular in large cities. The housing activity increase seen during the pandemic underscored the growing imbalance between supply and demand.

Meanwhile, Toronto did not see a strong supply construction gain, with its housing starts going up by only 1.4% (or 500 units) from the 2015-2019 average. The report blames Ontario’s Fair Housing Plan in 2017, which was followed by a sharp decline in pre-construction condo sales between 2018 and 2019. The increase in issued building permits may have changed the market direction, but without a significant growth in unit development, there will be fewer housing variants for renters and buyers.

In spite of the construction boom, we still have many issues with building a move-in ready home, especially with such a severe climate. Growing construction costs, including lumber prices, are only worsening the situation, making these projects expensive and less affordable for Canadians. It also takes more time to complete the construction – the average timeline for housing completions rose from 9 to 21 months over the previous 20 years.

And, of course, the supply chain disruptions are making it more difficult to access the necessary materials, raising timeline and prices. In Hogue’s opinion, it may become an issue for housing completions in 2022.

A new wave of immigration with increasing targets and a stronger need for more housing options for younger Canadians mean we need to not only build more units, but also choose the right type of the real estate. According to the report, with the high costs of home construction that will transform into high prices when they enter the market, it’s quite unlikely that the types of units built will be affordable for Canadians with a modest income.