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MNI: Canada Minister Briefed 45% Cost Jump Risks Housing Goal
Canadian Finance Minister Chrystia Freeland was warned by the department's top official last summer that surging construction costs could hamper a signature goal of easing a housing shortage, a pressure taking on more significance as the government seeks record immigration this year, a document obtained by MNI shows.
Deputy Minister Michael Sabia sent Freeland a 16-page memo Aug. 4 noting residential building costs jumped 45% since the pandemic, a document obtained by MNI through a freedom of information request. While sections were redacted, visible parts reviewed what rising costs meant for the effectiveness of recent budget measures to lift supply.
"Exceptionally high demand for housing, combined with supply chain bottlenecks for key materials, high material costs, and labour shortages have led residential construction costs to increase by more than 45% relative to pre-pandemic -- four times faster than the general increase in consumer prices," according to the memo.
The memo also identified the Bank of Canada's rate hikes as a cost pressure and showed a consensus for the policy rate to peak around 3.4% by the end of 2022. In fact the overnight rate reached 4.25% in December and may climb another quarter point this month.
WINDOW AND DOOR SHORTAGES
The memo pointed to the impact on a CAD26 billion program to aid rental housing construction and a CAD13 billion "co-investment fund." The government has focused recent budgets on housing, an issue regularly topping polls of economic concerns along with the wider cost of living. The last fiscal plan noted a need for 350,000 units a year over the next decade to deal with affordability, a goal private economists have said is unlikely to be met given building constraints.
The time to complete a residential project has climbed 1.5 months since the pandemic, extending a trend in place since the 1990s, the memo said. "Homebuilders have reported delays and short supply for appliances, windows and doors, and a variety of plumbing materials which prevent them from finishing dwellings on time."
Prime Minister Justin Trudeau was also advised last year that higher interest rates could slow homebuilding, along with a recent falling back of selling prices. (See: MNI: Trudeau Told Falling Prices To Hurt Homebuilding-Briefing)
Trudeau's Liberal government has made housing and affordability a major priority, naming a cabinet minister to the file and setting up major fiscal measures.
Source: Finance Department memo
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