MNI INTERVIEW: Canada House Building Hit By Rates, Shortages

High interest rates and material costs are likely to constrain Canadian home construction activity for some time, with the government’s goal of doubling house building well out of reach as project completions face eight-week delays because of problems sourcing items like garage doors, the head of the national homebuilding group told MNI.

The average eight-week delay has only nudged down from ten-week hold-ups at the height of the Covid pandemic, says Kevin Lee, CEO of the Canadian Home Builders’ Association in Ottawa. Even as global supply chains show improvement prices are also often much higher now, said Lee, whose group expects housing starts to fall 30% this year.

“It’s getting better but there are still delays,” he said. “At the top of our list right now, still of things that are hard to get in terms of construction products, is garage doors.”

The cost of materials to build a typical 2,400 square feet home has climbed CAD67,000 since the pandemic, Lee said. That's more than many families in Canada earn in a year. The group's survey shows labor costs up 26% in the same period.

LUMBER AND EVERYTHING ELSE

“Lumber has been coming down in price... but just about everything else has gone up in price, and the other things are not coming down,” Lee said.

Bank of Canada interest-rate hikes depressed builder sentiment through last year and the first quarter of 2023, according to the group's index modeled after one used by the U.S. National Association of Home Builders. The BOC hiked rates eight times straight by 425bps through January, then signaled a pause and unexpectedly hiked another quarter point last Wednesday. The trend-setting borrowing rate is now the highest since 2001.

"Even though it was just a quarter point last week that’s still one more indicator that it’s going to be a tough and slow climb out this year in terms of sales for builders,” Lee said. “That’s a challenge because it’s well documented now that we have a huge housing deficit and it’s going to be hard to get the starts we need when interest rates remain high.”

Canada's government has set a goal of doubling the pace of home construction over the next decade -- even creating a special housing minister -- and Lee said goal that "definitely" won't happen without big changes. (See: MNI: Canada Minister Briefed 45% Cost Jump Risks Housing Goal)

Statistics Canada reported Thursday that housing starts fell to the lowest since 2020 in May, and earlier said that investment in residential structures has fallen in four straight quarters through March.

NIMBYISM

"We would certainly like to see them not continue to rise and the projection was that they would start to come down in the latter half of the year," Lee said of the Bank of Canada's interest rates. "I’m not sure that will be the case, but we would definitely would encourage that to happen as soon as possible.”

Municipal governments could help by lowering development taxes up 700% over the last 20 years that can now make up more than 30% of the cost of some homes in the province of Ontario, he said. Much as governments say they want more housing, supply is held back by restrictive permitting and zoning decisions, Lee said.

“Nimbyism is a huge problem in terms of new developments in existing neighborhoods,” Lee said.