The housing shortage, rising prices and rising rents
continue to preoccupy Canadian public policy debates and with good reason. As of June 2023, median rent
for a one bedroom apartment in Vancouver stood at $2,700 and $2,400 in Toronto
with rent across Canada up
20 percent over pre-pandemic levels. Meanwhile, average housing prices in Canada
reached $729,044 in May
of 2023 – the highest they have been since April of 2022. Since 2000, residential property prices in
Canada have essentially doubled – per capita income have not.
Needless to say, the response in the most Serene Kingdom of Canada has been predictable.
In the name of boosting supply, municipalities
starting to chase multiple
property owners for tax revenues (who
incidentally are probably renting out the properties they own and helping to
alleviate the shortage). Then there is the typical passive-aggressive Canadian story
about how seniors are not downsizing and are living in homes with empty bedroom
but of course “Policy
experts and large city mayors are not suggesting that seniors should rent
out their rooms en masse to better use the extra space.”
There is indeed a supply issue in Canadian housing, but it
is not because there are too many multiple owners who are hoarding empty
apartments or existing homeowners who do not want to share their spare rooms.
It is because over the long term the supply of new residential construction
has fallen behind the rate of population growth so that housing starts per
capita are dramatically lower than they were during the 1970s and 1980s. Incidentally, this era had even higher interest rates and inflation than today and still managed to keep up with construction. The accompanying figure
plots seasonally quarterly total Canadian residential housing starts (units) as
well as the per capita index (with 1961=100) [Data Source: Statistics Canada] for
the period 1961Q1 to 2023Q1. The results
are quite startling.
In the first quarter of 1961, total housing starts in Canada
were 34,225 units. In the first quarter
of 2023, they were 55,753 – an increase of 63 percent. The problem is that in 1961Q1 Canada’s
population was 18.1 million while in 2023Q1 it was 39.9 million – an increase
of 120 percent. As a result, when the
number of starts per capita are converted into an index (with 1961=100) it
becomes quite apparent that despite surging population, we are building fewer
new units per person despite a slight upward trend in the total number of units.
The most quarterly housing starts ever were actually in first quarter
2021 at 73,738 with the average quarterly number of starts in 2021 at
68,612. In 1973, the average number of
quarterly housing starts was 66,883.
Total starts at present are not much different than the peak of the
early to mid 1970s. When you look at the
per capita index, the overall trend since 1961 is downward but essentially it
appears that after the housing bust of the late 1980s, housing starts per
capita have stayed flat at about half of what they were in the 1970s.
The baby boom and tail of the boom that entered the
workforce in the 1969s to early 1980s was a population surge that was
accompanied by new and rising per capita housing construction. The current surge in population is not being
accompanied by rising per capita construction but with construction at the historical
per capita rates in place since the 1990s.
That is why housing prices are
high. Band-aid solutions that attempt to solve the problems by essentially redistributing
existing supply is but another sign of a society that seems to find it
increasingly hard to build new things and to get things done. But then, this is the same society that is
dealing with inflation by injecting
more money into the demand side of the economy. In the end, government policy to fight inflation is still conflicted with higher interest rates to slow down the economy on one hand and stimulus on the other. It would be more useful if some of that stimulus went to building housing.
