I read an interesting article by Jennifer Gauthier, where she states that for most of the past three decades, Canada annually built fewer homes than during the peak years of the 1970s when the country’s population was more than a third smaller than today.
We constantly hear that there is a housing shortage in Canada and prices and vacancy rates all support this fact. Jennifer’s article discusses the peak housing construction years of the 70s when we were building more homes (in most years) with a smaller population base. Housing was very affordable in the 1970s and getting less affordable every decade after, but now, most of the new builds in larger urban areas are actually demolishing existing housing stock to be built, so the total new build numbers are not a true net amount. The good news is that on a per capita basis, we are currently building more homes. This lack of new supply has been decades in the making and will take many years to get supply on par with demand, even if we continue to build at our new current per capita levels.
The only way to reduce any commodities (including housing) price is to increase supply or to have the general population lose interest in that commodity. Increasing the amortization (or lowering interest rates/down payment requirements) period may lower the monthly price but not the total cost. Looking at the automobile industry, there are vehicle advertisements which offer financing over 84 months! The automakers didn’t extend amortizations because they lowered their prices. Rather, they extended amortizations to allow gradual price increases.
Canadians won’t lose interest in housing as we all need a home. We have the lowest per capita housing in the G7 (see blog article “BC Lacks Real Estate”) so then we must increase supply and continue to do so over an extended time frame. Also, it has to be in the type of housing that will allow a lower price point, especially in the entry level housing market.