In a recent economic note, economists at BMO Capital Markets looked at the issue of supply in the residential real estate market as well as household formation in the Canadian economy. Here are the main findings of their analysis:
Canadian builders have held the share of housing starts relatively stable relative to the growth of the adult population in recent decades, with a weaker period in the 1990s followed by a period of catch-up in the 2000s.
However, the share of detached homes has declined since 2005, coinciding with the Ontario government’s decision to restrict development in the Greater Golden Horseshoe region (a large urban area that includes the City of Toronto and surrounding areas).
Household formation has likely increased since the last census (2016) due to record immigration. The note reports that in a January 2021 study, the CMHC estimated that annual household formation in Canada would be around 200,000 for the 2021 Census period.
There is an increase in housing starts, with an average of 279,000 in the last six months. However, it could be difficult to maintain this pace due to supply problems, skilled-worker shortages and soaring input costs.
The recent growth in housing starts will have to be maintained to meet the needs of the various demand segments as well as a growing population. In particular, a combination of construction in peri-urban zones and a densification in large cities would be necessary to maintain a balance in the market.