At a time when we should be increasing the number of housing starts, they are heading in the wrong direction.
Canada Mortgage and Housing Corporation recently reported that the annual pace of national housing starts in July fell 10 per cent compared with June.
The seasonally adjusted rate of housing starts in July came in at 254,966 units – down significantly from 283,498 the month before.
Urban starts were down 11 per cent, while the rate of multi-unit starts fell 12 per cent, and the pace of single-detached urban starts dropped four per cent.
Disturbingly, the annual pace of starts in July in Toronto dropped 29 per cent. Vancouver fell 23 per cent while Montreal increased 12 per cent, Calgary gained 33 per cent, and Edmonton added six per cent.
That’s a lot of numbers to digest. But the bottom line is that we’re not building enough housing in Canada. In fact, with 500,000 immigrants a year coming into the country, the situation could get worse before it gets better. To avoid all-out catastrophe, it is critical that we take quick and concerted action.
Pace of Building is Too Slow
We need to dramatically up the ante. Latest figures from CMHC indicate that the country needs to build 5.8 million homes by 2030 to restore affordability. But if the current pace of building continues, only 2.3 million homes will have been added to the housing stock by then.
We have a lot of catching up to do.
Inflation and interest rates, among other things, are obviously causing Canadian home builders to cancel projects. Twenty-two per cent of residential builders cancelled projects entirely in the second quarter of this year, according to a report released by the Canadian Home Builders’ Association.
To spur the market, we desperately need interest rates to come down. But there are other equally pressing factors at play that have been years in the making and need to be addressed if we are to make any headway.
Systemic Problems Slowing Housing
We are lagging in adopting digitization and technology to improve our development approvals process. We need to have a streamlined, standardized, and digitized process in place for residential development applications.
We also have systemic problems largely created by failed socio-economic planning. In the Toronto area, for example, we presently have a growth plan that ignores demographics to a large extent. We must dramatically up the ante and improve how growth is planned and managed. Until very recently, little, if any, consideration has been given to coordinated housing and immigration planning.
The other problem is the approvals process itself. We’ve calculated there could be up to 45 different government bodies and agencies involved in the decision-making process on a new project.
There are simply too many cooks in the kitchen.
I discussed this very subject on a recent podcast with Marlon Bray, senior director of cost consulting at Altus Group, and Ray Wong, market intelligence leader at the company.
It doesn’t have to be that way. Singapore, for example, which is considered the most advanced jurisdiction in the world on building approvals, has 12 government bodies and agencies involved in the process.
Taxes, Fees, and Levies are Excessive
Exorbitant taxes, fees, and levies imposed on new housing, meanwhile, are out of control and stymieing residential development. The Canadian Centre for Economic Analysis found that taxes, fees, and levies on a new house or condo now account for 31 per cent of the cost. The biggest beneficiary of that tax system is the federal government, which gets about 39 per cent of that amount.
In return, the feds are only investing 7.1 per cent of their share in public infrastructure investment. They’re collecting billions of dollars each year in housing taxes but giving back little in return. The feds need to increase transfer payments to cities and towns from federal taxes collected from the construction sector.
The feds could help by exempting or rebating the HST collected on construction of residential buildings, including condos and purpose-built rental projects. They could also establish programs that eliminate the collection of taxes on profits emanating from residential construction projects where such funds are re-invested into advancing similar projects. Such a program operated with great success in the 1960s and 1970s.
Feds Must Give Back
Prime Minister Justin Trudeau recently appointed Sean Fraser as the new minister of housing, infrastructure, and communities. Perhaps his first order of business should be to look at how much money the feds are collecting in housing taxes and compare it to how much is returned to municipalities.
Fraser recently said that the federal government should have never got out of the housing business. He also noted that the government is looking at ways to speed up construction of housing through subsidies and other incentives. This can’t come soon enough.
The state of housing in our major cities is a disgrace, and based on decades of poor systemic choices and failed comprehensive growth planning. It is time for dramatic change.
To turn the housing numbers around, the feds must step up on the housing file. It is equally important for all levels of government to be in sync and working together on the problem.
To tackle the problem, everybody must be rowing in the same direction. Governments need to pull together and work with industry to meet the challenge.
Otherwise, we will end up veering off course.
Richard Lyall is president of the Residential Construction Council of Ontario (RESCON). He has represented the building industry in Ontario since 1991. Contact him at media@rescon.com.
