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Why housing supply is a bigger concern than household debt

by Gerv Tacadena on 30 Jan 2020

While the Bank of Canada recently expressed concerns about household debt and its effect on the housing market, a market expert from RE/MAX said the current level of dwelling supply is a bigger problem that needs to be addressed.

Housing affordability will continue to worsen over the next few years amid the population boom and the lack of dwelling supply, said Christopher Alexander, executive vice president and regional director of RE/MAX.

"The real story is the serious lack of housing supply that we have. There's a huge delta between that and demand, and there's no national housing strategy to alleviate some of that pressure," Alexander said in an interview on BNN Bloomberg.

Based on Alexander's projections, Canada's population is expected to inflate by as much as 10 million people over the next 25 to 35 years, and there are currently no strategies in place to ensure that there are enough homes to meet the demand.

While Canada has been suffering from a supply shortage for around a decade, Alexander said the government has employed "temporary fixes" such as the mortgage stress test that only moderated market activity from time to time.

"In my opinion, the stress test doesn't make sense anymore because it was put in place because of where interest rates were projected to go, and that was up. Now that they're probably going to come down, it doesn't really make sense. We need a long-term strategy," Alexander said. "Until we really tackle the supply issue, we are going to see a tremendous amount of activity in the market, and the prices are going to rise."

In fact, certain segments of Ontario, BC, and Calgary are expected to start seeing double-digit gains this year.

"In Ontario alone, particularly southern Ontario, we've had about 110,000 to 115,000 people move to the Greater Golden Horseshoe in 2019, and new housing starts can only keep up by about 40,000 to 45,000 units a year," Alexander said.

One of the problems Ontario faces is the lack of incentives for developers to build more affordable housing. Rent control rules are also discouraging rental-unit constructions.

"Different provinces have different challenges and they're facing different market situations, but all levels need to work together to figure out how to meet the demands of the marketplace," Alexander said.

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