Let me begin this column with a disclaimer. This is not an attempt to make a statement or imply authoritative opinion. It is an admission that I am puzzled and would like to know the answer.
So, let’s get to the question: Why is there a housing shortage in Canada when the rate of home completions over the past 10 years is roughly in balance with the rate of new household formations? Canada’s principal keeper of housing statistics, the Canada Mortgage and Housing Corporation (CMHC) tells us that from 2013 to 2021 the number of households in the country grew by 1.7 million. On the face of it, CMHC suggests that this is a reasonable indicator of the need for new housing. The same source tells us slightly more homes were completed in that time 1.75 million. Not my idea of a wild surplus, but nor is it my definition of desperate undersupply.
Please note that this not the same as saying the rate of home completions is keeping up with demand. Clearly there is a housing shortage in this country. But based on the raw numbers and if we could magically assign each newly completed home to someone who needs to live in it, then enough homes have been built in Canada to provide for those who need a place to live.
Obviously, that is a naive statement. Not all homes are principal residences. Not all new homes are occupied. Some of the existing housing stock gets torn down or re-purposed. So yes, the measure of new household formations will understate the precise number of new residences the market is calling for. Should we work harder to quantify the impact of these other factors though? Because public policy seems to be driven by a mindset that all segments of the housing market respond to one single metric and that is supply. This seems to lead to a strategy that the only possible path forward is a vast upswing in that supply.
Now, of course, supply is critical, but if we don’t temper that policy response with a better understanding of demand, then we might be chasing our tails. CMHC says that we must build 5.8 million new homes in Canada between 2022 and 2030. Yet in the Housing Observer’s “Canada’s Housing Supply Shortage: Restoring affordability by 2030 report”, they forecast the number of new household formations in that time to be 2.3 million. Do we really need an excess of 3.5 million homes to catch up our current deficit?
So, the question remains: What’s going on? Because we might be better served by fixing some of the distortions than by blindly throwing up more buildings. It seems that CMHC sees something other than the growth in number of households driving demand for new homes. It would be wise for all of us to understand what those other drivers are.
There is nothing vague or discretionary about the need for a place to live. Affordability changes but the underlying need for homes does not. We can reliably understand that much of future demand. However, those other factors that seem to drive the market respond to conditions that can be much more variable and demand from those directions can change abruptly.
If CMHC’s guidance is affected so significantly by something beyond the number of households then they should be more forthcoming about how fickle those other sources of demand might be. Public policy that promotes new home construction at twice the rate of growth of the core market may be provoking builders to simply bludgeon the problem away.
Let’s hope that public policy makes it easier for builders to get things done, but I suggest caution in substituting that policy for your own market research. In 1982, a four-plane formation from the US Airforce demonstration team all flew into the ground performing one of their aerobatics. Tragically all four pilots died. For a split second, that lead pilot may have known what was about to happen but the other three had just been following their training and stuck with the leader. As an industry we have all been flying in formation for a long time. You can’t ignore the advice of experts, but don’t lose your ability to lift your head and check the horizon from time to time.
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Steve Ryan is the founder of MMI Professional Services. MMI is committed to the success of contractors by helping them develop the business and management skills they need. For information on way to run a better building business, contact the writer at steveryan@mmiproservices.com
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