On April 7 this year, the federal government pledged to double new home construction when it unveiled the national budget.
The move is intended to fill the housing gap as Canada grapples with high property prices.
“There are a number of factors that are making housing more expensive, but the biggest issue is supply,” the budget document states.
Among rich nations comprising the Organisation for Economic Co-operation and Development, the average number of homes is 462 per 1,000 population.
Canada falls below the OECD average.
“To fill the gap that already exists—and to keep up with our growing population over the next decade—Finance Canada and the Canada Mortgage and Housing Corporation estimate that Canada will need to build at least 3.5 million new homes by 2031,” the budget document notes.
The document also points out that in any given year, the country constructs about 200,000 new housing units of all kinds.
“While annual construction has increased in recent years, it is not enough to address affordability challenges and keep up with the housing demands of a growing population,” the measure states.
In order to double the current rate of new construction over the next decade, the budget outlined current and new initiatives.
What may this mean to home prices?
A new study by the B.C. Real Estate Association assessed the impact of supply-related measures on the province’s housing market.
The paper drew scenarios about hastening construction timelines as well as development cycles that have the “desired effect of mitigating a demand shock, though to very different degrees”.
“Speeding up the time it takes to complete units by about 6 months helps to offset the increase in demand before price growth returns to baseline,” the BCREA noted.
In an appendix, the association examined the federal government’s promise to double home construction.
It’s a “daunting task”, but the BCREA nonetheless ran a scenario.
In that modeling, the association looked into “how how affordability would have been impacted if completions from 2010 to 2019 were roughly double the actual rate over that period”.
“As expected, doubling the rate of new supply additions would have had a profound impact on affordability, even through periods of very strong demand,” the BCREA stated.
Under the scenario, the model “estimates that prices would have been flat throughout the decade”.
To illustrate, the BCREA provided this graph below.
“Of course, this exercise assumes that builders and developers would continue building into a well-supplied market and that lower price expectations would not have short-circuited that steady stream of new homes,” the BCREA explained.
“In addition, such a rate of new home completions assumes that any other constraints, such as labour supply, are not binding.
“While these assumptions are not totally realistic, this scenario is illustrative of what could be achieved with bold action on the supply side of the housing market. It also indicates what could be expected if the Federal Government were to fulfill its budgetary promise of doubling the rate of new home construction,” the BCREA stated.
Going back to 2019, which was a reference year, the average price of a B.C. home in March 2019 was $685,892.
Three years later in March 2022, the average price has increased to over $1 million.