Housing demand expected to remain low: CMHC

Key Concepts

• Housing Headwinds: Factors slowing down growth in the Canadian housing sector (economic uncertainty, population growth, income growth, carrying costs).
• Market Segmentation: Differences in performance between rental and ownership segments, and across different regions.
• Vacancy Rates: A key indicator of rental market health, with rates discussed for Toronto, Vancouver, and Calgary.
• Multi-Unit Development: The dominant form of housing construction in Canada (approximately 80% of starts).
• Regional Resilience: Identifying Calgary and Montreal as potentially more resilient markets compared to Toronto and Vancouver.
• Macroeconomic Influence: The significant impact of the broader economy (GDP growth, government investment) on the housing market.

Canadian Housing Market Outlook: CMHC Forecast & Regional Analysis

This discussion with Kevin Hughes, Deputy Chief Economist at the Canada Mortgage and Housing Corporation (CMHC), details the current challenges and forecasts for the Canadian housing market. The overarching theme is a slowdown in growth due to multiple headwinds, but with regional variations and potential for adjustment based on economic improvements.

Challenges Affecting Home Building

Hughes identifies several key challenges impacting home building nationwide. Primarily, a “quite high and unprecedented degree of uncertainty” in the economy is affecting developers, consumers, and potential new households. This uncertainty is compounded by lower population growth, modest income growth, and high carrying costs (mortgage payments, property taxes, etc.). These factors collectively contribute to a slower pace of construction starts anticipated for the next few years.

Demand-Side Analysis: Rentals vs. Ownership

Generally, demand faces challenges related to job security, affordability (despite increased supply), and carrying costs. The rental market has shown more construction activity and, according to CMHC’s rental market survey, is experiencing some easing. Specifically, Toronto is projected to have a vacancy rate of around 3-12% currently and likely the same next year, offering “some respite” for renters, though gains are described as “marginal.”

The discussion highlights that roughly 80% of housing starts in Canada are in multi-unit developments, particularly apartments, driven by sustained migration in recent years. However, with lower current migration levels and potentially fewer young households forming, demand is softening even in the rental segment.

Regional Variations in Housing Markets

The analysis emphasizes significant regional differences:

• Toronto: The condo segment is currently oversupplied, while the rental segment is outperforming. Vacancy rates are projected around 3-12%. Overall, Toronto is expected to experience a significant slowdown.
• Vancouver: The resale market is returning to balanced conditions with stable prices. Starts are expected to decline, with a vacancy rate of approximately 4% for the next 2.5-3 years.
• Calgary: The market is moderating with less migration. Strong rental construction is driving a vacancy rate of around 6%, indicating a more balanced market.
• Montreal: Considered more resilient than Toronto and Vancouver, despite slower population inflows and easing rental demand. Montreal’s market adjusts more slowly due to the prevalence of high-rise construction. It is the largest rental market in Canada.

Hughes notes that Calgary and Montreal are expected to be more resilient than Toronto and Vancouver, but even these markets will see demand decrease. The composition of the market (high-rises in Toronto vs. a broader mix in Montreal) influences the speed of adjustment.

Economic Outlook and Potential Adjustments

Hughes stresses the importance of the macroeconomic environment. While current uncertainty is causing hesitation among actors in the market, the potential for economic growth and re-entry of participants exists. He anticipates publishing a mid-year review to adjust the current outlook if the economic environment improves.

CMHC forecasts GDP growth of just under 1% for the year, largely driven by government infrastructure investments.

Notable Quotes

• “The challenges come from several areas…first and foremost we have to speak about the quite high and unprecedented degree of uncertainty that we see in the economy.” – Kevin Hughes
• “Roughly 80% of starts are in multi-unit and especially apartments.” – Kevin Hughes
• “Governments remain really the source of growth this year.” – Kevin Hughes

Technical Terms

• Vacancy Rate: The percentage of unoccupied rental units in a given market. A higher rate indicates a softer rental market.
• GDP (Gross Domestic Product): The total monetary or market value of all final goods and services produced within a country’s borders in a specific time period.
• Migration: The movement of people into or out of a region or country.
• Household Formation: The creation of a new housing unit as individuals or groups establish independent living arrangements.
• Multi-Unit Development: Construction projects involving multiple housing units within a single building or complex (e.g., apartments, condominiums).

Logical Connections

The discussion progresses logically from identifying broad challenges to analyzing demand and supply dynamics, then delves into regional variations, and finally considers the overarching economic context. The connection between macroeconomic factors and housing market performance is consistently emphasized. The regional analysis builds upon the initial discussion of demand and supply, illustrating how these forces play out differently in various Canadian cities.

Data and Statistics

• Rental Vacancy Rate (Toronto): 3-12% (current and projected for next year)
• Rental Vacancy Rate (Vancouver): Approximately 4% (projected for the next 2.5-3 years)
• Rental Vacancy Rate (Calgary): Around 6%
• Multi-Unit Housing Starts: Approximately 80% of total starts in Canada.
• GDP Growth Forecast: Just under 1%

Synthesis/Conclusion

The CMHC forecast paints a picture of a Canadian housing market facing significant headwinds, leading to slower growth. While the rental market is currently showing some easing, overall demand is constrained by economic uncertainty, affordability issues, and demographic factors. Regional variations are pronounced, with Toronto and Vancouver expected to slow down more significantly than Calgary and Montreal. The outlook is contingent on macroeconomic conditions, and CMHC will be closely monitoring developments for potential adjustments to its forecast. Government infrastructure investments are expected to be a key driver of economic growth and, consequently, housing market activity.