The big fail

If anywhere, you’d think the Ottawa-based federal government would showcase… you know… Ottawa.

So when you hear our nonfinancial Finance Minister say this, “Canada needs more homes. That’s why we are going to help build 4 million more of them,” it’s assumed the capital city might lead the way.

But, nah. That town is failing like everywhere else.

The federally-mandated goal for new home construction in 2024 within Ottawa’s urban boundaries (population 1.4 million) is 12,583 units. And how many have been actually constructed? Only 1,593. With just over four months left in the year, the target will be missed. By maybe 80%.

Says the local builders’ association: “It’s clear that every bigger municipality across the province is struggling right now.”

In the GTA, as we’ve told you, just as dire. In its latest report local developers say sales are down 46% year/year (and 2023 sucked) and 60% under the ten-year average. It’s so bad more than 60 huge developments have been cancelled, while there are 21,158 unsold housing units available – a massive 14.5 month supply. That includes 17,391 condos and 3,767 single-family homes. “This remains an exceedingly high inventory level,” the builders report, “maintaining the trend seen since autumn 2023 of remaining inventory levels hovering consistently near the 20,000 mark.”

Buyers are not buying so builders aren’t building. Unsold inventory is piling up – just as it is on the resale market. Prices are too high. First-time purchasers have been blanked out. Scads of people are sitting on the sidelines because they know interest rates are on the way down, with two or three more cuts likely by Christmas. They’re waiting, hoping fervently the benefit of cheaper mortgages will not be erased by a resurgence in prices. It’s a gamble.

Meanwhile the federal government continues to deceive by publishing false statements. On Friday Chrystia Freeland said: “Housing starts went up 16% in July. This is good news and a step towards putting homeownership back in reach for younger generations.”

It’s not. One monthly data makes no difference. Housing starts in Canada peaked in 2021 and are currently 13% below that point. “Despite the rebound, housing starts remain below the multi-decade highs observed in 2021 and 2022,” says TD Economics, “particularly in single and semi-detached units. We expect multi-family units to soon contribute to this decline, given weak pre-sale activity in recent years and elevated borrowing and construction costs.”

How many houses have the fed ‘guaranteed’ will be thrown up to alleviate what they say is a crisis?

The prime minister states the feds are committed to 3.9 million (Chrystia rounded it up to four mil) by 2031 – seven years hence. To get there means 571,500 new housing units per year, every year. But we’re averaging just over 240,000, even factoring in the little July bump. In other words, we’ll fall short of the government promised new housing stock by 60%.

“Despite the full-court press by policymakers to build, build, build, the reality on the ground is that housing starts continue to gradually ebb,” saus BMO chief economist Doug Porter. “To put these figures in perspective, the building goals set out in this year’s federal budget implied an annual pace of construction of roughly double that rate — not going to happen.”

Okay, so this is a big fail. Worse, the guys in charge are lying to us. Even worse, these four million new homes will not be affordable in the sense that average-income families can buy them. After all, they cost what they cost – given land, materials, wages and infrastructure. Governments are not subsidizing the process because they’re already broke. And developers are not going to sell people houses and condos for less than they cost to build. In fact, they won’t build them at all if that’s the likely outcome.

So we’re awash in inventory, new and resale. Prices have slipped, not crashed. Mortgages are back down into the 4% range – historically cheap. They may get a three-handle in 2025, but it’s likely demand will rekindle. CREA said last week a more vibrant housing market next year is, “a slam dunk.”

The wild card is what inevitably transpires as the cost of money falls, pent-up demand becomes FOMO, the existing oversupply of housing is consumed and buyers suddenly exceed both sellers and the flow of new units.

After all, how many of us will there be in 2031? “Canada will likely end 2024 with about 42 million people. This will be about 48 million at end of 2029,” says a leading population forecast. “Canada should pass 50 million in 2030 or 2031. Ontario will pass 16 million this year and will be over 20 million before 2030.”

In other words, if you think we have a housing crisis today, you may be gobsmacked at what lies ahead.

“Unfortunately the Finance Minister doesn’t grasp that it’s mathematically IMPOSSIBLE to get to 4M new homes for more than 20 years!” says crusty mortgage dude Ron Butler. “EXCEPT there’s 14 million additional people in 20 years!”

Every day, more evidence the housing file in Canada has been mismanaged by elected governments, and those who seek to replace them. They are bereft of wisdom. A worse outcome will result.

How to fix things? Start with honesty.

About the picture: “I’ve been reading you blog for a couple years,” writes Stacie. “It gives me something to talk about around the water cooler, and lately I’ve notice an uptick in not-dog submissions. So here are my boys, Sam the lab and Tucker the handsome (mutt). I work on helicopters, and this winter they came to help me out at work. This is their reactions to the machine landing and taking off. Thanks for the financial advice.”

To be in touch or send a picture of your beast, email to ‘garth@garth.ca’.

Source: https://www.greaterfool.ca/2024/08/18/the-big-fail/