Rising Financing and Construction Costs Could Impede Housing Supply Growth: CMHC
According to the Canada Mortgage and Housing Corp. (CMHC), higher financing and building costs may signal a potential slowdown in housing supply growth, despite a one percent increase in housing starts in major Canadian cities during the first half of 2023. The CMHC's semi-annual Housing Supply Report reveals that Toronto and Vancouver experienced significant growth in starts, while other primary centers like Montreal and Edmonton saw declines. Apartments accounted for the majority of new developments, with purpose-built rental starts surging in Toronto and condominium starts driving the apartment boom in Vancouver. However, the report anticipates a slowdown in Toronto and Vancouver due to rising material, labor, and financing costs. The federal government has implemented measures to support increased housing supply, including raising the annual cap for Canada Mortgage Bonds and waiving the federal component of the Goods and Services Tax on new purpose-built rental housing projects. Despite these efforts, the CMHC emphasizes that involvement at all levels is necessary to address the affordability challenge and achieve housing supply goals.
Implications of Rising Costs on New Businesses in the Housing Sector
The Canada Mortgage and Housing Corp.'s (CMHC) report on the potential slowdown in housing supply growth due to increasing financing and construction costs presents a significant challenge for new businesses in the housing sector. Despite the recent growth in housing starts, particularly in Toronto and Vancouver, the anticipated slowdown could impact the profitability and growth prospects of these businesses.
Increased Costs and Housing Supply
Rising material, labor, and financing costs could increase the overall cost of housing projects, potentially reducing the profit margins for new businesses. This could also lead to a reduction in the number of new projects, limiting the supply of new housing and potentially exacerbating the existing housing affordability issues.
Government Measures and Housing Supply
While the federal government's measures to support increased housing supply, such as raising the annual cap for Canada Mortgage Bonds and waiving the federal component of the Goods and Services Tax on new purpose-built rental housing projects, are positive steps, they may not be sufficient to offset the impact of rising costs.
Addressing the Affordability Challenge
The CMHC's emphasis on the need for involvement at all levels to address the affordability challenge suggests that new businesses in the housing sector will need to explore innovative solutions to reduce costs and improve affordability. This could include adopting new construction technologies, exploring alternative financing options, or partnering with government agencies to access subsidies or incentives.
In conclusion, the potential slowdown in housing supply growth due to rising costs presents significant challenges for new businesses in the housing sector. However, it also presents opportunities for these businesses to innovate and collaborate to address these challenges and contribute to achieving housing supply goals.