Deck Chairs on the Titanic

Happy Monday Morning!

It’s been a few weeks now since the Trudeau government shuffled his cabinet ministers, naming both a new housing minsiter and a new immigration minister. However, as we discussed a few weeks ago in my piece, Same Faces, Different Places, nothing has fundamentally changed. These are the same people, and the same policy ideas. We are simply rearranging the deck chairs on the Titanic.

Despite growing concerns over the levels of immigration in this country, one that is increasing social tensions, overloading public infrastructure, and exacerbating a housing crisis, new immigration minister Marc Miller is doubling down.

“I don’t see a world in which we lower immigration targets, the need is too great … whether we revise them upwards or not is something that I have to look at but certainly, I don’t think we will lower them.”

Further adding, “Without those skilled workers coming from outside Canada, we absolutely cannot build the homes and meet the demand that exists currently today.”

In other words, we need more immigration in order to build the houses to accomodate the new immigrants?

There’s just one problem, according to the IRCC (Immigration, Refugees and Citizenship Canada) less than 2% of new permanent residents are entering the constuction sector!

Source: CIBC Economics

As for foreign workers, combining information from the Temporary Foreign Workers Program and the International Mobility Program it shows that the share of foreign workers in construction is now close to 11%, and is trending in the wrong direction.

Source: CIBC Economics

The definition of insanity is doing the same thing over and over and expecting different results.

Let’s now turn our attention to former immigration minsiter turned housing minister, Sean Fraser. Some interesting comments from him this past week.

“Our goal is not to decrease the value of their home. Our goal is to build more units that are at a price that other people, who don’t currently have their needs met, can afford.”

In other words, we need to maintain current home prices while also adding more affordable supply. It appears Mr. Fraser is trying to ride two horses with one ass.

Further adding,

“The solution is to build more houses. We should be working to more closely tie our immigration levels to both our industrial policy and to the absorptive capacity of communities, which includes, but is not limited to, housing. It’s important that we don’t reduce our population growth targets, but instead increase our housing supply targets.”

Again, there’s just one problem, residential permits are rolling over hard and fast, now at their lowest levels in a decade.

Source: Ben Rabidoux, Edge Analytics

So while Mr. Fraser might want more housing, the laws of economic gravity have taken over. This is what happens when credit tightens and the cost of financing new housing construction jumps by 500bps in the span of eighteen months.

Future housing supply is being obliterated, and so is the need for construction workers, at least in the near term. According to Stats Canada, the construction industry just shed 44,000 jobs last month. The industry has now dropped 4% of its workers over the past three months. According to Edge Analytics, outside of the pandemic and the global financial crisis, this is the largest three month decline since the 1990’s.

Canada’s housing woes are only deepening.

The average asking rent in Canada reached another record high of $2078 in July, up 8.9% from last year.

Here’s annual rent growth by major city.

1. Calgary +16%

2. Montreal +15%

3. Vancouver +12%

4. Edmonton +12%

5. Toronto +11%

I wish there were was a silver lining from all of this, but it is truly a crisis of epic proportions. If anyone in Ottawa is listening, God speed.