Wildly Offside

Happy Monday Morning!

After completely botching a world class immigration system, the Trudeau government has been forced to reverse course, promising to hit the brakes and slow population growth to zero over the next two years. However, as we know, the damage is already done and it will take more than a decade to fix the housing crisis. A new report from the Parliamentary Budget Office confirms as much.

Canada's parliamentary budget officer says the federal government is overestimating the impact its new immigration plan will have on the country's housing shortage. The PBO has previously reported that Canada needs to build another 1.3 million homes by 2030 to close the housing gap — and today it says the revised immigration plan will help but will still result in a housing gap of 658,000 units.

What we find even most interesting is how the PBO comes to this conclusion. The still large housing gap forecasted in 2030 assumes the housing stock will increase on average by 280,000 units annually. This is higher than their earlier forecast in April. What is the PBO seeing that we aren’t?

Source: PBO

Remember, the record high for housing completions totalled 257,243 units back in 1974. So the PBO is suggesting we will set record housing completions, each year, for the next five years and we’ll still have a gap of 658,000 units.

In our view both the PBO and the Trudeau government will be wildly offside on their forecasts. As we have been noting in our writing for some time, housing starts are in the process of falling off cliff, all we need to do is follow the leading indicators.

New home sales in the GTA, our largest major metro, are currently sitting at 27 year lows! Remember, pre-sales lead housing starts. Simply put, if you can’t pre-sell a building you don’t get bank financing to put shovels in the ground.

Source: Ben Rabidoux

Again, we believe the PBO and the Trudeau government will be wildly offside on their forecasts. Based on current projections from people within the industry, completions in the downtown core of the 416 will slow to a trickle by 2028.

For context, if we look at completions over the next two years (2024-2026) the downtown core will see around 27,297 completions.

And no, it’s not just a concrete condo problem. According to an economic summary released by the Financial Accountability Office of Ontario, construction of single detached homes is on track for the lowest level of annual starts on record dating back to 1955, a 69 year low.

Here in Metro Vancouver we’ve started just 2400 single family homes over the past year, the lowest on record going back to 1990.

There is no other way to sugar coat it, housing construction is falling off a cliff in Canada’s two largest major metros.

There appears to be a belief that the federal governments housing accelerator fund will spur a surge in new housing starts, however, we believe that view is as misguided as the PBO’s housing completions forecasts.

As we have noted before, the housing accelerator fund, while well intended, is proving to be nothing more than a heist of tax dollars. Nearly every big city that has received accelerator dollars has immediately turned around and raised development charges, including the City of Victoria, which just voted to increase development taxes by 258%.

Development charges have become an addiction for local governments, raising the cost of housing across the board. As my friend Dr. Moffatt notes, development charges are over $140,000 a home across many parts of the GTA. At current growth rates, each of these cities will have million-dollar DCs by the mid-2030s.

Source: Dr. Mike Moffatt

Again, what does the PBO see that we don’t?

Fade the forecasts, they will be wildly offside.