Illuminating article from Ben Rabidoux in the Globe today, pointing out that the pace of home construction in Canada is far surpassing the growth of the workforce. New housing starts are currently building more than 2 new homes for every working-age person in the population. This is higher than the 1.5 new homes rate built at the peak of the 1989 price bubble. See: Canada’s housing boom has no demographic legs to stand on.
Housing starts in June hit their highest level in 10 months at just under 203,000 on a seasonally adjusted basis. That level of construction means we’re currently building over two new houses for every person we’re adding to the working-age population.
To frame why that’s potentially problematic, consider the chart [shown in the article here in interactive form], which shows housing starts as a multiple of the number of people added to the working-age population. You’ll note that in the late 1980s, we were building 1.5 new homes for every person added to this group. It’s clear in hindsight that there was significant overbuilding during that time period, particularly in Ontario where house prices subsequently fell 25 per cent between 1989 and 1993 as supply overwhelmed demand. And that drop occurred in spite of the Bank of Canada cutting the overnight rate by 1,000 basis points (10 per cent) over that time frame, which helped put a floor under prices.
The current level of housing construction in Canada is absolutely unprecedented relative to underlying demographic trends.
Add in all the baby boomers that are planning to cash out of their high end homes over the next 5 years, amid mortgage rates that have no where to go but up, and Canadian realty prices look more unsustainable by the day.