The resilience of the Canadian real estate market.

As mentioned in our recent market forecasts, we anticipate a recovery of the real estate market as buyers become convinced that interest rates will decrease. However, the Canadian real estate market, in the absence of economic shocks or geopolitical instabilities, is destined for growth that will far exceed the increase in salaries and collective wealth. In 2023, Canada welcomed over a million immigrants, a considerable increase for a country that has just surpassed 40 million inhabitants. Yet, just two years ago, the Canadian government had predicted a demographic growth of 465,000 for 2023. From 2025, it plans to stabilize this growth at 500,000 newcomers per year, but these targets could be exceeded, although probably to a lesser extent.

Although this migration policy responds to an urgent need for labor, it creates a major imbalance between supply and demand in real estate, stimulating the latter. In 2021, the Canadian population increased by 424,000 people, while the number of housing starts was 271,000. Two years later, last year, the population grew by 1,250,000, while housing starts decreased to 240,000. These opposite trends are alarming, considering that Canada has an immigration policy five times more welcoming than the OECD average.

The government seems not to have anticipated the situation and is not adequately addressing the problem. No vigorous construction aid policy has been presented in recent years, while the federal government has created tax incentives for first-time buyers, further stimulating demand. According to CMHC, Canada would need 3 to 4 million additional homes by 2030 to rebalance the market and maintain some affordability. With the current pace of construction, less than half of this need would be met. Even if housing starts increase significantly in the coming years, the construction cycle, which can last more than 3 years, will delay the delivery of housing, making it unlikely that there will be sufficient supply to meet the demand.

The current obsession of various government levels with the construction of affordable housing, although commendable, is at the expense of overall construction, thus aggravating the problem. In the last budget, the provincial government proposed interesting incentives for construction, but only from 2025. Our government authorities thus seem to be missing their target.

To avoid an exacerbation of the housing crisis and rising real estate prices, concrete and rapid measures to promote housing construction are essential.

Marc Lefrançois, CFA