Recent reports from the Canadian Center for Policy Alternatives It shows that new home construction is currently at lower levels than during the worst of the economic shutdown caused by the coronavirus pandemic.
According to a report released on Wednesday, investment in various housing sectors has fallen significantly since April 2020, at the height of the economic shutdown due to the pandemic. For example, investment in new single-family homes fell by 21%, investment in new row house construction fell by 8%, and investment in new apartment construction fell by 2%.
The report highlights that the situation has become significantly “dire” compared to February 2022, when interest rate hikes began.
Investment in detached homes fell by 36% and investment in semi-detached homes fell by 27%. According to the report, construction of new row houses fell by a relatively modest 2%, while construction of apartments fell by 19%.
Compared to the first quarter of 2022, new home construction investment fell by 17%, renovations fell by 21% and ownership transfer costs fell by 28%, according to the report.
Meanwhile, the report found that real GDP did not grow at all from January to July 2023, mainly due to a significant decline in housing investment.
The report’s author, David McDonald, cautiously predicts the situation will get even worse.
“The Bank of Canada estimates that it will take two years for the worst effects of a rate hike to hit the housing sector, which is the primary means by which rate hikes will hit the economy. Currently, 18 months after the first rate hike has passed, but most of the larger rate hikes have occurred in the past 12 months, and the worst is yet to come,” McDonald said in an article. press release.
The Bank of Canada raised interest rates from 0.25% to 0.5% in March 2022, and to 1% in April. Interest rates rose rapidly throughout the summer, reaching 3.25% by September 2022.
According to the report, in the summer of 2022, there was a temporary increase in new construction, mainly row houses and apartments, but by the end of the summer all major housing types had declined.
The Bank of Canada has raised its key interest rate a total of 10 times since March 2022, taking interest rates from near zero to the highest level since 2001, now at 5%.
Mr Macdonald said given the rise in interest rates, the government needed to shift its focus to making up for the “missing private sector” investment in housebuilding.
“Now is the time to get your hands dirty, not for personal incentives. The federal government can build non-market housing directly or buy units and convert them to non-market rent. , and should also. They can build them directly or offer 0 percent mortgages to non-profit providers to do it. These are long-term solutions, and unfortunately However, it takes time to build. From the time the land is acquired to the time people move in, it can easily take 10 years, and if the stars align, it can take five years,” MacDonald said.
The report highlights that rising interest rates are having the most significant impact on housing-related sectors such as construction, renovations and home ownership transfers, as well as industries related to large purchases through loans, such as automobiles. Companies in the home construction sector often incur large amounts of debt while completing projects before selling.
This article was paid for through the Afghanistan Journalists in Residence Project, funded by Mehta.
