Modelling suggests 2023 interest rates slashed housing starts by 10 to 15 per cent
Actual housing starts in centres of 10,000 population and over were down seven per cent in 2023, with 223,513 units recorded, compared to 240,590 in 2022, CMHC data indicates.
But the group’s modelling suggests high interest rates cut 10 to 15 per cent off a potential average total of about 250,000 starts.
“Canada faces critical long-term housing shortages,” he wrote.
But the private sector is particularly sensitive to changes in the economy, especially changes in interest rates.
Developers rely on funds from prospective buyers who either rent out condo units or occupy them themselves and typically borrow money in order to finance these purchases. But they will only move ahead with construction if about 70 per cent of the units are pre-sold, ab Iorwerth said.
So, if these buyers are reluctant to borrow in the face of higher interest rates and financial institutions are loath to lend, developers are less likely to build.
This means “all levels of government need to ensure that the private sector can build as much housing as possible when the going is good, and interest rates are low,” ab Iorwerth said.
Faster approval times and reduced uncertainty could help improve efficiency, but ab Iorwerth also called for designing frameworks to ensure housing construction still takes place even while interest rates are high.
“Developing ways in which long-term patient capital can be devoted to meeting Canada’s long-term housing shortfall will clearly be important,” ab Iorwerth said.