Canada Didn’t Have A Real Estate Supply Shortage, But Its Gov May Create One: BMO

Canada’s pull back in new housing starts has presented supply concerns, but they shouldn’t… yet. A new analysis from BMO Capital Markets reiterates they don’t see a lack of supply, but too much demand. Looking at the number of new housing starts to working age population growth, they show little deviation from historical norms. However, the country’s pursuit of rapid population expansion on top of its exuberance will likely manufacture a shortage if it persists.

Housing Starts To Working Age Population Growth 

BMO looked at a relatively new indicator—housing starts to working age population growth. By comparing the growth of housing to the growth of workers, you get a better idea of demand pacing. A new home can create supply either for the user, or by providing a notch up the ladder, freeing up starter units.

Canada’s Housing Supply Hasn’t Deviated From Historic Norms

Canada’s housing starts aren’t significantly out of line with historical standards. Over the past 45 years, the bank found the ratio was 0.6, or 1 new home per 1.7 adults. For context, that’s about 32% more housing than the average household size requires.

Charting the data shows some tightening recently. The ratio dips below 0.5 points during some periods. New home starts have fallen, but they do remain elevated in contrast to historical norms.

Source: BMO Capital Markets.

“… sifting through the deep ebbs and flows of the past few years, the underlying trend in starts/population growth really is not out of kilter with long-run averages,” says Douglas Porter, a prominent economist at BMO.

The bank even notes the ratio has climbed above the long-run norm recently. Starts take years to materialize into housing, but there’s nothing out of the ordinary.

Canada Is Manufacturing Demand To Distort Home Prices

The bank argues supply isn’t out of whack, but demand certainly has been. Cheap credit has fueled investor speculation, outbidding end users. Rapidly rising home prices also leads to less inventory, since it provides incentive to hold surpluses. Then there’s the upcoming demand stimulus—aggressive pursuit of population growth during a housing crisis. 

Canada’s largest price growth was during the pandemic’s population stagnation. It was exuberant expectations of stimulated demand that drove the growth. “To be clear, starts are historically strong, it’s the population spurt that’s changed the picture,” says Porter. 

Adding, “if we didn’t have a supply shortage before, we are going to have one when the population grows by 1 million in a single year.” 

Canada’s ability to continue perpetual growth at this clip is unrealistic. Poaching 1 million people per year might be doable in the short-term, but not persistently. It also takes a great suspension of reality to be convinced that investors are in the business of devaluing their holdings if they are just allowed to make more. 

However, speculative narratives don’t have to make sense or persist. They only need to demonstrate some short-term reinforcement, providing enough doubt that it’s possible. 

“…we would simply re-assert that the wildness seen in the housing market during the pandemic was fundamentally a demand surge, and not some new supply issue,” he ends. 



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  • Ahmed 8 months ago

    Canada has the fastest growing population in the G7. Higher home prices should be expected when everyone wants to move here.

    • Jason Chau 8 months ago

      Steve said it best in the news once and it stuck with me—it’s not that other G7 countries can’t grow this fast, it’s that no other G7 is stupid enough to grow this fast without planning infrastructure.

      What Canada is doing is exploiting immigrants for rents and cheap labour while pretending its inbound colonialism experiment is for good. Indentured servants were grifted this was, the formal contract is just no longer needed. Except for TFWs, since they get booted out if they complain and get fired.

      • LT 8 months ago

        Imperialists never stop being imperialists, especially when the average voter is very supportive of their own exploitation.

        • Craig R 8 months ago

          The Politicians keep manipulating the controls on the Immigration… Real Estate … Welfare State… Vote Buying Machine… that is our Non Productive Economy.

    • Freddy 8 months ago

      The government likes to pretend they are concerned about housing affordably.

      I should be obvious to everybody by now the the current government is only interested in creating profitable conditions for real estate speculators.

    • William R Konowal 8 months ago

      “everyone” you mean from the third world

  • Mark Bayly 8 months ago

    As usual Trudeau is vote importing multi millions of immigrants from very poor countries. This is creating many disasters in the country. Healthcare government debts high housing costs etc.

    • Ethan Wu 8 months ago

      He’s not importing votes, he’s exploiting immigrants for the cheap labor and rents to be extracted. Canada knows the churn is now so high that more than a third go back, and a third never become citizens—they just wish they could save enough to move.

  • Ethan Wu 8 months ago

    It’s wild to see how narrative by narrative is deconstructed about Canada’s housing bubble, and then the Federal government works towards making it true.

    It was foreign buyers? Let’s tell everyone they’re now banned, and quietly reverse the ban a few days later.

    It’s cheap credit? Let’s raise interest rates, then find ways to make cheaper credit through bond manipulation.

    Home prices are growing but there was no population growth? Let’s double our target!

    • Travis Hunter 8 months ago

      We should stop electing real estate investors that dabble in government on the side.

      • W8 8 months ago

        How to stop the self-interested voters whom dabble in real estate investing on the side?

  • Kelvin Jin-Yang 8 months ago

    Is BMO calculating housing starts using CMHC data? If so, condo building are counted as 1 unit not 30 or 50 units. Looking at the housing in construction, which is counted by individual condo units, we are significantly deviating from historical norms. If that’s the case, we might enter a similar situation at the 89 Toronto crash where condos will drive the overall market down.

  • Ravi 8 months ago

    Just quoting your view now. “Canada’s ability to continue perpetual growth at this clip is unrealistic. Poaching 1 million people per year might be doable in the short-term, but not persistently”.

    Where will these new 1 million people live? HBA of Canada reported we are significantly building less, and in a recent study, CMHC stated the same. To accommodate people you need housing.

    Seems like you are bearish on Canadian Real Estate Market. Is that fair to say?

    Anyone who followed your advice from previous “fear-based articles”, do you know how much money they lost by not investing in Real Estate after BOC paused interest rates and inflation started coming down?

    • Han Thanh 8 months ago

      They should make reading comprehension a part of the Realtor exam. Most people would read someone quoting a bank’s opinion and realize they’re telling you what a bank thinks. Not if you’re a Realtor—you assume the person quoting it must have the opinion, and you criticize them.

      Did you not criticize the bank because they would laugh and ridicule your education first?

  • Cto 8 months ago

    the elected policy makers,
    are also the property investors,…
    gee go figure…

  • Simon 8 months ago

    it is time for the government of Canada to create incentives for renters who are catching hell in a country where all incentives are created for real estate speckulators

  • Remigio Fernandes 8 months ago

    Very manipulative.

  • Robert 8 months ago

    This cart is an over simplification. Is this covering all of Canada or just the major cities that immigrants typically move to?

    Major cities attract immigrants and job seekers from across Canada so yes, there are likely homes available, they’re just not affordable or in areas people are interested in living in.

Comments are closed.