How Homebuyers and Housing Developers React to Rising Interest Rates: An Unprecedented Analysis!
Throughout 2022, the escalated interest rates have brought about a significant alteration in the actions of developers and homebuyers alike. However, the upsurge in interest rates has not been entirely captured by the CMHC Housing Starts and Completions Survey, which gauges the speed of fresh residential housing erection in Canada.
According to CMHC’s Senior Specialist in housing market analysis, Francis Cortellino, there has been a decline in seasonally adjusted housing starts towards the end of 2022 and beginning of 2023 in certain areas. The rising interest rates are anticipated to impede construction activity in more areas throughout 2023.
The Senior Specialist for housing market analysis at CMHC, Eric Bond, remarked that a few ventures may turn impractical owing to the present financing rates, or it may be difficult to secure construction financing.
Later this spring, CMHC has plans to release its annual Housing Market Outlook forecast.
Researchers at the University of British Columbia have conducted an innovative analysis, summarized in this edition of the HSR, that explores the relationship between housing affordability and access to amenities such as health care and public transit.
Data from CMHC’s HSR and Statistics Canada’s Proximity Measures Database were utilized for a research study aimed at analyzing the level of amenity richness in newly developed housing in Canada’s six biggest cities between the years 2016 and 2021. According to the findings, almost 80% of residential construction in Canada’s six largest urban centers were situated in areas with insufficient amenities, while less than 10% of housing starts were in communities with substantial amenities.
- In 2022, the six major CMAs in Canada experienced varying growth in residential construction. While Toronto, Calgary, Edmonton and Ottawa witnessed an increase in housing starts, Vancouver saw no change and Montréal experienced a decline.
- Throughout the year, developers and homebuyers alike were affected by notable rises in interest rates. However, our data on housing starts has yet to fully incorporate the effects of such increases.
- Despite the increased construction of housing in certain CMAs amidst the pandemic, available stocks of newly completed but unsold homeowner units remain at record lows. This lack of choice in the market may pose difficulties for households in major CMAs when searching for housing that satisfies their requirements.
- Toronto recorded a 7.7% surge in housing starts in 2022, which marked the highest level reached since 2012. The noteworthy growth is attributable to an increase in condominium apartment constructions, fueled by robust presale activities for the past 24 months, which is a crucial source of financing such developments. However, Montreal’s total starts dwindled by 25.3%, bringing it back down to normal levels after setting a record high in 2021.
- Low vacancy rates and rising rents in 2022 increased developer interest in the rental segment across all CMAs except Toronto. In Vancouver, a decline in condominium construction was offset by a surge in rental starts.
- Edmonton witnessed a sharp rise in the construction of newly-built rental apartments in 2022. The surge was attributed to the upsurge of projects located in the vicinity of the downtown area and in the emerging neighborhoods located on the outskirts.
- In Calgary, construction of both purpose-built rental and condominium apartments increased significantly in 2022, with projects concentrated near the downtown core and in newly developing neighbourhoods.
- In Ottawa, the year 2022 saw an all-time high in residential building, thanks to the trend of densification. For the first time in over two decades, apartments accounted for over half of all housing starts in the area. The bulk of construction was focused on the central sectors, where progressively bigger structures are being erected.
At its core, the HSR holds a staunch belief in the power of quality housing market data and insights to drive more informed decisions in regards to housing. To achieve this, our aim is to not only increase understanding on the current state of housing supply, but also to provide valuable insights on the gaps and opportunities within the market. Our commitment to this mission means that we will consistently share new data, indicators, and insights that explore different aspects of Canada’s housing supply.