Canadian Business leaders say housing biggest risk to economy: KPMG survey

Ian Bickis, The Canadian Press

Business leaders see the housing crisis as the biggest risk to the economy, a new survey from KPMG Canada shows.

It found 94 per cent of respondents agreed that high housing costs and a lack of supply are the top risk, and that housing should be a main focus in the upcoming federal budget. The survey questioned 534 businesses.

Housing issues are forcing businesses to boost pay to better attract talent and budget for higher labour costs, agreed 87 per cent of respondents. 

“What we're seeing in the survey is that the businesses are needing to pay more to enable their workers to absorb these higher costs of living,” said Caroline Charest, an economist and Montreal-based partner at KPMG.

The need to pay more not only directly affects business finances, but is also making it harder to tamp down the inflation that is keeping interest rates high, said Charest.

High housing costs and interest rates are straining households that are already struggling under high debt, she said.

“It leaves household balance sheets more vulnerable, in particular, in a period of economic slowdown. So it creates areas of vulnerability in the economy.”

Higher housing costs are themselves a big contributor to inflation, also making it harder to get the measure down to allow for lower rates ahead, she said. 

Businesses have been raising the alarm for some time. 

A report out last year from the Ontario Chamber of Commerce also emphasized how much the housing crisis is affecting how well businesses can attract talent. 

Almost 90 per cent of businesses want to see more public-private collaboration to help solve the crisis, the KPMG survey found.

“How can we work bringing all stakeholders, that being governments, not-for-profit organizations and the community and the private sector together, to find solutions to develop new models to deliver housing,” said Charest.

“That came out pretty strong from our survey of businesses.”

The federal government has been working to roll out more funding supports for other levels of government, and introduced measures like a GST rebate for rental housing construction, but it only has limited direct control on the file. 

Part of the federal funding has been to link funding to measures provinces and municipalities adopt that could help boost supply. 

The vast majority of respondents to the KPMG survey supported tax measures to make housing payments more affordable, such as making mortgage interest tax deductible, but also want to maintain the capital gains tax exemption for a primary residence.

The survey of companies was conducted in February using Sago's Methodify online research platform. Respondents were business owners or executive-level decision makers.

About a third of the leaders are at companies with revenue over $500 million, about half have revenue between $100 million and $500 million, with the rest below. 

This report by The Canadian Press was first published March 27, 2024.

Housing starts stable in 2023, but demand still outpaces growing supply of apartments

Sammy Hudes, The Canadian Press

The Canada Mortgage and Housing Corp. says construction of new homes in Canada's six largest cities remained stable at near all-time high levels last year, driven by a surge of new apartments — despite demand still outpacing supply for rental housing.

The agency released its biannual housing supply report on Wednesday, which showed combined housing starts in the Toronto, Vancouver, Montreal, Calgary, Edmonton and Ottawa regions dipped 0.5 per cent compared with 2022, totalling 137,915 units.

That was in line with the annual average of around 140,000 new units over the past three years. CMHC deputy chief economist Aled ab Iorwerth said the 2023 numbers came in "better than we thought."

"We ended up being positively surprised by 2023. We were really quite concerned that higher interest rates were going to really have an impact," said ab Iorwerth.

"They did have an impact, but it seems to have been on smaller structures, single-detached (homes) and so forth."

Apartment starts grew seven per cent to reach a record 98,774 individual units last year. However, those gains were offset by declines in the number of new single-detached homes, which fell 20 per cent year-over-year, due to weaker demand for higher-priced homes in an elevated mortgage rate environment.

The agency continued to warn about the need to ramp up housing construction to address affordability gaps and significant population growth in Canada.

It said housing starts are projected to decrease in 2024, despite the CMHC's forecast that Canada will require an additional 3.5 million units by 2030, on top of what is currently projected to be built, to restore affordability to levels seen around 2004.

Its report cited rising costs, larger project sizes and labour shortages last year that led to longer construction timelines, prompting various levels of government in Canada to announce new programs aimed at stimulating new rental housing supply.

"We're still not building enough, particularly on the rental side," said ab Iorwerth.

"The demand is enormous. I don't think we're keeping up with demand. So we need a lot more investment."

While high interest rates have cooled demand for home purchases, as many buyers stayed on the sidelines last year, the impact was not only reflected by the decline of single-detached starts. Ab Iorwerth said higher rates also make it less attractive to build new rental structures.

"One of the issues with building a rental structure is the cost of the building has to be borrowed. Obviously, the rental income is in the future, but the cost of construction is today," he said.

"The cost of construction has to be borrowed from various financial institutions and so as interest rates have gone up, it's been harder, more costly to get access to that financing to build rentals."

Of the six cities examined, Vancouver, Calgary and Toronto saw growth in their total starts, driven by new apartment construction reaching record highs. 

Vancouver had a record 33,244 new housing starts in 2023, a 27.9 per cent gain from the previous year, followed by Calgary's 19,579 new homes built, a 13.1 per cent increase.

There were 47,428 housing starts in Toronto, marking a 5.1 per cent rise, but ab Iorwerth noted those levels were "concerning" as the proportion of apartment starts designated as rentals was just 26 per cent — the lowest of any region.

Montreal, Ottawa and Edmonton recorded declines in total housing starts from the previous year. The report said Montreal, at 36.9 per cent fewer homes built, was the only market with a significant decrease across all housing types.

With 15,235 housing starts last year, the Montreal figures partially reflected labour shortages and supply chain problems, said ab Iorwerth, who added the city is more vulnerable to high interest rates than other cities studied.

"The buildings tend to be a little bit smaller in Montreal and so the housing starts react more quickly to higher interest rates, meaning it's a quicker turnaround on smaller structures," he said.

"It's possible that Montreal has reacted faster to the hike in interest rates."

Ottawa saw 9,245 new homes built last year, which marked a 19.5 per cent decrease from 2022, while there were 13,184 housing starts in Edmonton, a 9.6 per cent decline.

This report by The Canadian Press was first published March 27, 2024.