The housing supply and demand issues go back the Places to Grow Act in 2005

As previously reported, Canadian home prices increased by 25 percent in May 2021, which has caused a plethora of bidding wars and limited supply.

BMO Senior Economist Robert Kavcic stated in a note to his clients that there is a massive differentiation of what is available to purchase and the number of Canadians looking to buy.

Kavcic states that this has been an “the core of our ‘housing problem’ is a major mismatch between the type of supply and demand, but it has been an entirely predictable outcome based on development policy and demographics.”

“This is the culmination of more than a decade of supply- and demand-side forces that, almost by design, predictably got us to where we are today. When Ontario introduced the Places to Grow Act in 2005, it set off down a long road toward single-detached home scarcity around Canada’s biggest market,” said Kavcic.

The numbers revealed that multi-unit starts totaled almost 30,000 units, there were just over 4,000 single-detached homes started.

Earlier this month, Core Development Group announced plans to purchase $1 billion worth of Canadian single-detached homes to rent and eventually profit. This move should help ease the issues but has received massive media backlash.

As multi-family home construction was increasing, Kavcic wrote that Millennials were aging into their prime homebuying and family-starting years. “The thing is, the idea that families want to live in dense, smaller and walkable urban spaces, is a bit of a fairy tale,” says Kavcic. “Young families want space, and they need it at a time before the baby boomers are ready to move on from those coveted properties, and after 15 years of crowding out single-detached development.”

“This imbalance should be cresting in the next few years, but the pandemic (pulling forward some activity), immigration targets north of 400k people per year, and record-low interest rates have magnified it,” Kavcic says.

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