The Minister of Failed Dreams

Small minds accused the last federal housing minister of being compromised because he owns some rental units. Of course, without guys like him there would be fewer places for tenants. Moreover, the minister does not set policy. Furthermore, people don’t run to be MPs to fleece the system for their own gain. Only small, as-yet-unformed minds think like that.

Nonetheless, out he went. The new guy, Sean Fraser, is a late-stage Millennial with a wife, two spawn and a house in Pictou County, NS. A lawyer, he worked in Calgary for three years. And, most meaningfully for the haters, he apparently owns no condos.

What’s his plan, now that Fraser’s generational cohort is mightily pissed at house prices, mortgage rates and their wretched existence?

There’s one plank, and one plank only: build more homes.

And this is why poor Sean is destined to fail between now and the 2025 federal election. Not only is more supply doubtful, but the homes that are built will not be ‘affordable’ in the sense that middle-class Mills want them to be. Increasingly, that group of voters may looks like the one deciding who forms the next government.

For a few months now the political class has lied to us by vowing to build scads of new houses, which will “solve” the housing crisis. But that’s not going to happen. CMHC, equally delusion, has stated the country requires 5.8 million new residence by 2030, or we send out kids to live under bridges and in old Sobey’s cartons.

Here’s the reality: in 2023 Canada will see 212,000 new housing starts. That’s 50,000 less than in 2022. At this rate we’d throw up 1.5 million units by the end of the decade – or 25% of the stated need. Two-thirds of homebuilders say they expect to be less busy. Investment in residential construction is at a three-year low. This is a formula for house price increases to continue, assuming no recession and for interest rates to stay around current levels.

What’s the problem?

There are many. None of which the lad from Pictou can fix.

First, labour. The lack of skilled trades is acute, and one reason the feds have been trying to fast-track immigrants with the experience and skills necessary. So far, the results are lacklustre. So wages are going up fast for plumbers, electricians, drywallers, framers, finishing carpenters, foundation guys and painters. Labour costs roared ahead over 9% in 2022 alone. This increases the price of homes, obviously.

Second, construction costs have exploded thanks to materials. RBC says, incredibly, it now takes 51% more money to build a home than it did in 2020. Never has it cost more than now to erect a structure, whether it’s a 50-storey condo or a simple bungalow. Land commands a record amount to buy. Concrete prices are higher by 55% and steel costs 53% more. Lumber is still crazy and there are persistent shortages – thanks in part of the frenzy caused by pandemic-era low interest rates and production halts which Covid caused. The bank also credits “wildfires, heavy rainfall, flooding, and labour action” for hiking costs and lowering efficiency. Result: new places cost a ton.

Says RBC:

“Significantly ramping up homebuilding over the medium to longer term will keep costs elevated. Continuing to focus on higher-density development in very tall structures, for example, will push up demand for cement — potentially straining production capacity limits. And expanding capacity for cement — or other materials — may be difficult given the environmental impact this would have. Even expanding lumber production could be tricky because of climate change (and more frequent and devastating forest fires).”

But there’s more. Big cities like Toronto are broke. Despite demands from senior levels of government that the locals give builders a break, it costs big bucks to service land, provide amenities and extend the services new residents demand. So up go development charges, fees and permits. It adds well over a hundred grand to a house in the Toronto region, for example. The increase last year averaged 30%.

So, tell me: how does the young minister fix this?

And the answer, of course, is that he cannot. And even if we were to double production and create three million new units over the next seven years, none would cost less than those on the market today – because land, wages and materials will not (logically) start deflating.

More importantly, in the less-than-two-years remaining before the next vote, it is 100% impossible for supplies of fresh digs to overtake demand, resulting in a price tumble. Sean’s gotta know this. And so do you. He’s Trudeau cannon-fodder.

There’s only one way to reduce the market value of all residential real estate.

But you don’t want to hear about that.

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Source: https://www.greaterfool.ca/2023/08/08/the-minister-of-failed-dreams/