This text is part of the special Real Estate section
An “exceptional” year. This is the qualifier used by residential construction professionals to describe the year 2021. If the fall in interest rates has accelerated the shovelfuls of earth on construction sites, the pandemic has also given the desire to move to more outlying areas. Despite a drop in 2022, new construction should remain at a high level.
First of all, it was a slowdown in housing starts that the pandemic caused in the spring of 2020. Then, “the rebound was so strong that it more than made up for lost ground,” notes Hélène Bégin, Senior Economist at Mouvement Desjardins. The year 2020 was therefore distinguished by more than 53,000 housing starts (+11% compared to 2019). But it was in 2021 that construction peaked.
The best year since 1987
Nearly 68,000 residential starts were recorded by the Canada Mortgage and Housing Corporation (CMHC) in 2021. A level that the sector had not reached since 1987. “It is also the third among the best years of all time! says Paul Cardinal, director of the economic department of the Association of Construction and Housing Professionals of Quebec (APCHQ). With 35,600 housing starts, rental housing registered an all-time record. “We had never seen that in the history of Quebec,” reports Mr. Cardinal (data begin in 1955).
These exceptional figures can be explained by three main reasons. “The pandemic caused a sharp drop in interest rates, as central banks feared a significant downturn in the economy,” explains Paul Cardinal. The increase in prices in Montreal and the development of telecommuting have also prompted many Quebecers to move. “There is a resurgence in popularity for the single-family home, the suburbs and even rural areas,” observes the director.
Housing starts increased within a one-hour radius around the metropolis, but also in comparatively very affordable areas, such as the Trois-Rivières region (+63%). The third explanation is to be found on the side of the scarcity of supply on the resale market, which is accompanied by an overbidding. “People have saved a lot and have been able to direct these funds to new homes on the outskirts and in rural areas, where there is a lot more land available than in Montreal,” adds Hélène Bégin.
A decline for three months
However, the peak of this surge was reached a few months ago. “We’ve been down since December 2021. In February 2022, housing starts fell 39% from February 2021,” observes Paul Cardinal, who blames the curve inversion on supply issues ( windows, joists, roof trusses, etc.) and the increased cost of labor and materials. “We were already at the maximum of what the industry could do anyway because of labor issues,” he says.
“Last year, the prices of new houses increased by 20%, and delays in delivery were caused by the lack of materials”, observes Hélène Bégin, for whom the burden weighs particularly on the builders, bound by provisions contractual obligations, and the buyers who ultimately suffer the consequences.
An expected slowdown
Industry professionals are expecting the decline to continue, especially as interest rates are starting to rise. “I expected the price of new homes to increase by 10% in 2022, but depending on the conflict in Ukraine and the economic sanctions applied to Russia, this figure could reach 15%”, warns Paul Cardinal. With Russia exporting wood, aluminum, steel and oil, among others, material and transport costs could be affected. “This situation is to be watched closely, as well as the increase in interest rates”, indicates the director.
However, Quebecers lack housing. “We estimated last year that there was a shortage of between 40,000 and 60,000 private dwellings in Quebec. I am in the process of redoing this evaluation, but I believe that we are certainly closer to 60,000, ”says Paul Cardinal.
A delay to which is added a problem of affordability. “If we could build these houses with a wave of a magic wand tomorrow morning, they would cost 30% more than if we had built them two years earlier. That doesn’t mean they would sell like hot cakes,” says the director, who observes, however, that the upward recovery in the number of non-permanent residents could stimulate demand for rental housing.
With 55,000 new homes expected in 2022, Hélène Bégin forecasts a fall of 18.9% compared to the previous year (the single-family segment would be the most affected, with activity remaining strong for the rental sector). In 2023, this rate would continue to fall by 5.5%, according to Desjardins. But the economist points out that this contraction is relative: “The year 2022 would remain excellent, since 2021 was truly exceptional. »