While there is growing talk of the possibility that interest rates could begin to fall sooner than expected due to progress in the fight against inflation, concerns remain surrounding certain components of the rise in the cost of living which risks further weighing on a gradual return to normalization of monetary policy in the country.
One such concern was raised this week by Toni Gravelle, deputy governor of the Bank of Canada, during a speech he gave in Windsor, Ontario.
In this speech, the Deputy Governor of the Bank of Canada strongly emphasized the increase in the cost of rent which is observed across the country and which is unlikely to fade due to the general shortage of housing.
A rarity largely attributable to the sharp increase in immigration that Canada has recorded since 2015 and which has accelerated to reach a peak since 2022.
From 2016 to present, Canada has recorded the highest annual population growth of any G7 country. Over the past four quarters, Canada has welcomed more than 1 million new arrivals, 60% of whom are non-permanent residents, mainly temporary workers and international students.
Mr. Gravelle immediately recognizes the contribution of these newcomers to Canadian economic activity, who notably occupy jobs abandoned by Canadians who are retiring.
This immigrant activity has made it possible to increase the potential output of our economy by 2 to 3% without generating inflation, with immigration representing only 0.1 percentage point of the annual inflation rate, according to the Bank of Canada.
But this massive influx of newcomers since 2016, who rent when they move to Canada, continues to put pressure on the housing vacancy rate, the constant decline of which has become, since 2022, dizzying, according to Toni Gravelle, the most all-time low.
The scarcity of available housing is putting pressure on rent prices, which are now reaching unprecedented levels. According to CMHC, in 2022 it cost $1,417 on average to rent a two-bedroom apartment in the greater Montreal area and we are not talking about the rental price of condos.
A shortage that is expensive
In 2022, you would have to pay an even higher price on the island of Montreal, and even more expensive, around $2,200, in the city center of the metropolis. The statistics for 2023 will be revealed at the end of next January, but the situation will surely have deteriorated further.
Inflation figures from last October tell us that rent costs increased by 8.2% during the month in Canada, which marks an increase compared to September when we recorded an increase of 7.3% and a jump from 4.7% posted a year ago.
Above all, this is the largest monthly increase in housing costs recorded in 40 years in Canada, which is not without concern for the leaders of the Bank of Canada.
The housing shortage is partly attributable to the weakness in new housing starts caused by rising interest rates, but the phenomenon was already pre-existing when rates were low, observes the Bank of Canada.
In Canada, as in Quebec, the construction of new housing does not keep pace with rapid population growth. There were no fewer than 471,000 non-permanent residents in Quebec last July, compared to 322,000 the previous year.
If many temporary workers are housed more or less adequately by their employers, we are still far from the mark when we know that 35,000 new housing units should be built this year for the whole of Quebec, even though there are built 68,000 two years ago.
In this regard, the Bank of Canada is calling for federal, provincial and municipal administrations to adopt a more proactive stance towards new housing construction projects.
“We must reduce obstacles to increasing construction capacity and make the market better able to respond to future changes in housing demand,” suggests Deputy Governor Toni Gravelle.
And that’s exactly what the Quebec Minister responsible for Housing, France-Élaine Duranceau, did by making amendments to her Bill 31 to give more powers to municipalities in the management of unit construction projects. housing by reducing the bureaucratic burden of processes.
We talk a lot about the increase in the cost of the grocery basket and the financial burden on households who have to renew their mortgage loan, but the ability to pay of tenants who represent more than 30% of households in Quebec is no longer at stake. all in line with market reality.
More supply is needed to meet demand and slow down the rise in rental prices.