Maintaining a high quality of life has become a challenge for Canadians facing higher prices for basic necessities, with shelter costs representing a significant and rising expense for many households. The latest inflation report showed mortgage interest costs increased 25.4 per cent year-over-year in March, while rent prices jumped 8.5 per cent year-over-year. The state of the housing market has a multiplier effect, affecting economic growth, consumer spending, businesses – even internal migration to cities that offer affordable housing.
To unpack the latest housing trends, The Globe and Mail recently spoke with Robert Hogue, assistant chief economist at Royal Bank of Canada RY-T. He shared his perspectives on the housing market and ways to address housing affordability.
What’s your outlook for home prices?
We expect them to rise but very modestly at first. We’re not in the camp of expecting a big pop in either home resale activity or prices because affordability is still such a big issue that is going to keep so many potential buyers on the sidelines for some time.
We do expect the recovery to continue to unfold. It looks like the market turned a corner somewhere around the turn of the year. Around December, January, we saw activity pick up across Canada – not everywhere, but generally speaking. Also, prices on a month-over-month basis are starting to rise – that’s certainly the case in the GTA and in Vancouver as well.
The recovery is likely to be fairly subdued at first. Our view is that we’ll need to see significant interest-rate cuts to open that door for buyers and to have more heated demand in the market. Once the Bank of Canada cuts the interest rate fairly materially, this is when we would expect more buyers will get in the market and push prices higher at a more accelerated pace. This might start in the latter half of 2024, but our base case is not forecasting a sudden spike, it’s going to be more of a gradual ramp-up.
You mentioned that you expect home prices will increase modestly, meaning single-digit year-over-year changes?
Probably low single digits at first and then still in the single digits going forward.
Now, the Bank of Canada is paying attention to what’s happening in the housing market, and if it sees a market that starts to rebound very vigorously and price activity that starts to point toward an overheating in the market, it may be a factor that might push the bank to hold off on the pace of rate cuts that we’re expecting. I’m not saying that the bank will start to hike interest rates, but it might influence the pace of rate cuts.
When do you expect the Bank of Canada will begin to cut rates and where do you see rates headed?
Our call is in June. We expect a full percentage point of cuts this year and an additional percentage cut in 2025. The first rate cut is probably not going to make a huge difference for many potential homebuyers. But by the time we get a full percentage point later this year and probably more into 2025 with further rate cuts, I think this is going to start to make a difference to buyers that have been pushed to the sidelines over the last couple of years.
Now, I don’t want to come across as saying once the Bank of Canada is done cutting interest rates that suddenly the market will be affordable to everyone, everywhere in Canada. I think the deterioration in affordability that we’ve seen is unlikely to be entirely reversed any time soon.
What cities would you characterize as being buyer’s and seller’s markets?
In terms of a buyer’s market, the markets that come to mind are in parts of Southern Ontario. I’m thinking markets like Guelph or Kitchener-Waterloo that during the pandemic overheated but then the correction was quite significant, quite severe, when the Bank of Canada went into its rate hiking campaign. Those markets have cooled down significantly and they’re a little bit behind other markets like the GTA, for example, where things have rebalanced and prices have started to rise on a month-over-month basis.
At the hotter end, Calgary comes to mind. This is a market that is seeing tremendous population growth coming from waves of immigrants and interprovincial migrants, and that is boosting demand significantly. The Albertan economy has softened relative to where it was about a year ago, but it’s still fairly robust compared to other parts of the country, so that contributes to income gains, for example, and confidence that is quite critical for the housing market.
Earlier this month you published a report titled The Great Rebuild: Seven ways to fix Canada’s housing shortage. Of those seven ideas, which ones do you think may have the greatest impact on supply?
Removing obstacles to home building, so things like zoning and the length of project approval processes need to be addressed and very quickly.
Second, the construction industry has a capacity issue. We need to grow that capacity by increasing the construction labour pool from immigration or various programs to attract young Canadians to get into construction trades.
Also, to encourage the industry to build differently, and there I’m thinking, more specifically in prefabricated housing, modular housing, building either whole homes or parts of homes. Factories hold quite a bit of promise to be much more efficient, to get more units out on a per-worker basis.
Lastly, I think it’s really important to put a lot of emphasis in changing the housing mix that we build and have more rentals, because when we do projections for the coming years, our view is that demand for rental apartments is going to skyrocket. So we need to build a lot more purpose-built apartments as well as social housing, because a lot of Canadians will not even be able to afford market rent given the affordability crisis that we have. If affordability does not change enough, it’s going to affect the type of demands that we’ll have in the future. So any kind of incentives that can be put forward to stimulate construction of apartments would be significantly welcome.
What about the other side of the equation? In order of importance, what would you identify as suggestions to tackle the demand side of the equation?
What’s been talked about a lot has been immigration, especially non-permanent residents coming into Canada. We’re seeing booming numbers, and this is putting tremendous pressure on Canada’s infrastructure, including housing.
There’s been some measures announced by the federal government to put a cap on non-permanent residents, something that Canada has never done before. This should, in our view, provide a bit of breathing room for supply to catch up with the very strong demand that we’re having and we’re likely to have in the future. Capping immigration means that it’s going to slow down population growth. It also means that it’s going to slow down the growth in demand for housing. What it does not mean is that it’s cutting demand for housing, it’s just not allowing demand to grow as fast as it is now or that it’s been over the last couple of years especially. It will give the supply side a chance to catch up a bit more. And if those supply-side measures are successful, then hopefully we’ll get to balance more quickly. Demand-side measures, especially immigration, in and of themselves will not necessarily rebalance the market.
The government is targeting 485,000 new permanent residents in 2024 and 500,000 in 2025. What level of immigration can the housing market support?
It’s very hard to tell. The pressure on our housing stock comes from household formation. When you have a new household being formed, they need a housing unit. When you have pressures coming from affordability and this big boom in immigration, for example, it basically made people bundle up. They get together and several of them live in one housing unit. So they’re not revealing how many units would be ideal. For us, it’s difficult to really see through what those coping mechanisms are and discern what is the ideal outcome and the number of units that would be required. That’s a very hard question to answer.
Do you think we have to reduce immigration significantly temporarily until housing supply improves?
When you consider that Canada, over the next decade or so, we’ll see half a million baby boomers reaching retirement age every year, that is going to be drilling a fairly significant hole in the labour pool. And it’s not just from a labour pool perspective, it’s also in terms of a tax base for the government. The way we finance our social programs, for example, it’s largely from income tax. So you need to make sure that you’ve got the number of taxpayers, working people, still up there.
We understand the stress arising from this ballooning immigration that we’ve seen over the last couple of years especially. Most of that surge has been on the non-permanent resident side. We argued, before the government put in place some caps, we argued that part of it would be self-correcting because some of the increase in non-permanent residents was to address labour shortages. The job vacancy rate has dropped quite a bit over the past year, year and a half, and it’s probably going to continue in the very sluggish economy that we’re in. Also, part of this large influx of non-permanent residents has been Ukrainians fleeing the war in Ukraine, and that program has ended.
Some development projects were put on hold because of higher financing costs, higher cost of materials and labour. How is that situation now?
When you look at homes under construction, we are at record levels in Canada across many markets, so it’s not that homebuilding is weak. And even when you look at housing starts, it is not soft, it’s just not enough to meet the kind of demand that we’re having.
What we’ve seen in terms of preconstruction sales is that market completely came to a halt when interest rates went to a very high level over the past year-and-a-half – and this is not rebounding yet. What that implies is that the pipeline in new projects that will get started at some point is getting thin. But in terms of what is being started, what is being worked on, those numbers I would argue are historically robust – not enough relative to what we need, but they’re still pretty robust. The concern is that given that thin pipeline, which is not filling up sufficiently, a year from now or two years from now, those construction levels will fall. That’s a concern.
What were your thoughts on the federal government’s budget as it relates to housing?
It’s a very substantial plan with, by my account, something like 53 measures. Not all were new – a number of them were either an existing federal measure or extensions of existing measures. Nonetheless, it covers a lot of ground, but the portion that focuses on home building, in our view, is heading in the right direction.
Were there measures, or a particular measure, that you think will have the most immediate impact of meeting their stated objective of adding new supply quickly? And when may we see a meaningful increase in supply that helps balance the market?
It’s hard to answer in the sense that they’re firing from so many directions. It’s difficult for me to get a sense of which one will hit the target first.
I would note this accelerated capital cost will probably move the needle as far as the rental apartment constructions. The government had previously announced a full rebate on the GST for new purpose-built apartment projects. Now, this accelerated capital cost allowance will be another measure that would be welcome in the industry and should give the green light to more rental projects going forward. Being able to deduct certain capital expenses more quickly, it means that you can make the project profitable more quickly. It used to be 4 per cent a year. Now, the government is boosting it up to 10 per cent a year. This helps the economics. It helps with the profitability of the project. This is probably not going to have an impact next month or six months from now but certainly will address this huge shortage in the rental stock. Over the medium term – three to five years – I think this is going to be a positive measure.
What do you think about the budget changes announced by the federal government such as the increase in withdrawals from RRSPs to $60,000 from $35,000 for first-time homebuyers making down payments and allowing first-time homebuyers of newly built homes to have a 30-year amortization term instead of 25 years? To me, these changes might stimulate demand, but since you still don’t have supply, it may increase prices and reduce affordability.
You think like an economist.
I totally get that the government and politicians want to help first-time homebuyers. The issue is that when supply is not sufficient, any measures that ultimately end up stimulating demand with a fixed supply, economics 101 will tell you that the adjustment mechanism is prices, and prices are going to go up. You’ve got to make sure that supply is ready to meet demand, otherwise it’s going to be counterproductive.
Now, the interesting part is that the longer amortization is for mortgages specifically for first-time homebuyers of new homes – it is very targeted. I would say that if you’re going to do something like that, that’s the way to do it. However, by putting all those conditions in there, the pool of people you’re going to end up helping is probably going to be much more limited.
On raising the ceiling on how much money you can withdraw from your RRSP, I’ll be just interested to find out how many young Canadians, or those who are contemplating buying a home, how many have $60,000 in there that they can draw upon. I’m not quite sure that the pool of potential people who will benefit from it is that large.
If you were to make Canadian housing market predictions over the next couple of years, what would they be?
I would say the rental market tightness that we have right now will get better. I’m not sure if it will satisfy everybody, but we should get some relief. I think in large cities affordability issues will probably still be around. Probably not as acute as they are today, but will still be something that we will talk about.
This interview has been edited and condensed.
The federal government has come under fire for failing to bring in measures it promised five years ago to crack down on unethical and fraudulent immigration consultants, with the Conservatives demanding to know why a compliance regime is not yet in force.
Last year, a group of international students applying for permanent residence faced deportation after it emerged that an unlicensed “ghost” immigration consultant operating out of India had submitted fake acceptance letters to colleges with their applications for study permits.
Other licensed and unlicensed immigration consultants have been implicated in a jobs-for-sale scam, in which people hoping to work in Canada have been illegally charged thousands of dollars to obtain a job reserved for an immigrant because no Canadian could be found for the position.
The Canada Border Services Agency said that between May 1, 2019, and April 9, 2024, 153 individuals were charged with fraudulent immigration consultant-related offences. The vast majority of them were Canadian citizens or permanent residents, and 17 were foreign nationals – one a refugee.
In a statement, CBSA spokeswoman Jacqueline Roby said people who violate Canada’s immigration laws face criminal charges, court fines, probation or imprisonment. She said investigations largely target the organizers of fraud schemes.
They include scams such as asking for unreasonable fees with the promise of a job offer in Canada, only to see the victim arrive and find no job waiting for them. Some illicit consultants work in collaboration with people trying to come to Canada and knowingly submit fraudulent or misleading applications, Ms. Roby said.
Licensed immigration consultants operating in Canada have expressed concerns about unauthorized practitioners providing unreliable advice. Some have also raised questions about consultants operating outside Canada who are not Canadian.
Earl Blaney, a licensed immigration consultant from London, Ont., said “mass volumes of immigration applications are submitted overseas by unauthorized immigration representatives,” adding that Immigration, Refugees and Citizenship Canada (IRCC) is well aware of the situation.
In 2019, through an omnibus budget bill, the government gave itself the authority to create a regime of penalties, including fines, to deal with violations by anyone providing advice to people making immigration and citizenship applications.
IRCC, in a parliamentary reply three weeks ago to Senator Don Plett, the Conservative leader in the Senate, said the department had not yet imposed any fines on consultants because “the compliance regime for immigration and citizenship consultants is not yet in force” and “the regulatory authorities to do so do not yet exist.”
Paul Chiang, the parliamentary secretary to Immigration Minister Marc Miller, said in the reply that there had been delays in implementing the regime, partly owing to the pandemic.
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The department is currently working with the Department of Justice to draft the regulations, and the regime is expected to be in place between this fall and the winter of 2025, he said.
Mr. Plett accused the government of “incompetence” and said he plans to raise the delay in the Senate next week.
“As part of its omnibus budget bill in 2019, the Trudeau government included a new authority for Immigration, Refugees and Citizenship Canada to impose monetary penalties against fraudulent immigration consultants. And here we are five years later, and the program is still not yet in force, and as a matter of fact the regulatory authorities do not yet exist,” he told The Globe and Mail. “Five years ago, the Trudeau government claimed this was important, that it was a priority, and then nothing happened.”
Bahoz Dara Aziz, a spokeswoman for Mr. Miller, said the integrity of Canada’s immigration system has been a top priority for the minister since his appointment to the role last year.
“We are taking steps to address immigration fraud and cracking down on dishonest consultants who seek to abuse our system and take advantage of those seeking to come to Canada,” she said. “We opened the College of Immigration Consultants as the official regulator of consultants with a mandate to protect the public from those who seek to take advantage of newcomers. The college has the power and tools to investigate professional misconduct and to discipline its licensees, and its code of conduct holds consultants to high ethical and professional standards.”
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The college oversees the 11,749 licensed immigration consultants in Canada, as well as 231 working outside the country.
Between July 1, 2022, and June 30, 2023, it dealt with 755 complaints about consultants, 22 of whom faced disciplinary action. Twenty faced suspension, interim suspension or revocation of their licences.
Earlier this year the college revoked the licence of Manitoba immigration consultant Harar Singh Sohi for job selling and other misconduct. Under provincial law, it is illegal to collect a fee for finding a job for a foreign worker.
Stef Lach, spokesperson for the college, said it has been raising public awareness about unlicensed consultants who provide immigration advice for a fee. Its social media campaign has run in Canada and in India, China and Nigeria in local languages.
“Regulating licensees through compliance with standards of practice and meeting competency requirements is critical to the protection of the public. This is accomplished through the code of professional conduct and the college’s complaint investigation process,” he said.
He added that licensed immigration consultants do not have to be resident in Canada or Canadian citizens; court decisions involving professional regulators have consistently struck down citizenship requirements imposed on licensees.
But Conservative immigration critic Tom Kmiec said consultants “practising outside the country cannot be reasonably monitored by their college,” which is a problem.
Lower home prices and declining interest rates on new fixed-rate mortgages are starting to translate into affordability gains in some Canadian cities, a Globe analysis has found.
While many Canadian cities have seen sizable home price drops over much of 2022 and 2023, soaring borrowing costs over that period have, until recently, wiped out any affordability gains for homebuyers. But with lenders lowering fixed rates on new five-year mortgages over the past two months, that’s beginning to change.
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The Globe and Mail compared the mortgage payments homebuyers would have to carry if they purchased an average-priced home in their local market today to what they’d have paid if they’d bought in February, 2022, right before the Bank of Canada began its rate-hiking campaign. In a handful of housing markets, those payments would be lower, the numbers show.
The analysis shows it currently takes a home price decline of around 25 per cent or more from February two years ago to produce a mortgage payment decrease of more than $100 a month.
But the good news for homebuyers is limited. The gains are typically modest and concentrated in mid-sized cities and smaller communities in Ontario, which saw the sharpest housing corrections since early 2022.
And in the absence of sizable increases to the housing supply, any affordability gains are likely to be short-lived, with buyer demand bound to quickly push up prices, CIBC Capital Markets deputy chief economist Benjamin Tal said, commenting on The Globe’s analysis.
“What we’re seeing now is a situation in which we are planting the seeds for some increasing prices down the road,” Mr. Tal said.
The Globe calculated mortgage payments in more than 20 markets tracked by the Canadian Real Estate Association. The analysis relies on estimates of the price of a typical home in February, 2022, and in December, 2023, the latest available data.
To calculate mortgage payments at the peak of the pandemic housing boom, The Globe used a rate of 2.94 per cent. That was the lowest nationally available five-year fixed rate for purchases that don’t require mortgage default insurance in mid-February of 2022, according to MortgageLogic.news.
For an estimate of mortgage payments for today’s buyers, The Globe used a 5.29 per cent rate, the current lowest five-year fixed rate. The calculations assume buyers have a 20-per-cent down payment and will take 25 years to pay off the mortgage.
Those steep price declines are mostly found in Ontario. In Cambridge, for example, where prices have dropped 28 per cent from their peak, a buyer today would likely face monthly mortgage payments around $300 lower for a typical home. Buyers will find similar conditions in London, Waterloo, Hamilton and Oakville.
The province also dominates the ranking of markets where prices have fallen by around 20 per cent, which currently produces mortgage payments that are roughly equal to those buyers faced two years ago, before the central bank began raising rates. Chilliwack, B.C., is the only city outside of Ontario among those analyzed to also exhibit these conditions.
In much of the rest of Canada, buyers are still contending with higher mortgage payments. In Halifax, for example, the monthly payment on a typical home is still roughly $400 higher, even though home prices are 6 per cent lower.
In Calgary, where prices are up 10 per cent since February, 2022, a new buyer would have to shoulder nearly $1,200 more a month in mortgage payments for an average home.
But for many buyers, strong wage growth over the past two years should help soften the financial pinch, said mortgage analyst Robert McLister, who runs MortgageLogic.news.
“You would find that the total affordability is not as bad as it would seem in some places if you factor in that,” Mr. McLister said.
And lower home prices mean down payments can go further to reduce the size of a mortgage and its monthly instalments.
With borrowing costs still elevated, Mr. Tal expects only a modest revival in housing activity this spring. But the affordability gains realized so far are so little that even small price increases would erase them in the absence of further interest-rate declines, he said.