Prime Minister Mark Carney has pledged to boost housing supply to tackle affordability. Today, we unpack why neither higher supply nor lower prices alone will likely be enough to restore hope that homeownership is within reach.
In the news
Farming: A split among Canada’s farmers is being reopened with recently proposed legislation to legally lock supply-management rules on egg, dairy and chicken imports.
Energy: Demand for energy is set to soar 44 per cent by 2050, the head of OPEC says.
Telecoms: The trio of actors behind the popular SmartLess podcast have launched a U.S. discount cellphone service promoted through their irreverent comic personas and backed by Canadian executives and investors.
On our radar
- Forecasters expect a report today to show U.S. inflation sped up in May as businesses passed on new tariffs to consumers.
- Earnings include Dollarama Inc., which in April said the trade war will have an impact on consumer spending across retail, including discount stores.
You can build as much as you want, but people need an income to buy.Sibani Das/iStockPhoto / Getty Images
In focus
Why worry over work is weighing on the housing market
Real estate has long been a dependable engine of growth. But with supply rising, prices softening and buyers stepping aside, it’s no longer clear that housing can deliver the large economic boost policy makers expect, Tim Kiladze writes.
The slowdown is spotlighting an intensifying problem: Homebuyers might be waiting for interest rates to fall, but they’re also worried about job security. Income anxiety isn’t something that can be squarely addressed by building out more supply – a signature Carney campaign promise – and that worry could linger as long as the trade war continues.
I spoke with Charles St-Arnaud, chief economist of Alberta Central, which serves as the province’s credit-union association and liquidity manager, about why more supply isn’t a silver bullet – and why even falling prices might not help.
How much of an issue are prices today, even as they come down in important markets?
By any measure, we’re significantly less affordable now than we were before the pandemic. Compared to the mid-2010s, it’s still very hard for most people. The challenge is that affordability isn’t just about prices – it’s about income, too. And we haven’t seen enough income growth to compensate.
So if prices fall but incomes don’t rise...
... affordability doesn’t necessarily improve. The affordability equation has two sides: prices and income. If prices drop but income stays the same – or worse, people lose their jobs – then affordability may not get any better. In Ontario, for example, I estimate the average household spends about 18 per cent of their disposable income just on debt repayment. That doesn’t leave much room for higher mortgage costs, especially if someone in the household loses a job.
Are people sitting on the sidelines right now because of uncertainty?
Definitely. If you’re a prospective buyer and you see prices falling, plus there’s economic uncertainty, you’re probably going to wait – unless you really have no choice. You might be hoping prices will be even lower a year or two from now. That’s a rational response when the outlook is unclear.
Does worry tied to U.S. politics and tariffs add to that hesitation?
Yes. The uncertainty created by trade tensions – especially with Trump back in the White House – isn’t going away soon. And that affects the broader economy, not just housing. In Ontario, for example, a lot of good-paying jobs – particularly in manufacturing – are vulnerable. If people feel their job might be at risk, they’re less likely to take on more debt or buy a home.
Are there secondary effects you’re watching for?
If someone in a dual-income household loses a job and they’re already stretched, they may have to sell their home. That leads to forced sales, which pressures the housing market further. We didn’t really see this during the global financial crisis because it was sharp but short.
Prime Minister Mark Carney has been promising to boost housing supply to tackle affordability. Does that address the full picture?
Supply is important. More homes will help in the long run. But again, affordability isn’t just about how many homes exist – it’s also about whether people have jobs and income to pay for them. If we’re in a weak labour market, or people fear losing their jobs, they won’t be able to buy – even if prices fall.
So does building more homes actually help affordability in the near term?
It can, especially by easing pressure on rents. In fact, we’re already seeing that. Rents are falling – down 3 per cent nationally in 2024. In Calgary, they dropped 8 per cent; in Toronto, 7 per cent; and in Vancouver, 6 per cent. That’s partly due to weaker demand, fewer non-permanent residents and more units coming online. It gives renters breathing room and reduces the urgency to buy.
Is there a trade-off here between current homeowners and future buyers?
Yes, and it’s an unavoidable one. To restore affordability, someone has to bear the cost. Either current homeowners see prices fall, or younger buyers are locked out longer. You can’t have both. A full adjustment through prices in Toronto would mean a 40- to 50-per-cent drop. A full adjustment through incomes would take 15 years. As a society, we have to choose.
So even with efforts to boost housing supply, we’re still facing deeper structural issues?
Exactly. Building more homes is necessary, but it doesn’t solve affordability on its own. If jobs disappear, income stagnates, or interest rates stay high, affordability won’t improve. And with ongoing geopolitical and trade uncertainty, especially around the U.S., the economic headwinds aren’t going away soon.
Related reading
- Real estate developer Peter Gilgan plans to start a home-building factory in the Toronto area, the billionaire’s second attempt to create a prefabricated homes business as the federal government looks to boost construction of new homes.
Charted
Flying higher
The cost of replacing Canada’s aging warplanes with U.S.-made F-35 stealth strike fighters is expected to be nearly 50 per cent more than the estimate Ottawa provided Canadians, a report from the federal Auditor-General says.
Bookmarked
On our reading list
In the bike lane: How Bridge Bike Works builds the only made-in-Canada carbon frame.
Online: Siri, why did Apple underwhelm at its key developers’ conference? Siri, are you there?
Playing host: The cost of kids’ birthday parties is out of control.
Morning update
Global markets were mixed amid cautious optimism over progress in U.S.-China trade talks, although investors awaited further details on the framework agreed upon by the two countries. Wall Street futures were in negative territory ahead of key inflation data, and TSX futures followed sentiment lower.
Overseas, the pan-European STOXX 600 was 0.12 per cent lower in morning trading. Britain’s FTSE 100 was little changed, Germany’s DAX gained 0.08 per cent and France’s CAC 40 gave back 0.05 per cent.
In Asia, Japan’s Nikkei closed 0.55 per cent higher, while Hong Kong’s Hang Seng rose 0.84 per cent.
The Canadian dollar traded at 73.06 U.S. cents.