*This post was created in collaboration with Mortgage Maestro.
Canada is in the middle of a major housing affordability crisis right now. According to a recent survey from Mortgage Professionals Canada (MPC), 33% of non-homeowners in Canada say they’ll never be able to afford a home purchase, a record high.
One way to combat this situation is to make more housing available through new construction. But how many new housing starts are needed to bring affordability back to manageable levels? And is the government of Canada on track to meet these needs within a reasonable amount of time?
What Are Housing Starts In Canada?
Housing starts are an economic indicator that shows how many new residential construction units have begun over a specific period of time. Data is typically categorized into the following:
- Single-family homes
- Townhouses or condos
- Apartment buildings with at least five units
Housing Starts In Canada: Trends
Canadian housing starts increased in June 2023 from the month before. More specifically, the number of housing starts reached 234,974 units in June, up from 229,520 units in May, marking a 41% month-on-month increase. That said, the six-month moving average for housing starts in all areas in Canada dipped, though only slightly.
Toronto and Vancouver metropolitan areas saw the highest increases in housing starts in June. Toronto’s housing starts soared 100%, and Vancouver’s was up 71%. The two urban centres accounted for 47% of total housing starts in Canada for the month of June.
On a nationwide basis, single-detached urban starts inched up in June by 3% to 42,901 units, while multi-unit urban starts jumped by 59% to 219,914 units.
Will New Housing Starts In Canada Help With The Housing Crisis?
Soaring home prices are keeping many Canadians out of the real estate market. Many cannot afford a mortgage or rent. And the main culprit behind these skyrocketing prices is a significant housing shortage.
New home construction is not only unable to keep up with demand, but it’s also dropping.
Spiking interest rates are also making housing affordability a major issue for Canadians. On July 12, the Bank of Canada increased its key lending rate to 5%, the highest level in two decades. Meanwhile, the population across Canada passed the 40 million mark, with over one million people added over the past year alone.
To bring housing affordability levels down to a comfortable point for Canadians by the year 2030, Canada would have to build 3.5 million housing units in addition to what is typically constructed.
Clearly, more housing starts are needed to help curb the affordability crisis. But whether or not the country meets the requirements to help achieve housing affordability for Canadians by 2030 remains to be seen. It will certainly be a big challenge, and the longer authorities wait to meet these demands, the worse the issue will get.
Can You Buy New Housing Starts In Canada?
Yes, it’s possible to purchase a new home build with the help of a construction mortgage. This type of mortgage is meant to finance the construction of a new home, whether you build it yourself or buy from a builder.
A construction mortgage differs from a traditional home loan in terms of how the money is paid out. While a typical mortgage involves paying out a lump sum of money to the seller on closing day, a construction mortgage is paid out to the builder in smaller installments after each step of the project is completed.
Lenders may only require interest payments during the draw phases, then both principal and interest will be required once construction is complete. Until then, inspections are conducted at each phase and approval is necessary before the next draw.
Where Can You Get A Construction Mortgage?
Construction mortgages are not as common as traditional mortgages. As such, they’re not offered by all lenders. There is more risk for the lender, which means lending requirements are stricter.
For this reason, you may be wise to work with a mortgage broker like Mortgage Maestro who can explain the process and find the right lender that is willing to offer you what you need. There are several perks to working with a mortgage broker, including the following:
- Connect with many lenders. Mortgage brokers have a large network of lenders that they work with, so you’ll be connected to dozens of lenders by working with just one point of contact.
- Apply once to several lenders. One mortgage application is enough when working with a mortgage broker, who will then use it to apply to the right lenders that work with borrowers with your financial and credit profile.
- Better access. You might not be able to connect with certain lenders on your own, but your mortgage broker can thanks to the working relationships they’ve built among various lenders.
- Save money. Your mortgage broker will be able to find you the best deal on a mortgage with the lowest interest rate and fees. This can save you a ton of money on your loan.
What Do You Need To Get A Construction Mortgage?
Like a typical mortgage, there are certain requirements you must meet to get a construction mortgage.
Down Payment
A down payment may be required for a construction mortgage. Because of the higher risk for the lender, you’ll likely need a bigger down payment of at least 25% of the loan amount.
Credit Score
The credit score requirements for a construction mortgage may be higher than a regular mortgage. This is because a construction mortgage is riskier for the lender. With a construction mortgage, the unfinished house acts as collateral and thus has a lower value. So lenders may be stricter with their requirements.
Income
Similar to the credit score, the income requirements for a construction loan may be higher than a regular mortgage. Lenders will also evaluate your debt levels to ensure you can afford the payments.
Final Thoughts
The demand for housing is too much for the current supply to meet. For this reason, new housing starts must increase quickly to meet this demand and alleviate the housing affordability crisis.
Whether you’re looking to build your own home or want to buy new construction from a builder, there are mortgage products available specifically for this purpose. Mortgage Maestro can connect you with the right lender that can offer you what you need.
Housing Starts In Canada FAQs
Are there any programs to help with mortgage affordability?
- GST/HST new housing rebates: Get back a portion of the tax you pay when purchasing a home.
- The Home Buyers’ Plan (HBP): Withdraw up to $60,000 from your RRSP tax-free to purchase your first home.
- First Home Savings Account (FHSA): Save up to $40,000 tax-free to purchase a home.
- First-Time Home Buyers’ Tax Credit: Get a $1,500 non-refundable tax credit for purchasing your first home.
