On the same day it repealed its controversial Keeping Students in Class Act, the Ontario government released its 2022 Economic Outlook and Fiscal Review (EOFR). The EOFR provided an update on the state of Ontario’s economy and its fiscal situation. The document tells an economic and fiscal story that is similar to the federal Fall Economic Statement: higher tax revenues generated by higher prices, lower real gross domestic product forecasts and global economic headwinds potentially resulting in higher unemployment rates in the coming years.
The EOFR also adjusted the housing starts forecasts for 2022 to 2025 (an indicator used to measure new residential construction). It predicts the province will see 19,300 fewer housing starts than what it anticipated only a few months ago in budget 2022. If the Ford government wants to achieve its objective of building 1.5 million homes in the next ten years, the EOFR numbers moved in the wrong direction.
Notably, housing starts forecasted in the EOFR decreased from 84,000 to 76,900 for 2023. The figures shrank even more for 2024, down from 87,300 to 77,800. Both revised numbers are below the average of the last five years (81,544). In 2025, Ontario should see 85,100 starts (still down 2,700 compared to the budget numbers).
In light of the new data, the government would need to see 1,173,600 housing starts between 2026 and 2032 to achieve the 1.5 million mark if we include the projected 2022 starts in the calculations. This represents a little over 167,600 yearly housing starts on average in the next seven years.
In other words, the number of anticipated starts for 2025 would basically have to double in one year to reach 167,600 in 2026.
To put this into perspective, 2021 saw approximately 100,000 housing starts. This was the highest level since 1987 according to the government. At the current pace and based on the forecasts, it appears unlikely the province will reach the yearly cadence required to reach 1.5 million homes by 2032.
The economic headwinds
Economic forces are greatly influencing the new housing starts numbers. It is a stark reminder for decision-makers that economic dynamics can negatively impact housing and construction.
Higher interest rates and overall uncertainty are having consequences for developers who are now facing greater financing costs. This comes at the same time as input prices remain stubbornly high compared to before the pandemic. Looking at the Statistics Canada Industrial Product Price Index, primary ferrous metal products, which include steel, were up nearly 47 per cent in September 2022 compared to February 2020. For their part, cement, glass, and other non-metallic mineral products were up 14 per cent over the same period.
Job vacancies also continue to hinder the start of new projects. At the national level, there were around 82,300 vacant jobs in construction in August 2022. The overall job vacancy rate for the sector was 6.5 per cent, which was more than the combined rate for all industries in Canada (5.4 per cent).
These challenging economic factors come at a time where Ontario could face a recession in 2023. The EOFR predicts real GDP growth will hit 0.5 per cent next year, which essentially leaves no margin of error to the economy.
After rolling out some measures to grow Ontario’s housing supply during its first mandate, the Ford government has kicked its housing agenda into overdrive since the Ontario Housing Affordability Task Force tabled its final report back in February. The last 30 days have seen a flurry of commitments with the tabling of the More Homes Build Faster Act (Bill 23) and the Better Municipal Governance Act (Bill 39).
As Bills 23 and 39 have not yet been passed, the proposed changes were likely not factored into the housing starts forecasts from the Ministry of Finance. However, the lower starting point to achieve the 1.5 million home objective and the fact that the housing initiatives adopted in April did not prevent a downward revision will not be welcomed news in the offices of Housing Minister Steve Clark and the premier.
Unless the changes recently put forward by the government can lead to yearly housing starts records that can withstand economic headwinds in the next decade, the cadence required in light of the new EOFR numbers appears challenging to say the least.
Assuming Bills 23 and 29 can be adopted by then, all eyes will be on the updated housing starts data in the next provincial budget.
Sebastien Labrecque is the deputy director and chief economist of StrategyCorp’s Institute of Public Policy and Economy. Sebastien has worked in the federal government at Canada Mortgage and Housing Corporation and Innovation, Science and Economic Development.
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