December 20, 2023

What do you know about Quebec’s new housing construction market?

Whether it is rental or new housing, the housing shortage is impacting the entire real estate market. In the 18th episode of the Real Estate in Motion podcast series presented by the Quebec Professional Association of Real Estate Brokers, Guillaume Houle, public affairs manager for theAssociation de la construction du Québec, helps us to better understand the situation here in Quebec.


Portrait of the 2023 Quebec construction market

Between 35,000 and 38,000 unit starts were projected for 2023, which is low compared to previous years. “To put it in perspective, we have built, on average, around 50,000 housing units per year over the past 10 years,” explains the public affairs manager. “The 2023 housing start rate is the lowest recorded in the last two decades.”

Impact of inflation

The rise in inflation observed in 2023 has had repercussions on the construction market in Quebec. Rising interest rates and the borrowing capacity of builders have played a major role. “Imagine entrepreneurs who have had to borrow millions of dollars to get projects off the ground, buy materials and pay for labour. Only when the project is completed can they see a return on their investment,” mentions Guillaume Houle.

The public affairs manager also points out that entrepreneurs must borrow at interest rates that can reach 6%, 9%, even 10%, which represents colossal sums. “We are attacking not only the viability of a project, but also the affordability of the units that will be built,” specifies the specialist.

In addition, the profit margins required by financial institutions are no longer realistic. Previously, these were between 6% and 12%, whereas, today, they are from 4% to 8%. This turnaround has a direct impact on the financial guarantees that banks now require.

Homeownership for families

Does this mean that homeownership will be more difficult for families? Most likely. “Taxpayers have reached their capacity to pay and the CMHC’s research is quite eloquent on the subject. Housing affordability is under attack. And since there is less new construction, existing units sell at higher prices,” maintains Guillaume Houle.

As the cost of new construction has become exorbitant, only large-scale private projects, sometimes amounting to millions of dollars per unit, are being built. “Builders are realizing that they must not only cater to a better-off clientele, but also to middle-class clients […] who would like to become homeowners, but who are currently unable to do so,” notes the expert.

For Guillaume Houle, we should be building all types of new homes, whether it be upscale housing, houses for the middle class or social housing. In this regard, the Quebec government recently announced a budget of $1.8 billion for the construction of approximately 8,000 social housing units. The CMHC believes that we need to build an additional 860,000 housing units by 2030 to resolve the situation.

What do the next few years look like?

Asked about the demand for housing over the coming years, Guillaume Houle envisions a two-phase approach. The first concerns increasing productivity within the industry with a view to reducing construction costs. “When we look at Quebec’s heavy, restrictive regulations governing the construction trades, we see a lack of adaptability,” according to the ACQ spokesperson.

On the other hand, the financial aspect also plays an important role. In order to regulate the market, the Government of Canada has introduced a temporary measure that removes the GST for new residential rental construction. According to Guillaume Houle, the Quebec government and financial institutions could implement similar actions as early as 2024, for example, by offering preferential interest rates.

There are, therefore, several possible actions that can be implemented to stimulate the new construction market and alleviate the housing crisis currently affecting Quebec.

See also:

Keeping Up with Real Estate Market Trends

New construction: guarantees and other things to know

5 Things to Consider Before Buying an Off-Plan Condo

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