Trump's tariff war could pummel Canadian homebuilding and housing affordability

Canada is gearing up for a potentially devastating trade war with the United States, one that could plunge the economy into recession and put scores of Canadian jobs at risk.

The dispute – triggered by US president Donald Trump’s decision to slap 25% tariffs on all Canadian imports except energy, which has been levied at 10% – could also have a seismic impact on Canada’s housing and home construction outlook.

While the American tariffs alone will have a “muted” effect on the homebuilding industry, according to Canadian Home Builders’ Association (CHBA) chief executive officer Kevin Lee, housing starts are likely to tumble if Trump’s measures begin to weigh down on the Canadian economy.

“We still have a bit of a slow market despite the fact that interest rates are coming down and we would expect that they’ll continue to worsen as the trade war continues, if it does,” Lee said in Ottawa on Tuesday.

That slowdown would arrive with Canada already facing a grim outlook on the housing supply front. Canada Mortgage and Housing Corporation (CMHC), the national housing agency, estimates millions of new homes are required to restore affordability by 2030 – and there seems little prospect of that target being met.

Red tape continues to thwart homeMortgage Architectsbuilding progress

Regulatory burdens and too much government oversight at municipal, provincial and federal levels have often been cited as key reasons for that sluggish pace of homebuilding.

Joe Sammut, an Orangeville-based broker with Mortgage Architects– A Better Way, described bureaucracy as the biggest problem currently facing Canada’s housing supply outlook.

“There are too many levels of government involved in development. There are too many delays,” he told Canadian Mortgage Professional. “If you look at the costs associated with any newbuilds in Ontario, 35% of that is going toward taxes, levies, and everything else.

“From that standpoint, it’s very cost prohibitive for any builder to want to put the shovel in the ground. The other thing is that you have a lot of builders that have the means to build projects, but the problem with their financing is that they now need to have pre-sales and if you don’t have consumer confidence to have pre-sales, then the builder can’t [begin projects].”

Ontario re-elected Doug Ford for a third term as premier last week, while Canada is set to see a new prime minister after the Liberal leadership election on March 9 – and a general election at some point between now and October 20.

Sammut said authorities should work to boost homebuilding and the construction outlook instead of putting up more red tape.

“I think what’s needed would be federal or provincial backing whereby the government is [supporting] the builders for the build itself – the financing backing with presales tied to it allowing the builders to then put shovels in the ground,” he said. “We need to get consumer confidence back – that’s the key.”

Unsecured debt remains a growing problem in Canada

Another issue affecting the housing and mortgage markets that Sammut said policymakerrising levels of unsecured debts should get under control: rising levels of unsecured debt, a problem he said has been afforded scant attention compared with regulation of mortgage borrowing.

“We’ve got people who are sitting waiting to buy, wanting to buy. We’ve got housing starts right now at a low and we need to get that ramped up to again build that confidence with the consumer,” he said. “But as reports will tell us, consumer spending of unsecured debt is at an all-time high and there’s really very little to no legislation in place to start controlling that.

“What I find very interesting is that the government, both provincially and federally, have put all kinds of remedies in place to control the housing market and the mortgage market – and they’ve done very little, if anything at all, to control outside spending. That has basically forced people, if they can’t get money out of their house from a refinance, to turn to unsecured credit. That, in itself, is a major problem.”

Source CMP
By Fergal McAlinden