As 2024 comes to an end, we are looking back at all that happened, and ahead to what's on the horizon.
To begin, we revisited what we said this time last year. Having come off of a strong(ish) Q4 in 2023 with positive signs ahead, we certainly got some things right. But the longer-term forecast was less accurate than we’d hoped, as we optimistically — but falsely — predicted government interventions would be helpful through 2024. (Instead, they proved quite the opposite.)
We predicted that activity would pick up some in Q1, starting with a slow build as governments enacted new housing policy, rates came down, and immigration continued. Q1 was steady for sales and launches and, despite rate drops lagging till June (as opposed to the April timeline we had predicted), developers released the most inventory in Q2, albeit to softer demand than anticipated.
Govs In The Game
With rate cuts missing the spring market and landing right before summer started, still-hurting buyers adopted a wait-and-see response, setting their sites to the fall. As predicted, all levels of government got in the game, but — as we’d soon find out — the results were more negative than positive. A typical tale included a swing towards some much-needed change, which would only be backhanded by an equal or greater policy setback, all while tax increases (rather than decreases) were tabled.
An example from the west coast was as follows: The Provincial government updated the building code to allow for single staircases in low-rise buildings to help with efficiency, only to thereafter introduce accessibility requirements on 100% of units — requirements that would stop developments in their tracks due to their enormous cost and size implications. This is just one of several examples we saw, nation-wide, that confirmed policy makers have no idea how housing actually works.
The combination of A) heavy rental policy that prevented rent increases from matching rising costs and B) sweeping attacks against short-term rentals all but stopped the investor buyer, and did little to ease supply issues — as other headlines would report, those housing types weren’t the ones families needed after all. At the same time, without the investor, it becomes both very risky and very difficult to make a presale go. So, many developers put down their pencils altogether, while others took smaller bite-size risks, resulting in a decline in average project launch sizes.
All across Canada, it seemed that municipal, provincial, and federal governments entered the housing sphere, their competing interests creating more disruption and paralysis than gain. The easy move to cut taxes — which make up ~30% of the price of a new home — was not on the table. The impression of action and typical capitalist Boogeyman fearmongering fueled regional elections across the country, as votes took priority over housing supply. Despite what side of the fence one falls on politically, looking ahead, we can only hope for a more stable foundation for developers to plan against that allows for forward movement.
Prices Not Falling, Projects Not Going
With questionable housing policy, delayed rate cuts, and a progressively weakening (and increasingly socialist) Canadian economy, our predictions and hopes for the second half of the year did not materialize. In fact, things got worse. Much worse. We saw fewer sales and fewer units coming to market. By the numbers, we saw 30% fewer sales on 43% fewer units launched in the second half of 2024, compared to the first six months. (Further, 2023 was already tough, and this year sales through our system still managed to fall 30% YoY.)
You don’t have to be a mathematician to see that the government policies certainly did not increase housing (as had been promised). If the data is not enough for you, greater evidence may be found in how loud developer voices became over the last six months, as lobby groups organized in both the east and west to try to get their voices heard in the policy rooms.
We commented on closings last year, and the difficulty remained through 2024, as we had predicted. Interestingly, this year’s larger story was receiverships, caused by crushing interest rates at the developer level as many third-tier and smaller developers went bust on projects that, in some cases, didn’t get past the land stage, while others had sold out and were well under construction but couldn’t hang on to completion. Although sensational in gross dollars, these stories grew in number, but never made it to the mainstream top-tier firms who have managed to weather this storm… so far.
We’ll see a few institutional lenders become developers in 2025, as they now have large land and development holdings from projects they foreclosed on.
As for prices: They’re not falling and they won’t. We’ve said it many times over the last few years — although the by-unit price has declined in some areas, the average price people are spending to own a new home continues to rise, albeit slowly. This year was no different. Higher priced areas simply stopped launching, and suburban areas continued to rise in price due to higher costs. As a rule, we see prices in most areas are now above $1,000 psf, and held under $1,250 psf to achieve any kind of absorptions. More suburban wood-frame product located well out of city centres is now in the $800-$1,000-psf range.
Inflation - 1. Affordability - 0.
In summary, 2024 saw less supply coming to market, fewer sales, far slower absorptions, and an industry bleeding jobs and productivity in the middle of a housing crisis. The general sentiment is one of exhaustion. Buyers stayed put, as did developers, maintaining impeccable control of supply, throttling launches with the precision of an Indy car racer. So, where do we go from here?
READ: Insider: When It Comes To New Housing, Will Governments Ever Listen To The Experts?
Looking Ahead (And… Up?)
As we shared in our last article, sales picked up after the October rate cut, which seemed to pull rates and confidence into a now-meaningful band. As of mid-December, we’ve just been given another 50bps, and we expect to get another 25bps in early 2025. Things get murky thereafter, but current predictions see the overnight rate down around 2.5% before summer 2025, which should bring much-needed relief to costs, with positive impacts to both supply and demand.
Prices will continue to rise slowly, to keep up with continued cost pressures that are being made worse by increasing government extractions. Interest rate cuts are likely to increase absorptions, though we expect sales to remain measured throughout 2025, with the first half of the year spent cleaning up existing inventory. Recently closed and standing inventory will continue to offer great deals, as those sellers will be eager — this will help build momentum for the second half of the year. BC will start the year stronger than Ontario and will continue that pace forward, with Ontario expected to find some footing late in the year — we hope.
We do not expect much activity in Vancouver or Toronto’s downtown cores yet, as we anticipate the ongoing move-out and densifying of the ‘burbs. In the west, we’ll see more concrete towers in suburban centres, plus a shift from townhomes to wood-frame apartments, to find affordable pricepoints in these locations. In the east, once single-family neighbourhoods will make way for townhomes and low-rise apartments, with an increasing number of mid-rises along more urban corridors.
Wild Cards
Two wild cards to watch for are A) more debilitating policy, and B) the threat of a declining population.
The insanity of the federal government and their “exploration” of a vacant land tax would, in my view, be a fairly immediate nail in the housing industry's coffin. If they ignore all reasonable reviews — as they are prone to do — and actually pass something like this, the shrapnel would be large and wide, reversing any positive predictions outlined above.
As for population decline and immigration: who would have thought we’d be where we are now? With the Fed flipping immigration policy on and off like a light switch, I can’t begin to guess what happens next, and I suspect the impact will take some time to play out.
What I can say is, there is a very real risk that Baby Boomers start dying in very large numbers as they near the average age of death in Canada: 81. If this happens, and is combined with overzealous immigration tightening fueled by pressures south of the border, we could see dramatic population declines over the next couple years — and oversupplies in some housing types and regions that would land heavily with these segments. Older single family homes in rural areas and cottages in tier-two locations come to mind. This would impact the supply of any new building in affected areas with ripple effects across the housing continuum.
The good news is, there are positive signs, fueled by rate cuts, that could help on the road to getting supply back to normal levels. On the flip side, we must find ways to hold governments accountable for some of the worst crisis management policy we’ve seen.
Call To Action
I can’t understate it: the housing industry has been able to bring a steady stream of supply to market for years, despite growing affordability issues that have existed for decades. And now, in the worst housing crisis we’ve seen, there is less supply than ever, the industry is bleeding jobs and economic productivity, and our governments routinely make announcements to state the opposite — it’s just not true.
If you’ve made it this far, and you hope to see our positive predictions come to fruition, I encourage you to send letters to your municipal, provincial, and federal government representatives and ask for housing tax relief, and demand they involve the industry — who make up 95% of all new housing — in their solutions. As Beau Jarvis from Wesgroup said in his open letter to Chrystia Freeland, “When faced with a drought, the government offers subsidies and tax credits to support food production. The housing sector is, effectively, in a similar ‘drought.’ Yet instead of offering incentives, the government proposes yet another tax.”
On the back of falling interest rates, 2025 could be a turnaround year — as long as governments don’t get in the way. Or even better, if they get out of it.
This article is authored by Ben Smith, President of AVESDO: a Canadian software company harnessing the power of data to help real estate professionals make better, faster, and more informed sales decisions.
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This article was produced in partnership with STOREYS Custom Studio.
