What do Low Housing Starts Mean? Guest column from Peterborough and the Kawarthas Home Builders Association (PKHBA)
Housing starts are an indicator of growth and prosperity in a community. A housing start is a foundation poured at the beginning of the construction period. Starts are measured per dwelling unit, so a 3-floor apartment building with 12 units would be recorded as 12 starts and a single-family home is 1 start. A house or apartment building could take 6 to 18 months to build. Once it is move-in ready, it is recorded as a New Home Completion.
Starts were low in 2022, with only 198 starts in the City of Peterborough and 155 starts in the County of Peterborough. However, from January to June 2023, the City and County of Peterborough had 70 starts. This number is alarmingly low for our population of over 130,000. Furthermore, the Ontario Provincial government has set a target of 9,300 new homes to be built from 2021-2031 in the City & County of Peterborough. So far, there have been 423 of those homes built.
While these numbers are cyclical and the causal factors behind what makes starts in any one year, or series of years, higher or lower is complex and multi-faceted, PKHBA sees two key factors responsible for the unusually low starts.
The first is economic circumstances. These include the current high interest rates and subsequently low affordability, as well as a poor economic outlook, which are influencing buyers’ behaviours and developers' decisions about future projects.
The second, is extremely prolonged delays within the development approval process portion of a housing project’s life span.
In regards to the macro-economic environment, Canada has just undergone an unprecedented interest rate hiking cycle which saw the cost of borrowing money go from nearly 1%, all the way up to around 6%. This has had a massive effect on not only new home buyers’ purchasing power, but also the sentiment for the economic forecast.
Such an environment bakes a mentality of uncertainty into the market, where buyers are scared to purchase a home not only because they are uncertain what their monthly cost of ownership will be on a go-forward basis, but also for fear that prices may see a further decline.
Subsequently, developers lose confidence in starting new projects. Whether such projects are as small as a single speculative residential home, or a 30+ unit condo development, not only are their costs of completing and holding this project uncertain, but also the timeline they may have to hold it for, and the price they may ultimately receive for the product are uncertain as the pricing trend over the last 12 months has been negative.
In concert, there is a situation where buyers are hesitant to buy, and builders can become hesitant to build.
And yet, most other mid-sized cities in the province are subjected to the same economic circumstances, and are outperforming Peterborough in terms of new housing starts by a great margin.
Comparing the City & County of Peterborough (CMA) to neighbouring communities of similar size, the housing starts are low. The City of Kawartha Lakes outperformed Peterborough in 2022 with 563 starts compared to Peterborough CMA’s 353 starts. In 2023 Kawartha Lakes continues this strong trend with 312 starts in the first half of the year compared to Peterborough CMA’s 70.
More examples would be from Belleville which has a population of just over 110,000 and had 192 starts so far in 2023, Kingston has a population of 172,500 and had 318 starts, and Guelph has a population of 165,500 and had 774 starts so far in 2023.
Why are these other cities building while the Peterborough area is not?
We believe the answer lies in the compounding effect of many years of development application review and approval delays. Builders have little incentive to lower their prices in our current environment to sell off product on their remaining available lots; not only because there is little competition forcing them to do so, but also because they will have nowhere to go next, no next development to put their construction machine to work on.
Additionally, the unnecessarily lengthy and complicated process of getting approvals for large development projects has reduced competitiveness in our area, as developers and builders opt to focus their efforts elsewhere. The City of Kawartha Lakes has seen many new developers begin large projects over the past few years, resulting in increased housing starts in 2022 & 2023. Kawartha Lakes council made economic development a priority in 2016 as part of its new Strategic Plan.
These low housing start numbers in Peterborough all lead to lower numbers of housing units available, feeding the housing crisis and housing affordability crisis.
However, PKHBA feels a strong resolve in working towards solving these issues because as the statistics make clear, the need for change is urgent.