Soaring house prices could lead to a drop in new constructions, predicts the APCHQ

MONTREAL -

Soaring housing prices could damper the number of residential construction projects next year, according to the Association des professionnels de la construction et de l'habitation du Québec (APCHQ).

The association says it anticipates 56,000 new housing projects in Quebec next year -- a drop of 18 per cent compared to the 68,300 projects expected by the end of 2021.

If true, this would mark the first decline in the residential construction sector in seven years.

"The main problem is affordability, which has deteriorated at a rapid pace," explains Paul Cardinal, director of the APCHQ's economic department.

In April, the price of existing properties jumped by 32.6 per cent over one year; that number is closer to 15 per cent as of July.

The rise in interest rates could also affect the affordability of the real estate market, according to Cardinal as mortgage rates could rise by 50 basis points in 2022.

Renovations are also expected to see a decline next year.

In 2021, Quebecers spent $18.5 billion on their renovation projects, a 25 per cent jump from 2020.

Cardinal says he expects renovation spending to reach $17 billion in 2022, an eight per cent decline.

He identifies three factors to explain this: resumed leisure and travel spending, rising interest rates and growing prices for building materials.

"People are going to go back to their usual pace of consumption and we think there's going to be less money going toward renovations," Cardinal said.

Despite the downward trend, the situation will be far from critical for contractors, Cardinal notes.

"I'm not saying they're going to welcome this as good news, but they are very busy. They've got very full order books," he said. "Sometimes they have to say, 'Yes, but I'm going to go in three months or six months.' They're also having a hard time retaining and recruiting labour."

Residential construction and the renovation sector experienced a record year in 2021.

The last time numbers were this high was in 1987 when 74,179 new units were built.

Nevertheless, Cardinal estimates there is a shortfall of between 40,000 and 60,000 units in Quebec.

"We could not catch up in the short term, because contractors are facing difficulties when it comes to the availability of materials and manpower."

In September, the APCHQ stressed that not enough housing was being built in recent years, adding an increase in supply is the best way to improve affordability.

It is proposing that municipalities review their regulations to allow more new houses to be built.

The APCHQ is also inviting Quebec and Ottawa to reimburse "a substantial part" of the federal (GST) and provincial (QST) sales taxes on the purchase of a new home.

This measure could be modulated according to certain conditions, such as the price of the property or for a first-time buyer.

-- This report by The Canadian Press was first published in French on Nov. 24, 2021.