Yukonomist: Housing crisis sparks building boom, but is it enough?

Yukonomist Keith Halliday

Yukon home builders are responding to the price signals coming out of our spiraling housing crisis.

The latest Yukon government economic forecast shows investment in residential construction in the first seven months of 2021 at $128 million, dramatically higher than any similar period in the last decade.

The average from 2010 to the last year before the pandemic, again for the first seven months of the year, was $66 million. The year with the highest figure in that period was 2012 at $88 million.

Despite the pandemic’s arrival, 2020 was also strong at $79 million.

This year’s surge in housing investment is at least a bit of good news for the many Yukoners struggling to find affordable housing.

But does it mean lots of new supply and that Whitehorse housing prices will fall back from their recent peaks?

That’s not so clear, for several reasons.

First, the forecast also points out that construction costs have surged. Across Canada, construction costs for single-detached homes are up almost a fifth since last year. So a bunch of that higher residential investment is going to pricier invoices, not more square feet.

Second, if you dig deeper into Statistics Canada data, you’ll see that only 44 percent of that investment went into new construction. That’s lower than the last three years, and is related to the surge of home renovation that locked-down home-owners launched during the pandemic. We also don’t know the mix of monster homes and more affordable units.

The other 56 per cent went into renovations, conversions and other kinds of investment. Some of this includes adding a new basement suite to the house or converting a garage into a new housing unit. But a good chunk of it is renovating existing units, which doesn’t increase the housing supply.

Third, commercial and industrial construction was down sharply in the first seven months of this year. This includes government and private sector projects delayed by the pandemic. As a result, local contractors had more capacity to deploy on residences. As the pandemic fades, you can expect government and corporate projects to start competing for contractors with residential projects again.

All of those factors suggest housing supply won’t go up quite as much as those headline figures about surging residential investment suggest.

Meanwhile, on the demand side, there appears to be no let up in sight. The formula that has driven our rising transfer payment is unchanged. In fact, a number of new federal infrastructure and social programs suggest new streams of money to be layered on top of planned transfers. The government forecast sees the population of the Yukon rising by 4170 people from 2020 to 2025. That’s an additional 838 people per year on average who will need somewhere to live.

Furthermore, the previous social and demographic trends that boost housing demand are likely to continue. The number of Yukoners per household was just less than 3 in 1991. By 2016, it was less than 2.5. Steadily rising incomes for many Yukoners allow them to afford more rooms per person. Old-timers remark that those old government one-and-a-halfs that housed a family of four or five in the 1970s are now considered cramped for a couple.

This year’s rise in residential investment is welcome, but likely isn’t enough to dramatically change the trajectory of the housing market. For that, years of high investment in a large number of new units will be needed.

One thing that is remarkable in the data is how steady new construction investment was over the last decade. On an annual basis, investment in new residential construction was $68 million per year from 2010 to 2019. The highest years were 2011 and 2012 at around $90 million. This is somewhat surprising, since you would expect surging prices in 2018 and 2019 to have sparked an even bigger wave of construction. Yet those years didn’t hit $80 million.

This is a reminder that there is a lot more affecting housing supply than just the willingness of investors to plough money into new construction. As industry insiders have talked about for years, lot availability, zoning rules, building codes, cost per square foot, competition for contractors with government and private-sector projects and other factors also play key roles.

Good news about housing investment this year doesn’t mean we can avoid dealing with these other factors if we really want to solve the housing crisis.

Keith Halliday is a Yukon economist, author of the Aurore of the Yukon youth adventure novels and co-host of the Klondike Gold Rush History podcast. He is a Ma Murray award-winner for best columnist.