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2019 was a ‘tough year’ for Saskatoon’s home construction industry: SRHBA

The Saskatoon & Regina Home Builders Association says a downturn in the home construction industry is having a trickle-down effect on the local economy.
The Saskatoon & Regina Home Builders Association says a downturn in the home construction industry is having a trickle-down effect on the local economy. File / Global News

Political uncertainty and pressures on the local economy are being felt by home builders in Saskatoon, according to an association representing the industry.

The Saskatoon & Region Home Builders Association (SRHBA) said 2019 is shaping up to be one of the toughest in recent memory for home builders.

READ MORE: 41% of homes bought on the Prairies purchased by new Canadians: report

The association is forecasting a 15-year low in total housing starts for 2019.

While 2020 is expected to be slightly better, SHRBA said starts are expected to be below the 20-year average.

“The numbers only illustrate what local residential construction professionals have been saying since the beginning of the year,” SRHBA CEO Chris Guérette said.

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“While the recently elected minority government has led to political uncertainty about the near future, the small forecasted uptick in residential construction in 2020 is welcomed but fragile.”

New starts in the third quarter dropped 19.3 per cent from the same period in 2018, with single-family home starts down 33.8 per cent.

Investment in new housing projects dropped 30 per cent in August compared to the same period a year ago, SRHBA said, and building permits issued by the city in the third quarter declined 23.1 per cent year-over-year.

Guérette said that downturn in the home construction industry is having a trickle-down effect on the local economy.

“That means there are less trades being hired, there’s less supplies being bought, there are less people working meaning they’re not contributing to the economy to the same degree,” Guérette said.

“There’s a tremendous impact to our economy.”

READ MORE: Modest recovery expected in Saskatoon’s new housing market: CMHC

The Canadian Mortgage and Housing Corp. (CMHC) said last week that a recovery in Saskatoon’s new housing market is expected over the next two years and the SRHBA is forecasting 1,665 housing completions in 2020.

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While Guérette said they are forecasting a small uptick next year, she said the economy is still fragile due, in part, to the recent election.

“We have a minority government, there are still a lot of questions that have gone unanswered and so that forecast is still very fragile,” she said.

SRHBA said part of the uncertainty surrounds the oil and gas industry “that historically has been one of Canada’s engines of growth.”

Other economic impacts the association pointed to include political tensions between Canada and China which are impacting the agricultural sector and uncertainty in natural resources, with subdued demand for uranium at the present time.

READ MORE: Sask. building permit values surge, but market still ‘under-performing’

CMHC said the new home construction market has been hurt by higher costs, rising interest rates and changing regulations.

Two regulation changes have had a big impact on the market, Guérette said — the mortgage stress test and changes to the PST on construction.

Guérette said PST has driven costs up and the mortgage stress test has pushed people out of the market — both of which, she said, has hit Saskatchewan more intensely than other provinces and cities.

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“We’ve had the federal stress test that came in, meaning that we’ve pushed out a certain percentage of buyers out of the market,” Guérette said, “and at the same time, the cost to build a house as increased as well.

“When you’re squeezing both ends, it means there are less homes being built and there are less buyers as well.”

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Guérette said the association is actively lobbying to have the six per cent PST removed from home construction, and is still trying to get answers on what the mortgage stress test is meant to achieve.

She said if the test is meant as a reaction to over-heated markets like Toronto and Vancouver, it needs to be modified so it’s not impacting markets like Saskatoon.

“If that’s the case, then logically, that test would have to have local flavours in it,” she explained.

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“What I mean by that, is we have other great examples of national policies in our country, such as employment insurance, where there is a math calculation within that, that is specific to your area and how your area performs.”

Guérette said the mortgage stress test could still be adjusted to meet local needs if it was brought in to address debt load.

“With any new program, I always said ‘let’s give this a chance and then let’s adjust,” Guérette said.

“And that last piece has not been done yet, so I think they over-shot and I think they need to re-evaluate.”

READ MORE: Saskatoon housing market surges in September

The decline in starts is having a somewhat positive impact on current inventories of unsold home, the SRHBA said.

Inventory of unsold multi-unit dwellings declined 34.4 per cent year-over-year, while single-family-home inventory rose 14.8 per cent in the same period.

While inventory levels are expected to be reduced as new construction slows down, Guérette said their industry needs economic growth.

“When the resource sector is not doing well, there is an impact on our industry,” she said.

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“If there are less people coming here, that means there are less houses that are required. So we absolutely feed off of growth.”

She cautioned, however, that it is a fine balance to ensure homes remain affordable.

“It doesn’t matter if we have great jobs here, it doesn’t matter if our economy is doing well, it doesn’t matter if we have great schools and great hospitals and that our neighbourhoods are beautifully designed,” Guérette said.

“If your homes are not affordable, not attainable, people will not stay. I think that’s the bottom line in all of this. We always have to keep an eagle eye on the price of our home and the affordability of our market.”