Let's Talk Politics

Ep 21: Can Canada Build Its Way Out of its Housing Crisis?

• Julia Pennella • Season 1 • Episode 21

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The ice-cold reality of Canada's housing market takes center stage in our latest deep dive with Chief Economist at British Columbia Real Estate Association, Brendon Ogmundson. Housing sales have plummeted nearly 10% compared to last year as buyers retreat in the face of tariff uncertainty and stubbornly high interest rates. This market stagnation, persisting since 2022, raises critical questions about where we're headed—especially as newly-appointed Housing Minister Gregor Robertson sidesteps questions about whether home prices should actually fall.

What's particularly fascinating is the contradicting signals we're receiving about consumer financial health. On one hand, total consumer debt in Canada has ballooned to $2.5 trillion, with non-mortgage delinquencies surging. Yet mortgage defaults remain near historic lows at just 0.17%—far below even financial crisis levels. Ogmundson explains this paradox while warning about a potential "iceberg" scenario where rising unemployment combined with higher mortgage payments could trigger serious market disruption. The generational shift in debt philosophy compounds these concerns, as younger Canadians approach mortgages with dramatically different expectations than their parents, often relying on substantial family gifts averaging $150,000 just to enter the market.

We also explore how policy decisions are shaping housing affordability, from the controversial foreign buyers ban extension to the crushing impact of development cost charges that can add up to 35% to a home's final price. Perhaps most compellingly, Ogmundson outlines how prefabricated construction might be our best hope for solving the supply crisis—if we can overcome decades of lagging productivity growth nationally.  Whether you're a homeowner, prospective buyer, or simply concerned about Canada's economic future, this conversation provides crucial insights into the complex forces shaping where we'll live and how much we'll pay. Subscribe now and join us for more eye-opening discussions about the policies affecting your daily life.

Quick heads up: this episode was recorded on May 8, 2025 so while the news may have changed since this conversation was recorded, the thoughts and ideas still remain relevant. 

Want to keep up with Brendon? Check out his economic analysis on BCREA’s website: https://www.bcrea.bc.ca/economics/#monthly-publications


Julia Pennella:

Hey everybody, welcome back to another episode of let's Talk Politics. Before we dive into this episode, let's cover the latest headlines making news. If you thought spring would bring some heat to Canada's housing market, think again. According to the Canadian Real Estate Association, home sales dropped nearly 10% in April compared to last year, with buyers still hesitant thanks to tariff uncertainty and the lingering chill of high interest rates. It's the same market stagnation we've seen since 2022. And it's not just sales. Statscan also recently reported that the total value of building permits fell in March, dragged down by a steep dip in non-residential construction.

Julia Pennella:

But there was some optimism, as we saw a bump in multi-family residential permits, especially in Vancouver. And most notably, just one day into his new job as Minister of Housing and Infrastructure, former Vancouver Mayor Gregor Robertson is already in the hot seat. During a media scrum, the new housing minister was asked whether home prices should fall. Robertson sidestepped, saying the focus should be on increasing supply and stabilizing the market, not necessarily bringing prices down. His remarks sparked some concern, with many Canadians questioning the direction he plans to take on the file. So what does all this tell us about where Canada's housing market is headed and who's shaping the conversation?

Julia Pennella:

I'm joined once again by Brendan Ogmanson, chief Economist at the British Columbia Real Estate Association. Today we're unpacking your biggest questions around housing policy, inflation and the broader economy, of course with a distinctly British Columbian lens. Quick heads up this episode was recorded on May 8th 2025. So while the news may have changed since this conversation was recorded, the thoughts and ideas still remain relevant. So let's get into it and let's talk politics.

Julia Pennella:

Mortgage delinquencies they're already slowly rising as homeowners are renewing their loans that they originally locked in at historic lows before and during the pandemic. So, with interest rates where they're at and incomes have a pace with inflation and all these other factors, consumers are starting to feel that strain and Equifax earlier this year reported total consumer debt in Canada hit $2.5 trillion at the end of 2024. And that's up almost 5% from the year before that. And in BC, mortgage holders are struggling with other debts too, with non-mortgage delinquency surging year over year. Are we seeing warning signs of a deeper crisis here, like do you think we're going to get to a point where people might be handing in their keys to the banks because they just can't keep up with their debt?

Brendon Ogmundson:

I think like the conditions make us more vulnerable, but we're not seeing any signs of that vulnerability translating to things like consumer bankruptcy or even mortgage defaults, like in BC. Consumer bankruptcies are still pretty close to record lows. Obviously it's kind of a last resort for a lot of people, but we haven't seen that really triggered. And then, on the mortgage arrears side, the share of homeowners, or the share of people who have a mortgage that are more than 90 days past due on their mortgage payment, hit an all-time low of 0.1% and is, up to last I checked, 0.17. So very, very low. The highest it's been in the past decade is post-financial crisis hit about 0.5%. People don't really default on their mortgages in Canada.

Brendon Ogmundson:

It takes a pretty special combination of factors to see people actually end up getting foreclosed on or defaulting. And you need to see rising unemployment. So obviously, lose your job makes it a little harder to make your mortgage payment. We also need fall in home prices. So that happened during the financial crisis. We had that combination, which is why you saw mortgage defaults rise. Didn't happen during COVID. We have 14% unemployment at one point during COVID in BC or in Canada, but prices were rising because most of that unemployment was on frontline service sector, the people that weren't typically homeowners, with sort of lower wage jobs, so we didn't see much of an impact on the housing market at all. In fact, because of other policies, the housing market hit record record highs.

Brendon Ogmundson:

So this time around there is that risk, though, if we're in a recession and the unemployment rate's rising and we already have pretty weak demand and supply starts to rise, like inventory starts to really tick up because people are looking to sell their home, maybe they can't get renewed on their mortgage this year or next year, their payment's 15, 20% higher and they just lost their job. Like that's a recipe for a lot of supply coming to the market or absolute worst case mortgage defaults. So Bank of Canada has their financial stability report out this morning. In their models, they have sort of a risk of mortgage arrears in Canada, like getting back to between 0.3 and 0.5. So back to around financial crisis levels over the next year if we have a worst case scenario recession. So obviously, like we have significant vulnerabilities, there's some real risk because of the tariff situation that some of those vulnerabilities are triggered.

Brendon Ogmundson:

I don't think that's the baseline, but it's certainly like a bit of a red flag on the next two years. This is something we need to be really worried about. If the economy falls into a recession at a time when people are getting a reset from record low mortgage payments, that's a risk. That's a risk that needs to be monitored and hopefully we can avoid it. Luckily, it's kind of like an iceberg kind of sitting out there that hopefully we can steer away from. It's far enough away, but again, we're maybe not the captain of the ship either have a way, but again, we're maybe not the captain of the ship either.

Julia Pennella:

Yeah, well said, and you know what's coming to mind as well, like the culture around debt, I think has very shifted from our parents and our grandparents generation. What's coming to mind for me is I know when you have your credit card, there's that temptation to pay the minimum payment. People, I would say in Canada, or even in my demographic, in the millennial age, they'll pay not the full amount, but just slightly above the amount that's required on their current statement. We're also seeing markets and products come to accept that consumers are going to just delay their payments.

Brendon Ogmundson:

I'm thinking of Klarna is one of the apps that go on where you can like make installment payments on a burrito yeah, exactly so, exactly.

Julia Pennella:

So I'm wondering, like, do you think, with this cultural shift around debt, like that's going to impact whether it's home buying or just how we're going to be navigating some of this economic uncertainty? Because, as we talked about, people are kind of clutching their purses and keeping their money close. But this shift around debt and what it means and how you pay it, I think has really changed over the last at least few decades.

Brendon Ogmundson:

Yeah, I wonder if it's generational. Like I can't imagine when I was 20, there wasn't the option Like if I really wanted a pizza, I'll pay for this pizza in four installments. Like I don't know, maybe I would have done that. I can't imagine doing it now and a half. But even on bigger things, like a mortgage in cities like Vancouver, where if you're lucky enough to get into the market usually because of parents or grandparents that probably gave you a large, not even a loan but a gift for your down payment A lot of how young people get into the market in Vancouver is help from their parents or their grandparents or whoever, because scraping the other maybe $200,000 for down payment not an easy thing for most people, even in their early thirties, right, even if they have good jobs.

Brendon Ogmundson:

So it's, it's totally changed the calculus of whether or not you even plan to pay off your mortgage. I know people with very like million dollar mortgages and they have no plan to like, oh, I can't wait to pay off my mortgage because like, why would you pay off? I'm like, no, that's a lot. Instead, you could like be going to the savings or whatever else. So, whereas like a lot you know my generation mostly, and my parents certainly was like oh, you know, you should pay off your mortgage as soon as, as soon as you can. That should be a real goal. So I don't know, like, and maybe may be still the case in less expensive markets, but in ones where even getting to the condo market is $700,000 or more, maybe you're not going to pay off that mortgage.

Julia Pennella:

Yeah, and as well with the government policy of allowing for 30-year amortization was also giving people that flexibility because on average people are moving, there's opportunities. You're not necessarily living in that house for 30 years, um, like previously. So really good points. And I'll also point to cibc. Uh put out a report earlier in to 2024 about the amounts of gifting that has increased steadily over the years toronto and bc. I think the average they said was about 150 000 of a gift down payment. Like that's huge. Anyone that has that lying around, right?

Brendon Ogmundson:

Yeah, it's mostly. A lot of you know that baby boom generation is living a lot longer and they're not waiting to give their children or grandchildren their inheritance. They're not going to die for that to happen, which is probably a better way of doing it. I don't know, but like it does mean it's the thing that's really sustaining a lot of markets, because otherwise how does a 30 year old even get into a market? This is what happens. We've had a 25 year long boom in home prices and a lot of that wealth has been booked. It's not on paper. In a lot of cases, people have sold homes and they're not just letting it sit in a GIC or something. In many cases they're using it as a gift. So that's their product.

Julia Pennella:

And it's going to be interesting. There's a lot of calls of how the generational wealth and inheritance and redistribution once these boomers die and the millennials inheriting that like it's going to be a really interesting.

Brendon Ogmundson:

One of my favorite. I think it's an Onion article. Old man's son is also old man, but the baby boomers are going to live till they're like 95 and like their son maybe is like 70.

Julia Pennella:

I think that's a great way to put it right, like just understanding where our demographics going, population wise, and I think the fact that you just referenced onion, I think everyone should tell you what kind of economist Brendan is Very serious one. But as we're talking about federal policy, I want to get your opinion on. The government recently extended the foreign buyers ban to 2027. From a BC perspective, where we see a lot of investment and permanent residents coming from South and East Asian communities, do you think this ban is helping or hurting the province's real estate economy?

Brendon Ogmundson:

When it was enacted the share of foreign non-resident transactions was like 1%, like basically post-COVID and I think COVID thankfully put to bed, at least for most people, the idea that foreign money or whatever was driving the housing market. We basically had no foreign investment and essentially no immigration and still had record high home sales and record high home prices. And then we had the foreign buyer ban, which of course pulls really well, but it has basically, you know, took that share of foreign investment from 1% to like half a percent or something. So there's still some loopholes. What it hurts is our ability to finance all the supply that we want to build loopholes. What it hurts is our ability to finance all the supply that we want to build. So if we're going to build, if we're going to double housing starts, the way Prime Minister Carney would like to see, or if we're going to hit 600,000 completions in the next decade in BC, someone has to pay for that right. So if they're going to be condos, we need pre-sales. Someone needs to buy a pre-sale. So we need investment dollars or we need REITs, pension funds, whoever else to want to buy a rental and construct rental housing and then manage it.

Brendon Ogmundson:

That money can't all come from Canada. In BC alone, if you just take like a conservative estimate for building costs per unit could be anywhere between $200 and $300 billion to finance those 600,000 units. We're talking about trillions for canada. We're not going to get that domestically. Canada is not that large. Our capital markets aren't that deep. We're going to need to find financing from all over the place. So I would certainly love to see the foreign buyer man be at least changed so that, like australia, non-residents are allowed to purchase new units as long as they're occupied. Who cares? But then you'll still be excluded from competing in the resale market. I think it makes perfect sense. We can finance that supply. The risk is kind of offloaded to other people in other countries If they lose their deposit or down payment. Okay, it's fine, they took a risk, it didn't pay off.

Julia Pennella:

Doesn't necessarily hurt the domestic economy but in exchange we get financing for supply that we badly need. I think it's a fine tradeoff and investment argument to be made. And yeah, canada doesn't have that kind of cash laying around. We need that foreign investment. So I agree with you, I hope there's a bit of retooling or reanalyzing what that could look like and maybe it is regional specific rather than a blanket policy, right?

Julia Pennella:

I want to dive into the point about building costs, and the BC Real Estate Association has been strong advocates to the federal government about changing and retooling the Housing Accelerator Fund, specifically arguing how it needs to focus more on helping municipalities cover infrastructure-related costs, specifically around development cost charges. And something unique to BC is amenity cost charges. You know right now these costs are passed on to developers who in turn have to pass them on to buyers, which overall will impact housing inflation and housing costs. So, from an economic standpoint, can you walk us through how development cost charges and amenity cost charges influence the cost of housing and to what extent are they actually baked into the sale price of a home?

Brendon Ogmundson:

Yeah, and so it didn't used to be as big of a deal. But I think municipalities more and more have seen development as just like a place where they can extract funds from, and I think they've sort of hit a limit now, especially with prices leveling off. So development cost charges tend to be for things like infrastructure. So whenever you build a new apartment building it probably needs water and sewer and utilities all kind. Those need to be sometimes put in place and that costs a lot of money. So you have these development charges. Amenity cost charges are more like for amenities parks, green spaces, whatever.

Brendon Ogmundson:

Those for a while were not really set as a standard. They were kind of like ad hoc, which was a terrible way to do business because developers didn't know how much they're going to have to pay. And I think now they've changed it. So those have to be actually stated in advance. So your DCCs, especially if you paid out front. So if you're a developer you have to pay a huge amount of money. And those development cost charges have been rising. They tripled or set to triple in Metro Vancouver Used to be something like $7,000 a door or something for an apartment and now it's closer to like $25,000 a door and again paid out front.

Brendon Ogmundson:

So you have a big project. Suddenly you need to, before you've even got all your financing, necessarily make a huge down payment on infrastructure. It used to be the case too in some of those municipalities that the cost would be shared, so 50% would come from the municipal revenues, so general municipal taxes, and 50% would be DCCs. I think in Metro Vancouver especially, maybe in some other places, they've shifted that now to this idea that all growth should pay for growth, and so that's shifted to like 99%. On new development, which you know if all people are going to be using, like improved roadways or parks or whatever, it doesn't really make sense that development should pay for all those amenities or even the infrastructure. To be like somewhat sympathetic to the cities, those infrastructure costs are real and someone needs to pay for it, and it can either be developers or it can be through higher property taxes, and most cities are not going to raise their property taxes. That's a recipe for some civil unrest, especially among homeowners, and probably you getting voted out of office as a mayor or city council.

Brendon Ogmundson:

So the only recourse they have a lot of times is things like development charges, which is why we need a total rethink of those development cost charges. They clearly shouldn't be accelerated at the pace they are. Maybe they need to see some restrictions on how much they can rise. I don't know. But at least the liberal housing plan called for I think the federal government would basically step in and fund about 50% or find some way anyway of cutting DCCs in half. I'm not sure over what time period. I imagine that just means from federal revenues Making up the difference. But we need some way of either provincial government or the federal government taking some responsibility for improvements to infrastructure to facilitate new development. It can't just be on developers to pay the full freight, especially when it means those costs are high enough in a lot of cases to totally jeopardize project economics. You just don't get any development.

Julia Pennella:

Yeah, it's definitely a hindrance and I've seen some data too, you know it could be up to 35% Sometimes. The development charges and whatever fees are associated with that. So when you're looking at if you're buying a million dollars even though it's inflated now, 350,000 of that is just in development fees. Like it's crazy. Again, speaking more to Toronto and Vancouver markets, but I'm glad you brought up the federal government and the Liberals so you know, as we're just wrapping up here the recent federal election, we saw housing policy take center stage, the Liberals presenting some big promises, especially around pre-fabricated homes and their Build Canada Home Plan. We talked about some of the challenges with meeting quotas and targets. I think CMHC is predicting we need 3.5 million additional homes to what we're currently building. But, on that note, what do you make of those proposals and, realistically, do you think these policies can actually move the needle on the housing crisis we've been all watching unfold over the past few years?

Brendon Ogmundson:

So we did some work last year because the government here has a target of again 600,000 completions over the next decade, or 300,000 more than we would do otherwise, and like they did some great bottling work to get to that number, that I think is feasible. What they didn't necessarily do is figure out what would need to happen, the labor side of things and especially to the point on, like modular construction, the productivity side. So we did a bunch of work to figure that out. So if you just like, say there's a development boom caused by all the rezoning from the province's plans, like for density around transit areas and rezoning of small scale multi-unit housing, if that causes a development boom such that we end up hiring like 130,000 more people into construction, which is a pretty significant increase, it would make the sort of share of people working in construction jump from like 8% to 12% in BC, which is a similar increase to what New Zealand saw. With a similar kind of plan for zoning, then we could maybe get to like four or five hundred thousand units over the next decade, so falling short, if we could hire all those people and realize some real gains in productivity. So construction is sort of infamous for having really no change in its productivity growth over the last couple of decades, which, you know, construction hasn't really changed that much.

Brendon Ogmundson:

We talk about productivity, which means, like how much stuff can you get out of every hour of construction labor? So right, like, how many units can you produce per hour? How do you increase that? We've been doing construction kind of the same way for a really long time, like everything's brought to site and, you know, slowly, kind of assembled. The real promise of like offsite construction, and why they are looking to invest in so much, is that it's a real productivity changer, because now you can have all this prefabricated for smaller designs, like I've seen, foldable kind of they call them like house plates where you take them to the site all folds out, everything's pre-drilled for utilities and everything else. You have a kitchen, bathroom, everything else, and it's all there.

Brendon Ogmundson:

All it takes is folding it out, stacking some things together, and it's essentially finished, and you can do it in an incredibly short amount of time. To do that, though, takes an enormous amount of factory capacity, because you need someone to open factories to have a constant supply of those prefabricated materials or things like mass timber. It's really difficult to convince someone to make that kind of investment if there's not going to be a constant stream of demand and what we know about the housing categories, that moves in these cycles right. So the smart thing I think this is where maybe having an economist as the prime minister helps is that they realize that this is a kind of a young industry that needs a jump start and it needs consistent demand. So one thing they're doing is saying anything that we build federally financed is going to be building affordable housing. So there's going to be constant kind of stream of demand is going to be done through these offsite construction type processes. So that means constant federal money getting pumped into an industry.

Brendon Ogmundson:

I think they said something like $25 billion. So what they're hoping to do is jumpstart that industry and have a consistent amount of revenues for it that they can stay in business, stay operating. You know businesses, investors want to invest in that capacity and then we'll have spillovers to the market sector as well where we can maybe use those processes and maybe we finally get some improvement in productivity. So our estimates again was that we can go from 0% productivity in construction, which is the Bank of Canada's forecast next five years, to 1.5% growth in productivity. Then we would be able to hit the province's 600,000 target. Still very difficult to do, but at least we're doing the types of things that can help us. It increases the probability that we can actually hit those targets.

Julia Pennella:

Yeah, well said, and it just even goes back to why foreign investment is really important. I think the big thing that I'm hoping for is also a competition piece and making sure Canada is a competitive player on the global stage and we're an attractive place for investment to be able to do these manufacturing and get some of these ideas and innovation into our housing market. So, very well said, and obviously one of the big things the Bank of Canada talks about is the lagging productivity in our country. But on that note, as is my last question here, the Bank of Canada's next rate announcement is scheduled for June 4th and it will include a release of their monetary policy report. What's your prediction? Do you think they'll cut rates, hold steady or increase them, and what do you expect to see outlined in that accompanying policy report?

Brendon Ogmundson:

So markets currently expect an 85 percent probability of a rate cut in June. So markets really think the Bank of Canada is going to cut rates. All of the messaging from the Bank of Canada is the exact opposite. So there's this kind of fascinating divergence right now between Bank of Canada messaging and what markets think. What I think is, because of the risks to the economy, right, the bank of Canada, what they consider a neutral for the economy, so either stimulating or dragging the economy lower, what their overnight rate should be between 2.25 and 3.25. We're at 2.75 now. Why not just go to the bottom end of what they think is neutral as a bit of a buffer? I think that makes a lot of sense.

Brendon Ogmundson:

So markets are thinking as well. They're expecting two rate cuts by the end of this year, so two and a quarter by December. That makes sense to me. That doesn't mean that's what the bank is going to do. Again, they're very worried about sending signals to the market about their willingness to really lower rates to below neutral to combat a trade war which they think is not the way to go. So we'll see who wins out. It's going to be a fascinating policy statement. Regardless, I'm not sure enough has changed, or enough will have changed between now and June for them to do a complete 180 on what they said in April. But we'll see what the next inflation report says. We'll see if we get the next month of GDP is looking a little light you know more on whatever comes out of Trump in the next little while.

Brendon Ogmundson:

We'll see. But yeah, I don't think I'd predict a cut, but I'll do the classic economist 40% chance of a cut, because that's a high enough probability. But you're not really going out on a limb.

Julia Pennella:

I appreciate it and, yeah, like to your point, the 90-day tariff hold is going to be coming up, so a lot of factors at play. But all that's to say, brendan, this was a fantastic conversation. Any other closing thoughts you want to share with the listeners?

Brendon Ogmundson:

Just some shameless self-promotion. If you enjoyed anything I said, please go to our website bcrabcca. You can find all of our original research and everything else you might want to know about the BC housing market or BC economy.

Julia Pennella:

Yeah, it really is a great resource, so I do highly recommend for folks to look at some of the data that Brendan and his team is putting out. So that was Brendan Augmanson. He's the chief economist at BC Real Estate Association, and that was let's Talk Politics. So please tune in next week to hear from my next special guest. Thanks so much.