P.E.I. housing starts expected to decline sharply in 2020
'Currently there's an excess of housing starts'
After years of rapid growth, housing starts on P.E.I. are projected to decline in the next two years in the latest Canada Mortgage and Housing Corporation housing market outlook.
"For P.E.I., we expect a record level of housing starts in 2019," said Kelvin Ndoro, senior economics analyst with CMHC.
"In 2020 and 2021 we expect starts to trend lower."
Recent Statistics Canada reports have shown steep increases in the value of building permits and in building investment on P.E.I. This growth has come in response to record low vacancy rates and a tight housing market that has seen prices rise 38.5 per cent in Charlottetown in the last two years.
But Ndoro said his analysis shows there are already too many homes being built on P.E.I., which will lead to a supply and demand mismatch.
"Currently there's an excess of housing starts," he said.
"When deviations between actual and fundamental levels are high or positive, this gets resolved very quickly in the short term, and that's by housing starts declining."
CMHC's housing market outlook, released last week, projects as many as 1,700 housing starts in 2019. The report suggests that will decline to a maximum of 900 in 2020, and to 725 in 2021.
"Housing starts in Atlantic Canada, generally, they go through a lot of swings, up and downs," he said.
Though P.E.I.'s population has been increasing over the years, Statistics Canada has recorded more people moving out of the province to other parts of Canada.
"We have started to see a reversal in interprovincial migration," he said.
As recently as 2016-17 P.E.I. gained almost 450 in population from other provinces, but in each of the last two years that has been under 200.
Roommates and living with parents
Another factor expected to reduce demand is people waiting longer to form their own households.
"Young adults, they will room together more often or they live with their parents more longer," said Ndoro.
Trends and norms are also changing with young adults. For example, said Ndoro, people are marrying later in life and that also affects forming a household.
While the number of new homes being built on P.E.I. is projected to peak in 2019, Canada as a whole peaked in 2017. Ndoro said that is because housing markets don't operate the same across the board.
"In the past few years Atlantic Canada has actually been at polar opposites in what is happening in the rest of the country, and affordability is one of the key factors," Ndoro said.
When other areas in Canada become unaffordable, more people tend to choose Atlantic Canada because it is often more affordable, he said.
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With files from Alex Cooke