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The baby bust is real. Here’s how the pandemic is permanently changing Canada

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The short-term societal shift brought about by the COVID-19 pandemic has been profound. Even aside from the major imposition of lockdowns, we’ve become accustomed to wearing masks everywhere we go, doing business virtually and ordering takeout rather than eating in restaurants.

And as vaccines roll out across the country, reaching an ever-growing majority of Canadians, the remnants of the pandemic that will be more than just temporary oddities are starting to come into focus.

For two of these trends, like the massive drop in birth rates and the housing shortage, the problem was already there, but the pandemic put it into hyperdrive. The supply chain crunch, which saw empty shelves lining our stores, was a hiccup in a global supply system that has drawn mostly positive reviews for decades but may be ripe for improvements.

Here are some ways the pandemic may permanently change Canada.

The baby bust

When lockdowns were imposed last year, there was some initial speculation that it would lead to a baby boom. After all, people are locked inside together. It was inevitable, right?

But human nature isn’t so simple. In times of widespread uncertainty, we’re far more inclined to put off having children, and when we postpone having kids we tend to have fewer of them.

Writing at the Institute for Family Studies in March of 2020, Lyman Stone argued that births were going to plummet, citing data from disasters going back two centuries. Events that cause a lot of deaths, also cause fewer births, argued Stone.

Stone’s prediction was bang-on.

The early numbers from British Columbia show a staggering decline in births in the first quarter of this year, wrote John Ibbitson, the Globe and Mail’s writer at large, and Darrell Bricker, the CEO for Ipsos Public Affairs. Just 8,908 babies were born in B.C. in the first three months of this year, which is an 18 percent drop.

This pandemic baby bust, which has increasingly been showing up in official statistics, is actually the culmination of a decades-long trend in many western countries. And get ready for this to be a dominating issue across the world over the next century.

The situation is especially stark in China. According to the New York Times, China’s population is expected to fall from 1.41 billion people to 730 million by 2100. In that scenario, China would have as many 85-year-olds as 18-year-olds by the end of the century.

On the Move

Thanks to a surge in remote working and an increasingly crazy housing market, the pandemic has sparked a migration and people are moving out of the cities.

The trend was already apparent by the end of 2020.

In its year end outlook in December, Re/Max saw significant relocation happening in the real estate market, with unprecedented sales in suburban and rural parts of Canada. That trend has continued.

Speaking to Bloomberg last week, Finance Minister Chrystia Freeland said she has been keeping an eye on the situation.

“We have seen actually, during Covid, a lot of Canadians moving to smaller towns, to different parts of the country. There’s been a real boom in Atlantic Canada, for example,” said Freeland. “We’ll have to see what happens with workplaces post-Covid.”

The relocation trend is driven by two features of the pandemic. With many companies embracing remote work, employees don’t necessarily have to be in the same city as their employer. And with the housing market being charitably described as “madness” right now by normally buttoned-up bankers, Canada’s most populous cities are even less affordable. Interest rates are low and the pandemic’s recession has been highly stratified between low income and high income people.

A persistent trend over the last year is that job losses have been to low-paying jobs, while hundreds of thousands of high-paying jobs have been added to the economy. Canadians who were able to keep their jobs and work from home have saved money over the last year on commuting and, at times, daycare.

That means that a segment of relatively wealthy Canadians are sitting on a pile of cash, while interest rates bottom out. On top of that, they longer have to go into the office.

So, if the choice is between a ramshackle million-dollar home in Toronto or a house with an ocean view in New Brunswick for $359,000, can you really blame them?

The Supply Chain Crunch

The grocery stores provided some of the most striking images in the early days of the pandemic. We saw people loading their carts with massive packages of toilet paper, empty shelves due to supply shocks and long lines winding around the building as the virus provoked capacity limits on stores.

Those empty shelves and product shortages that still persist today may have spooked retailers into reimagining their entire supply chain.

“With the new understanding that retailers could benefit from a shortened, local and potentially more secure supply chain, governments and industry associations are increasingly incentivizing regional production through both guidance and funding programs,” argues a new report from the Brookfield Institute.

These companies are also required to trace their items all the way through the global supply chain to satisfy regulatory requirements and make product recalls possible. With those costs ballooning, shorter supply chains will only become more attractive.

Consumer preferences may be leading this way anyway, with more people looking for local products, the report says.

Canada’s housing shortage is a long-term problem that’s only getting worse

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How bad is Canada’s housing shortage right now? That depends how you measure it.

If you want to be generous, you can shield Canada from comparisons to similar countries and simply ask if we are building enough housing units to keep up with population growth.

Anyone trying to buy their first home in Vancouver, Toronto, Montreal, or Ottawa won’t need charts, graphs and reams of statistics to know the answer to that question.

The ratio of homes to people has been falling for years.

In 2016 there were 427 housing units for every 1,000 Canadians and in 2020 that number had fallen to 424, according to a recent report by Jean-François Perrault, a senior vice-president and chief economist at Scotiabank.

These numbers get even uglier when compared to other countries.

Canada has the lowest number of housing units per 1,000 residents of any G7 country, Scotiabank reports.

France has 540 housing units for every 1,000 residents, the U.K. has 433 and the U.S. has 427. If Canada set the modest goal of simply catching up to the United States, Canadian builders would have to complete an extra 100,000 homes. To catch up to the U.K., it would require an extra 250,000 homes.

To meet the G7 average, Canada would have to build two million extra units.

“To put these gaps in perspective, we have averaged 188,000 home completions in the last 10 years,” the Scotiabank report reads.

Although it’s tempting to attribute the current housing crunch entirely to a perfect storm brought about by the COVID-19 pandemic and record low interest rates, the historical record disagrees. It’s these shortages and the country’s inability to close the gap that are the main driver of record-high housing prices.

“It reflects a long-standing under-production of housing, whether for rent or purchase,” the report reads. This trend stretches across a decade and appears to be untethered from any other short-term trends.

And although housing starts have been off to a strong start in 2021, the problem is only going to get worse.

Although housing starts have been off to a strong start in 2021, the problem is only going to get worse.

Population growth, driven almost entirely by non-permanent residents has been a big factor and will continue to drive shortages as the pandemic tapers off. In Ontario, this is mainly driven by a huge increase in foreign students, according to Mike Moffatt, an economist at the Ivey Business School.

“We need to make sure they, and everyone else, in the province, has a place to call home,” wrote Moffatt, in a series of blog posts about housing issues in Ontario.

And with the federal government proposing to juice Canada’s immigration numbers and introduce a new national child-care system that will boost family incomes and increase the demand for housing, there isn’t much relief on the horizon.

“We know these things are coming. We should learn from the mistake of the last few years: we know demand will rise strongly… yet we also know that the supply response is likely to be hindered by a range of obstacles,” the Scotiabank report argues.

What are the solutions?

The paradox in the housing problem is that many short-term fixes provide temporary relief for some buyers and then exacerbate the problem on the whole. For example, in 2019 the federal government boosted the Home Buyer’s Plan and introduced a first-time home buyer’s incentive that critics argued would simply lead to more personal debt and inflated house prices.

The report from Scotiabank offers a few long-term solutions. The most obvious one is cash from the federal government to spur local governments. For example, the federal government could tie future transit funding to density objectives or to clearing red tape in the planning approval process.

The report also recommends that the federal government bring together people from across the country, including provincial and municipal officials, builders and developers, and civil society organizations to offer solutions on a short timescale.

Most of all, the report recommends that Canada’s housing issues be treated like a national priority, with resources that match the scale of the challenge.

Go West

While Canada’s housing problems sprawl across the country, leaving cities like Vancouver, Toronto and Montreal at the bottom of multiple affordability rankings, there are some places of refuge.

Edmonton is the highest ranked Canadian city on the Demographia international housing affordability index at 17th place and Calgary is similarly well-positioned at 29th out of 92 cities.

For perspective, Vancouver is second-last on the list, right before Hong Kong and four spots below Toronto.