Rising interest rates not expected to dampen Nunavut house prices
Territory’s housing shortage plays a bigger factor in cost, says Iqaluit bank manager
Higher interest rates will not have a big impact on Nunavut’s private housing market because there is still high demand for homes and so few on the market, says the Iqaluit branch manager of the First Nations Bank of Canada.
“There isn’t one community that has enough housing to support their population, whether it be public, social or private,” Kathleen Gomes said.
In Iqaluit, a three-bedroom house was recently listed for $718,000.
In other parts of Canada, where there are more homes available to buy, interest rate hikes should eventually cool homebuyer demand, said Gomes.
But the situation is more complicated in Iqaluit, she said. Not only is there not enough housing, but the city needs another water source to accommodate the amount of new construction needed to support its growing population.
Robert Hogue, a senior economist with RBC, said his bank believes the Bank of Canada will raise the interest rate three times in 2022, with each rate hike being at 0.25 per cent. Higher interest rates will mean higher mortgage payments for homeowners and potential buyers.
Over 3,000 new housing units are needed to accommodate the housing demand in Nunavut, according to a report by the Government of Nunavut.
With the territory’s dire need for housing, the Nunavut Housing Corp. is more focused on building public housing than supplying the private market, said NHC chief operating officer Stephen Hooey.
Hooey said the NHC is planning on building approximately 50 housing units or more this year.
Additional funding programs can increase the amount of housing built, Hooey added. He gave as an example the $4.9 million in housing funding given to Nunavut by the Canadian Housing and Mortgage Corp. last summer.
In a typical year, the NHC would build approximately 80 housing units, Hooey said. But the rising cost of labour and building materials means the NHC does not have the budget to build as much this year.
Part of the reason the NHC cannot afford to match the rising costs of homebuilding is because it is on a fixed budget that was set when inflation was at a stable two per cent. But inflation has risen dramatically in recent months, with Statistics Canada finding that the consumer price index rose by 4.7 per cent year-over-year in October. That’s the highest it’s been since 2003.
Hooey said the NHC is looking to talk with its partners, such as the CMHC, to see what additional funding programs it can access to address the higher cost of building.
If inflation and interest rate both climb, that will also put stress on Nunavummiut homeowners, Gomes said, through higher mortgage payments and lower savings due to the cost of necessities such as gas or food going up.