A Canadian Perspective on Rating: Part 1 of 3

Guest Post from M.Leslie, Inc.

What makes Canada different?

Canadians and Americans have an affinity for one another. We share the longest undefended border in the world, visit each other in unparalleled numbers, and share allegiances to many of the same sports teams. In business, we are each other’s best customer. This shared experience has led BuildingRating.org to seek perspectives from north of the line, and my contributions will aim to – as my favourite exam question goes – “compare and contrast” our systems, in order to see what we can learn from each other.

This is the first of three blogs that will compare building rating regimes in Canada and the U.S. In the first, I will identify some of our differences using the residential market as an illustration. The second blog will describe how, back in the ‘90s, we parted company in the development of building ratings. The third will be devoted to what is happening in Canada now.

Why? Well, Canadians have labelled buildings longer than Americans. Energy efficient new homes in Canada have been labelled since 1982, and non-residential buildings since 1993. BuildingRating.org devotes most of its efforts to rating and disclosure of energy performance in commercial buildings.  We would not be able to rate and measure commercial buildings if we had not first demonstrated the ability to do so in the housing sector.  Canadians started early, and after a passage of time, were receptive to the notion of rating commercial buildings (with the help of British building scientists who lent their knowledge and experience to us).

So here we are - Canada and America are different.  Perhaps the best way to illustrate this is to look at our homes. I’ve prepared a list of 20 of the most important differences in new home building that Americans will discover on arrival in Canada …..

  1. Canadians overwhelmingly prefer mortgage terms of 5 years, not 30.
  2. The home ownership rate in Canada is 70% - higher than America’s 66%. It would be even higher except that the rate in Québec is 50% - dragging down all the other provinces.
  3. The housing form is different. In Canada, the market share of single-family versus multiple residential housing is split 50:50, with a little shifting back and forth. The American new housing market has been 75% to 80% single family for years.
  4. The rate of mortgage delinquency in Canada in February, 2011 was 0.45% - far below the 7.78% in America reported by LPS Applied Analytics in March.
  5. In Canada, the banks (who do most of the mortgage lending) have full recourse to our assets if we homeowners default.  As a result, we don’t walk away from our homes (except in Alberta where legislation was passed during the Great Depression that prevented banks from having recourse to most homeowners who defaulted).
  6. Mortgage interest is not tax deductible in Canada.
  7. The Canada Mortgage and Housing Corporation – our Fannie and Freddie – is not broke (as a matter of fact, it’s doing rather well).
  8. In Canada, 66% of new homes are covered by warranties, and in some provinces they are mandatory. In some parts of the country, these warranties protect homeowners from water penetration for periods ranging from 2 to 5 years.
  9. As a consequence, we have no construction defect bar in Canada.
  10. Canada has had one model building code since 1941.
  11. The “R-2000” new home label – North America’s first energy efficient building label - was introduced in Canada in 1982.
  12. The minimum energy efficiency level of a new home built to code in British Columbia, Ontario and Nova Scotia (which account for more than half of Canadian new homes) is equivalent to what is required in an American LEED for Homes certified new build.
  13. The American construction labour market is dependent upon a significant number of undocumented workers. This labour market characteristic does not exist in Canada.
  14. Canada has a higher rate of unionized construction labour than America.
  15. The largest Canadian home builder has recently accounted for about 3,000 new starts, per year. There is a significant gap between that firm, and number two. The same firm in America would be a medium-sized entrant.
  16. To the extent to which there are production builders in Canada, they are only found in southern Ontario and urban Alberta.
  17. There are no publicly traded home builders in Canada.
  18. In some parts of Canada, land development and home building are undertaken by different types of firms.
  19. The number of manufactured housing starts is small – between 6,000 and 8,000 per year.
  20. About 90% of Canadian new single-family homes have basements. This is where we go on winter nights to shoot-the-puck, when the weather outside is too cold on the pond. (And yes, the ice has now gone out).

I hope that my list sheds light on just a few of the things that make Canada distinct. As readers know, there are strong local influences in every construction market. Canada’s differences are coloured by climate, consumer behaviour, a conservative financial service sector, and a divergent building regulatory system. As a result of these differences – and I would not attribute this to any single factor – Canada’s new housing sector did not experience the same recent steep decline as the U.S. In the past five years (Jan.2006 to Dec.2010) American housing starts dropped 66%. In Canada starts declined 22%.

Building performance and energy efficiency labels do not account for this difference.  However, there is abundant research that indicates cost and affordability influences consumer behaviour. Buyer confidence will beat a path to high performance new homes, and Canadians have more confidence in their economy, as well as better performing new homes, than Americans. It is also a program manager’s axiom (at least in Canada) that once labelled new homes reach a significant market share, there is sufficient proof of a transfer of knowledge and experience to justify raising code requirements. So it is a virtuous circle – a healthy housing market leads to the voluntary adoption of new technology, which in turn enables changes to codes and standards.    

In my next blog, I’ll write about where Canadians and Americans parted company on the introduction of building labels.