As many as 4.8 million new homes must be constructed over the next decade to return to affordability levels last seen in 2019 based on expected demand, Canada’s national housing agency says.
The latest supply gaps estimate report from the Canada Mortgage and Housing Corporation (CMHC) found the country will need between 430,000 and 480,000 new housing units each year across the ownership and rental markets until 2035.
CMHC deputy chief economist Aled ab Iorwerth described the gap as “challenging,” noting that it would represent roughly double the current pace of home construction in Canada, which has a projected rate of 245,000 to 250,000 units.
“Tackling this housing affordability challenge is enormous. It’s absolutely critical to increase housing supply,” he said during the Crown agency’s in-house podcast to announce the report. “It’s particularly large in some of our key cities like Toronto, Vancouver, and Montreal.”
A total of 90,760 housing starts have been documented up to May this year, with the CMHC forecasting an annual average of 245,000 per year for the next decade based on current conditions.
Doubling the pace of housing construction is achievable, ab Iorwerth said, but not without “a significantly larger and modernized workforce, more private investment, less regulation, fewer delays, and lower development costs.”
He also emphasized the need for greater innovation in construction technology and an improvement in labour productivity.
The report indicated that an increase in housing supply is unlikely to lead to financial instability “because these forces take time to produce reactions.” Ab Iorwerth further noted that the forecasts were based on a 10-year timeline for this purpose.
The agency estimated in 2023 that Canada would need to construct 3.5 million more homes by 2030, on top of the 2.3 million that were already supposed to be built by that year, to achieve 2004 affordability levels.
The 2030 timeline “is no longer realistic,” CMHC said in its new report, citing the post-pandemic price surge across the housing market. While the 10-year timeline is a “stretch goal,” according to the report’s authors, it is still achievable.
The agency interprets affordability as the portion of income allocated to housing expenses. Typically, it strives to return to affordability levels where adjusted home prices do not exceed 30 percent of the average gross household income.
It is anticipated this ratio will increase to 52.7 percent by 2035 under a “business-as-usual” scenario, rising from 40.3 percent in 2019. If housing starts are doubled over the next 10 years, the percentage of income designated for home buying on a national level would decrease to 41.1 percent, the agency said.
Achieving the affordability levels of 2019 in the next 10 years would cause house prices to be about one-quarter lower than they would otherwise reach by 2035, according to the report. Average rents would also fall roughly 5 percent.
Big City Housing Gaps
The report contained regional insights indicating that Ontario, Nova Scotia, and British Columbia exhibit the most substantial housing supply gap by province.Montreal has the largest gap of any major city because the cost of home ownership has escalated more rapidly than in other areas in recent years. This is followed by Ottawa, where the CMHC indicated that the new housing supply has not matched the surge in demand for housing.
There has been a rise in rental construction in Toronto in recent years but there remains a shortage of home ownership options that correspond to local income levels.
CMHC has projected that a 70 percent increase in homebuilding over the next 10 years could alleviate affordability challenges.
Vancouver requires approximately 7,200 more homes each year beyond the standard “business-as-usual” scenario, representing a 29 percent increase, the agency said.
Calgary will require an increase of 45 percent in new homes each year, the report said. The recommendation comes despite experiencing unprecedented levels of home construction in the Alberta city for three consecutive years.
The federal government has promised to double the rate of residential construction in the next 10 years to reach 500,000 homes per year.
Prime Minister Mark Carney said his government would prioritize an increase in prefabricated housing construction through Build Canada Homes, a government organization to provide $25 billion in debt financing and $1 billion in equity financing to prefabricated homebuilders to cut construction times by as much as half.
The Canadian Press contributed to this report.
