Canada still needs 3.5 million more homes to restore affordability

Canada still needs 3.5 million more homes to improve affordability

Construction for new residential buildings near the Richmond Olympic Oval in Richmond, BC. (Max Lindenthaler/Shutterstock)

Canada Mortgage and Housing Corporation (CMHC) has indicated 3.45 million additional homes are still needed by 2030 in order to restore affordability levels nationwide.

In a newly released report this week which updates the original estimates made in 2022, CMHC indicates very slight progress has been made, as they previously pegged the gap at 3.53 million. This volume of new supply would return to affordability levels last seen in 2003/2004.

This includes the baseline need for 1.48 million more homes in Ontario, 860,000 in Quebec, 610,000 in British Columbia, and 130,000 in Alberta.

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But there are new headwinds toward making any meaningful narrowing of the gap. The original 2022 report did not foresee the extent of the economic slowdown in 2023 to date, with ongoing inflation challenges and lower-than-expected household income growth. There is also now a clearer picture of the economic impact of the Bank of Canada’s policy interest rate hikes.

CMHC has now lowered its estimate of how many additional homes will be built by 2030. They are now projecting a total supply of 18.6 million homes in Canada by 2030 — down from the previous forecast of 18.2 million.

The lowered projection is due to challenging conditions for construction, with the steep escalation in the cost of materials, equipment, and labour. As well, construction financing is now a major hurdle due to the Bank of Canada’s policies to dampen inflation.

“We project these policies will have a larger relative impact in Ontario. In contrast, we’ve become more optimistic about growth in household income in Alberta and Quebec,” reads the update.

“These changes to household income affect demand for housing. We project relatively less demand for housing in Ontario and British Columbia and more in Alberta and Quebec.”

By 2030, Canada is expected to reach a total population of 43 million with baseline growth of 44.1 million in a high population growth scenario — up from crossing the 40 million mark earlier this summer. The number of households will also grow from 15.7 million in 2023 to 17.7 million with baseline growth or 18 million with high growth by 2030.

CMHC assumes Canada’s current surge in immigration is at least partially driven by pulling forward immigrants from future years — the acceleration of the arrival of immigrants who would have arrived anyway, but later. The high population growth scenario of 600,000 to 700,000 new immigrants per year has been deemed unlikely.

In its update, CMHC also provided an update on the expected home price increase between 2019 and 2030. Nationally, the baseline increase will be 79%, but it could be 69% in a low-economic growth scenario or 89% in a high-population growth scenario.

Within BC, the home price increase will be 76% for the baseline, 66% for low-economic growth, and 90% for high-economic growth.

The respective scenario forecast is 86%, 74%, and 98% in Ontario, 51%, 45%, and 52% in Alberta, and 95%, 84%, and 102% in Quebec.

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