Grim CIBC analysis shows how Canada is STILL majorly underestimating its housing demand
A new report from CIBC highlights a significant, often overlooked reason for Canada’s unmet housing demands. Unfortunately, it looks like a pattern that could worsen things in the future.
Canada is taking several steps to battle a housing crisis, including capping the number of international student visas and extending the foreign homebuyer ban by two years.
On Tuesday, the government also announced a $99 million national top-up to the Canada Housing Benefit to make rent more affordable.
But per the CIBC report released on Tuesday, current recessionary conditions will “hardly dent” the housing affordability crisis as long as one big problem exists — forecasting gaps
“A big miss”
“After years of half measures, governments at all levels are showing clear determination to aggressively tackle the issue. The recent cap on the number of foreign students is a bold move in the right direction, but it is insufficient,” said CIBC’s deputy chief economist, Benjamin Tal.
“The housing shortage issue is largely a planning issue with official planning targets falling notably short of actual population growth. You cannot build an adequate supply of housing for population growth that you fail to forecast.”
CIBC said that when Statistics Canada and CMHC forecasted population and housing demand ten years ago, they projected that the Canadian population would reach 38.7 million, and that was “a big miss.”
Last June, the country’s population hit the 40 million mark. When this article was published, the official figure was closer to 41 million.
StatCan
“That was a big miss. The reality is that today municipalities are facing 1.4 million more people than they were told they needed to plan for — in total, that’s a shortfall of almost three years of housing supply,” Tal said.
He noted that Non-Permanent Residents (NPRs) are responsible for more than 90% of that forecasting gap.
Statistics Canada | CIBC
Will such oversight be avoided in future? We cannot say for sure, given the latest population projection by Statistics Canada, released in August 2022, which is “already short of the actual population count.”
“The 2022 forecast contains a medium population forecast of 42.8 million for 2030. Given current population and trends, even the agency’s high growth scenario of 44.15 million would be significantly below the actual population count by the end of the decade,” said Tal.
The analysis took into account NPRs’ disproportionately higher need for housing. On average, NPRs also have a higher ratio of homes per person than the average used for forecasting population growth, further adding to the skewed big picture.
Latest housing forecasts “already obsolete”
In September last year, the Canada Mortgage and Housing Corporation (CMHC) said that by 2030, the country would need 3.5 million additional housing units above the “business as usual” pace.
Tal said this projection is “already obsolete” because it assumes a much lower base population of 38.9 million.
“We estimate that if base populations are not corrected, both agencies (Statistics Canada and CMHC) will reach their current 2030 forecast populations by or before 2026,” he shared.
Will the international student cap help?
When it comes to housing crisis combatting measures, CIBC considers the cap on international students “perhaps the most significant initiative introduced in recent years,” but argues that the impact of it is based on behavioural assumptions.
Many hope that the visa cap will discourage more students from coming to Canada to study and encourage others to leave the country once they are done with their educational programs
“Can we plan for [these behavioural assumptions]?” questions Tal. “Even if the cap works as designed, the strong pace of growth of other NPRs would keep Canada’s population growth closer to the 2% annualized growth.”
This 2% may look small, but it represents six million arrivals to Canada over the next seven years.
In fact, Tal says that even if we assume a 2% annual growth in the national population through 2030 and use accurate population numbers as a base, the “business as usual construction level” gap would be at least one million housing units higher than the CMHC high growth scenario of four million.
“That significant forecasting/planning gap is a direct result of the fact that currently there are no credible forecasts, targets, or capacity plans across governments for non-permanent residents — the population which accounts for the vast majority of the planning shortfall. That must change,” Tal warned.
Last week, Statistics Canada said that 5.1% of immigrants who came to Canada between 1982 and 2017 left the country within just five years of getting here. This percentage rises to 17.5% 20 years after admission.
These numbers may not look significant enough to make a dent, but much has changed since 2017. During the third quarter of 2023, the country saw the fourth-largest departure of its residents in 73 years, per the same statistics agency.
How can Canada better its housing plans?
Tal believes Canada needs a complete matrix of targets by application type and year, just like the one for permanent residents.
“It’s an essential step to assist planning at all levels, for the Ministry of Housing, provinces/territories, municipalities, as well as for the development industry,” he said, adding that the forecasts from elsewhere in government are neither accurate nor timely compared to population data releases covering the same periods.
“[This] confounds analysts and policymakers. Transparent, timely, and vetted sourcing is key,” he concluded.
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