The projected construction of new homes by 2030 won’t be enough to solve Canada’s supply and affordability issues, the Canada Mortgage and Housing Corp. (CMHC) said in a report Thursday.
In May, CMHC identified supply as “the biggest issue affecting housing affordability,” and that new housing starts have struggled to keep up with the population growth in some of Canada’s large cities.
To “restore affordability, Canada will need an additional 3.5 million units” on top of those already in the works, CHMC said Thursday.
“Canada’s approach to housing supply needs to be rethought and done differently,” Aled ab Iorwerth, CMHC’s deputy chief economist, said.
“There must be a drastic transformation of the housing sector, including government policies and processes, and an ‘all-hands-on-deck’ approach to increasing the supply of housing to meet demand.”
The latest CMHC report projects that the housing stock will increase by 2.3 million units by 2030, reaching close to 19 million housing units, if current rates of new construction continue.
However, that number “would need to climb to over 22 million … to achieve affordability for everyone living in Canada,” the report said.
“Put another way, we need the rate of housing starts to more than double,” ab Iorwerth said.
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The housing authority said two-thirds of the housing supply gap is in Ontario and British Columbia, which have experienced large declines in affordability in recent years.
Additional supply would also be required in Quebec, since affordability there has markedly declined during the past few years.
“Over the last 20 years in Canada, housing supply has not responded to demand, especially in some of the country’s large urban areas, resulting in the loss of affordability,” CMHC said.
The affordability challenge is being exacerbated by labour and supply issues that could limit new supply, ab Iorwerth said, adding it is also an economic risk for large cities that rely on attracting skilled and highly skilled workers.
“We need to get faster and more efficient at building housing units,” he said. “This is one of the key questions that we hope will be addressed coming out of our report: It’s not a question of how much housing, but how do we actually do it?”
One of his suggestions is to convert underused retail or office space into residential units, something that would require cooperation amongst the various levels of government and the private sector.
Increasing housing supply in both the rental and ownership market will be “critical” to achieving affordability, the CMHC report said.
Robert Hogue, a senior economist at RBC Economics, said the bank’s aggregate affordability measure surged 3.7 percentage points to 54 per cent in the first quarter of this year — the worst level of affordability since the early 1990s.
“Ownership costs rose in every market we track, though the degree of pain felt by buyers varies dramatically across the country,” he said in a note.
Hogue said the Bank of Canada’s “forceful” campaign of interest-rate hikes will further inflate ownership costs in the near term, putting RBC’s national affordability measure “on a path to worst-ever levels.”
A looming price correction will, however, eventually bring “some relief to buyers,” he said, noting that property values are already slipping and are likely to fall more than 10 per cent in the coming year.
Douglas Porter, chief economist at BMO Financial Group, said he wonders if the CMHC’s estimated housing supply shortfall will be as large a year from now, given increasing interest rates and expectations that the housing market will have “cooled even more substantially.”
What’s more, he said, some skepticism should be attached to estimates of the supply shortfall, given that other tracking suggests there are scores of vacant homes in Canada.
Still, Porter said focusing on the supply side remains important, even though the housing market is calming down from the “blistering” levels of the past year.
“The drive to boost supply by 3.5 million by 2030 seems aspirational, but not realistic, given that it works out to roughly 440,000 new units per year,” the economist said, noting that the all-time high for starts in a single year is 273,00.
“Moreover, the industry already seems to be running into its own supply constraints, whether that’s the lack of skilled workers, rising building material prices, or the cost of land,” he added. “It would seem that a ramping up of homebuilding activity would simply aggravate cost pressures on all of these fronts.”
Thursday’s CMHC report focused on the country’s long-term housing strategy and did not zero in on the “cyclical challenges we’re facing in the short term,” ab Iorwerth said.
“Housing issues are complex and housing supply alone won’t fix housing affordability challenges for everyone,” the report said, adding that continued government support for the most vulnerable will be needed to address “housing inequities” in the system.