A recent government report from the Canada Mortgage & Housing Corp. (CMHC) indicates that even a doubling of homebuilding activity in Canada would only restore housing affordability to levels seen immediately before the Covid-19 pandemic.
This new assessment revises earlier, more optimistic projections and underscores the escalating scale of the nation’s housing affordability crisis.
Housing prices surge
The current challenge in Canada’s housing market stems from a combination of factors that intensified in recent years.
While major urban centers like Toronto and Vancouver have long grappled with a lack of affordable housing, the period of low interest rates in 2020 and 2021 significantly fueled a home-buying surge.
This, coupled with rapid population growth following the easing of pandemic restrictions, led to a frenzied market where prices escalated dramatically across numerous cities and regions.
The CMHC report highlights that, as of last year, the costs associated with a typical mortgage consumed approximately 54% of the average Canadian household’s income.
Revised projections and future targets
To address this widespread issue, the CMHC’s latest report, released Thursday, suggests a significant increase in construction is necessary.
The country must boost annual homebuilding to as many as 480,000 units by 2035 merely to bring affordability back to its 2019 levels.
This is a substantial increase from the current rate of approximately 250,000 units per year.
Earlier estimates from the national housing agency had called for a similar construction boost, aiming for achievement by 2030, with a more ambitious goal of restoring affordability to 2004 levels.
However, the CMHC has now stated that “Restoring affordability to levels last seen two decades ago isn’t realistic, especially after the post-pandemic price surge,” emphasizing how pervasive the housing affordability challenge has become.
The revision in the CMHC’s forecast and timeline is partly attributed to the lengthy processes involved in new housing construction.
The updated estimates now factor in rezoning procedures, which can add years to development schedules.
These projections, while not official government targets, provide a clearer scale of the problem.
Despite these adjusted expectations, Prime Minister Mark Carney, who was elected in April on promises to tackle the housing crisis, has maintained an election platform pledge to ramp up homebuilding over the next decade, with an eventual goal of reaching 500,000 homes per year.
Economic headwinds and urban impact
Economists surveyed by Bloomberg anticipate that Canada’s housing starts will average a lower 230,000 units between 2025 and 2027.
This projected deceleration in construction is primarily due to the ongoing impact of higher interest rates and general economic uncertainty weighing on the industry.
The CMHC report illustrates the potential impact of increased construction: doubling the current rate of home construction could see the affordability ratio drop to 41% by 2035, a notable improvement from the current 54%, though still a significant portion of household income.
Without this increased pace, the report warns, the current construction rate would yield almost no improvement in this ratio over the next decade.
Among Canada’s major cities, Montreal, the second largest, faces the most significant housing supply gap, with affordability projected to worsen if current trends persist.
Toronto, the nation’s largest city, would require a 70% increase in annual homebuilding to see improvements in affordability.
The report notes that while housing prices and rents in Vancouver and Toronto have long garnered international attention, these increases now burden many Canadians, with low-income and even some middle-class households struggling to find suitable and affordable housing.
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