Canada Slashes Forecast for Making Housing More Affordable

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(Bloomberg) — Doubling the pace of homebuilding in Canada will only bring affordability back to levels seen right before the Covid-19 pandemic, according to a new government report that lowers expectations for the impact of construction on housing costs.

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The country must boost building to as much as 480,000 housing units a year by 2035 just to bring affordability back to where it was in 2019, the report from the Canada Mortgage & Housing Corp. said Thursday. The current rate of homebuilding is about 250,000 units, the agency said. 

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Earlier estimates from the national housing agency called for a similar boost in home construction and targeted 2030 as the year it could be achieved. That previous forecast suggested that a rapid boost in housing supply would bring affordability back to 2004 levels.

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“Restoring affordability to levels last seen two decades ago isn’t realistic, especially after the post-pandemic price surge,” CMHC said. The change in forecast “highlights how widespread the housing affordability challenge has become across Canada.”

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While a lack of affordable housing has long plagued major Canadian cities like Toronto and Vancouver, the low interest rates of 2020 and 2021, along with rapid population growth after the pandemic eased, drove a home-buying frenzy. Prices surged in many cities and regions.

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Prime Minister Mark Carney was elected in April in part on promises to boost home building to address what many see as a housing crisis. 

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Economists surveyed by Bloomberg expect Canada’s housing starts to average 230,000 units between 2025 and 2027, a significant deceleration in construction because interest rates and economic uncertainty have weighed on the industry.

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Canada’s housing agency explained its revised timeline in part because of how long it takes to get new housing built. The new estimates now take into account rezoning processes that often add years to construction times, the agency said. 

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These projections aren’t official government targets, the report said, but estimates of the scale of the problem. Carney’s election platform nevertheless promised to ramp up home building activity over the next decade to eventually reach 500,000 homes per year.

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Last year, all the costs of home with a typical mortgage would have eaten up about 54% of the average Canadian household’s income, the CMHC report shows. The current rate of home construction would result in almost no improvement in that ratio over the next 10 years. 

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By doubling the rate of home construction, that ratio would drop to 41% by 2035, according to the CMHC report.

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Of all Canada’s major cities, Montreal, its second largest, faces the biggest housing supply gap, with affordability set to deteriorate if this is not addressed, the report said. Toronto, the largest city, must boost annual homebuilding by 70% to improve affordability.

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“For many years, housing prices and rents in Vancouver and Toronto attracted attention from all over the world,” the report said. “Over time, these increases came to burden many Canadians and their children. Low-income and some middle-class households struggle to even find a place to live, let alone at a price they can afford.”

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—With assistance from Erik Hertzberg.

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