Home construction must double over next decade to restore 2019 affordability: CMHC

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Canada Mortgage and Housing Corp. says up to 4.8 million new homes will need to be built over the next decade to restore affordability levels last seen in 2019 based on projected demand.

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The national housing agency released its latest supply gaps estimate report on Thursday, which said between 430,000 and 480,000 new housing units are needed per year across the ownership and rental markets by 2035.

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That would represent around double the current pace of home construction in Canada.

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A total of 90,760 housing starts have been recorded so far this year through May, and CMHC projects an average of 245,000 starts annually over the next 10 years under current conditions.

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“Doubling the pace of housing construction in Canada is achievable, but not without a significantly larger and modernized workforce, more private investment, less regulation, fewer delays, and lower development costs,” said CMHC deputy chief economist Aled ab Iorwerth in a press release.

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“It will also require significant innovation in construction technology and growth in labour productivity.”

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In 2023, the agency estimated Canada would need to build an additional 3.5 million housing units by 2030, on top of 2.3 million that were already projected to be built by that year, to reach affordability levels seen in 2004.

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In its latest report, CMHC said that timeline “is no longer realistic,” especially after the post-pandemic price surge seen across the housing market.

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“COVID-19 significantly changed the affordability landscape across the country,” the report said.

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“As a result, we’re changing our aspiration to restoring affordability to levels seen just before the pandemic. This change also highlights how widespread the housing affordability challenge has become across Canada.”

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The agency defines affordability as the amount of income that goes toward housing. In general, it aims to return to levels of affordability at which adjusted house prices are no higher than 30 per cent of average gross household income.

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But that ratio is projected to reach 52.7 per cent by 2035 in a “business-as-usual” scenario, up from 40.3 per cent in 2019. Doubling projected housing starts over the next decade would bring the figure down to 41.1 per cent of income being allocated for homebuying nationally, according to the agency.

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During the federal election campaign, the Liberals promised to double the rate of residential construction over the next decade to reach 500,000 homes per year.

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The plan emphasized scaling up prefabricated housing construction. It said a new entity called Build Canada Homes would provide $25 billion in debt financing and $1 billion in equity financing to prefabricated homebuilders to reduce construction times by up to 50 per cent.

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Returning to 2019 affordability levels in the next decade would lead to house prices being roughly one-quarter lower than where they would otherwise be in 2035, the CMHC’s report added. Average rents would also be about five per cent lower.