Canada needs an additional 3.45 million homes by the end of the decade to bring housing costs down as the population increases, according to a new report from the federal housing agency.
This is the second report from Canada Mortgage and Housing Corp. that quantifies the number of new homes the country needs to build to ensure that households are not spending more than 40 per cent of their disposable income on shelter.
This year’s forecast is slightly lower than 2022′s prediction that an additional 3.5 million home are needed after CMHC cut the number needed in Ontario to take into account fewer households expected in the country’s most populated province. At the same time, the agency said the supply gap has widened in B.C. and Quebec over its previous outlook due to weaker supply in the western province and an increase in the number of households in the latter.
The 3.45 million new units across the country would be in addition to the 1.68 million that are expected to be built by 2030 if the pace of construction remains the same. That would amount to a total of 5.2-million new housing units and comes as the federal government has faced increased criticism for ramping up immigration targets without an apparent consideration for housing needs.
If the country continues to admit record levels of about 500,000 new permanent residents per year until the end of the decade, CMHC predicts an additional 4 million new housing units will be needed instead of 3.45 million.
“The higher population and larger pool of income it brings increase demand for housing,” said the report authored by CMHC’s deputy chief economist Aled Ab Iorwerth.
The typical home price across the country topped $700,000 as of July. And even though home prices have declined since the Bank of Canada started hiking interest rates in March 2022, values are still 40 per cent higher than 2019, prior to the start of the pandemic. As well, the nation’s apartment vacancy rate is just below 2 per cent and the average asking rental price for a one-bedroom unit is above $2,000 per month.
The housing agency uses the years 2003 and 2004 for its benchmark on affordability because it was a time when the economy was stable and housing costs were relatively low. During that period, the average household spent about 35 per cent of its disposable income on shelter. That has since increased to nearly 50 per cent nationally and nearly 60 per cent in Ontario and in B.C., according to CMHC’s previous report.
Today, the housing agency said that 1.48-million additional units are needed in Ontario, down 20 per cent from 1.85-million in last year’s forecast. In Quebec, the supply gap was 860,000 units, up nearly 40 per cent from the agency’s previous prediction. In B.C., the number was 610,000, an increase of 9 per cent over last year.
The three provinces are home to the country’s major economic hubs of Toronto, Montreal and Vancouver, which are at risk of losing people as housing costs soar.
“The cost of living there is just becoming too high,” said Mr. Ab Iorwerth in an interview. He said if housing does not become more affordable, people would leave those cities.
“What I’m envisaging is just a downward grind in their population growth and consequently their economics, living standards,” he said. “These are drivers of Canada’s economic growth. This will be putting downward pressure both on these cities’ economic growth but also on Canada’s.”
The typical home price in the Toronto region was $1,161,200 in July, according to the latest data from the Canadian Real Estate Association. In the Vancouver region, it was $1,210,700 and in the Montreal area it was $520,000.
CMHC has long said that more housing is needed to help address affordability, and most private sector economists and the real estate industry agree with that assessment. Mr. Ab Iorwerth said the pace of construction needed to increase.
For the country to get to 5.2-million new units by 2030, the rate of building would need to more than double from current levels. New home construction has already slowed due to the rise in material and labour costs. In Toronto, the most populated city in the country, demand for preconstruction condos has been waning due to the high costs.