Canada will be short about 3.5 million homes by the end of the decade compared with what’s needed to restore affordability, Canada Mortgage and Housing Corp. said Wednesday.
The estimate is similar to the estimate last year, but that’s because the federal housing agency now expects lower economic growth will push down demand, offsetting the slowdown in home construction seen in the past year.
“We were too optimistic about Ontario’s growth coming out of the pandemic,” CMHC deputy chief economist Aled ab Iorwerth said.
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The lower growth, and lower incomes that go with that, means the agency expects more people especially in Ontario to stay living with parents or roommates, along with other trends that keep people from striking out to look for a home of their own.
“You know, we hear of divorced couples staying together because they can’t afford to live in separate housing,” ab Iorwerth said.
The lower growth projection for the province helped push down Ontario’s shortfall by about 370,000 units, but it still has by far the biggest gap at 1.48 million homes.
Other provinces, however, saw their expected affordability gap increase on stronger economic and demographic trends.
Quebec needs an estimated 860,000 units, up 240,000 from last year, while B.C. needs 610,000 for a 50,000 increase. Alberta needs 130,000 compared with the 20,000 projected last year.
The widening gap in some provinces come as the overall pace of construction has slowed because of a combination of labour constraints, rising costs for supplies and higher interest rates that are making it harder to finance projects, ab Iorwerth said.
The combined pressures means CMHC now expects about 390,000 fewer housing units to be built by the end of the decade from what it projected last year.
Overall, the combination of lower growth, lower construction and other trends left the Canadian shortfall at an estimated 3.45 million, compared with 3.52 million in its outlook in June 2022.
The forecast is also based on a significant drop in immigration after 2025, the year the federal government is targeting 500,000 newcomers. If immigration patterns continue at the current pace though, the housing shortfall jumps to four million units by 2030.
Conversely, in an even lower economic growth scenario, the gap could shrink to 3.1 million units.
CMHC’s affordability target is based on how the market was in 2004. It works out to housing taking up about 30 per cent of after-tax income in most provinces, but the target ratio is 37 per cent in Ontario and 44 per cent for British Columbia.
Ab Iorwerth said it will be a challenge to restore affordability given the complexity of the challenge, but that it’s encouraging governments are ramping up their response.
“What’s heartening is that we’re seeing policy action now by all levels of government, the government of Ontario has taken action, the federal government is stepping forward,” he said.
“What we’re hoping for in the future is that all of these policy actions start to bear fruit, and we see the rates of construction increasing.”