Projected construction of new homes by 2030 will not be enough to solve Canada’s supply and affordability issues, the Canada Mortgage and Housing Corp. (CMHC) said in a report Thursday.
In May, CMHC identified supply as “the biggest issue affecting housing affordability,” and that new housing starts have struggled to keep up with population growth in some of Canada’s large cities.
To “restore affordability, Canada will need an additional 3.5 million units,” beyond those already in the works, CHMC said Thursday.
“Canada’s approach to housing supply needs to be rethought and done differently,” said Aled ab Iorwerth, CMHC’s deputy chief economist.
“There must be a drastic transformation of the housing sector, including government policies and processes, and an ‘all-hands-on-deck’ approach to increasing the supply of housing to meet demand.”
The latest CMHC report projects that the housing stock will increase by 2.3 million units by 2030, reaching close to 19 million housing units by 2030, if current rates of new construction continue.
However, that number “would need to climb to over 22 million… to achieve affordability for everyone living in Canada,” the report said.
“Put another way, we need the rate of housing starts to more than double,” ab Iorwerth said.
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The housing authority said two-thirds of the housing supply gap is in Ontario and British Columbia, provinces that have faced large declines in affordability in recent years.
Additional supply would also be required in Quebec, since affordability there has markedly declined during the past few years.
“Over the last 20 years in Canada, housing supply has not responded to demand, especially in some of the country’s large urban areas, resulting in the loss of affordability,” CMHC said.
The affordability challenge is being exacerbated by labor and supply issues that could limit new supply, ab Iorwerth said, adding it is an economic risk for large cities that rely on attracting skilled and highly skilled workers.
“We need to get faster and more efficient at building housing units,” he said. “This is one of the key questions that we hope will be addressed coming out of our report: It’s not a question of how much housing, but how do we actually do it?”
One of his suggestions is to convert underused retail or office space into residential units, something that would require cooperation among various levels of government and the private sector.
Increasing housing supply in both the rental and ownership market will be “critical” to achieving affordability, the CMHC report said.
Robert Hogue, a senior economist at RBC Economics, said the bank’s aggregate affordability measure surged 3.7 percent points to 54 per cent in the first quarter of this year – the worst level of affordability since the early 1990s.
“Ownership costs rose in every market we track, though the degree of pain felt by buyers varies dramatically across the country,” he said in a note.
Hogue said the Bank of Canada’s “forceful” interest-rate-hiking campaign will further inflate ownership costs in the near term, putting RBC’s national affordability measure “on a path to worst-ever levels.”
A looming price correction will, however, eventually bring “some relief to buyers,” he said, noting that property values are already slipping and are likely to fall more than 10 per cent in the coming year.
Thursday’s CMHC report focused on the country’s long-term housing strategy and did not zero in on the “cyclical challenges we’re facing in the short term,” ab Iorwerth said.
“Housing issues are complex and housing supply alone will not fix housing affordability challenges for everyone,” CMHC’s report said, adding that continued government support for the most vulnerable will be needed to address “housing inequities” in the system.