The Canadian Mortgage and Housing Corp. (CMHC) says 3.5 million more homes will need to be built by 2030 to reach an affordable price.
The agency on Thursday released a report explaining the need for a different approach to the housing shortage in a time of growing demand and accessibility concerns.
“Increasing supply will be difficult. Critically, increasing supply requires time because time to build is important, but so is time to move forward in government approval processes,” the report says. “This delay means we need to act today to achieve affordability by 2030.”
- You can read the full report at the end of this story.
If current rates of new construction continue, CMHC said the country’s housing stock is expected to increase by 2.3 million units by 2030, reaching about 19 million units in total. But to achieve affordability for all Canadians, the agency said an additional 3.5 million homes are needed.
However, softening housing market conditions and a shortage of labor in the construction sector could prevent Canada’s housing stock from reaching more than $ 22 million by 2030.
“There are supply problems, labor shortages right now and the cost of funding is rising, so it’s clear that there are short-term challenges,” said CMHC deputy chief economist Aled ab Iorwerth during a conference call.
BMO economist Robert Kavcic says it will be difficult to achieve what the CMHC wants to achieve.
“The unemployment rate in construction is close to an all-time low; vacancies are at an all-time high, we have a deep shortage of skilled trades and the cost of building materials is already rising rapidly,” he said. “So unless the economy is really animated and needs stimulus, effectively doubling the rate of new construction over the next decade will be extremely difficult without significant inflationary pressure.”
Regulation systems need to be more efficient, says CMHC
There were 81,500 construction job offers in the first quarter of 2022, more than double the figure seen in the first quarter of two years ago. Meanwhile, home sales fell nearly 22 percent in May compared to last year, and nearly nine percent between April and May, as the average, seasonally adjusted, price of a home it dropped nearly five percent to $ 711,000 during that period.
The CMHC says achieving affordable housing for everyone in Canada will require developers to be more productive and make full use of land properties to build more units.
The housing agency also says governments need to make regulatory systems more efficient for projects to be approved more quickly.
The CMHC notes that two-thirds of the supply gap is in Ontario and British Columbia, two markets that have faced significant declines in affordability.
Around 2003 and 2004, an average household would have had to spend about 40% of its income on buying an average home in Ontario, and about 45% in British Columbia. As of 2021, that figure is approaching 60 percent.
The report says an additional supply would also be required in Quebec, as affordability in the province has declined in recent years.
The situation gets worse before it gets better
RBC’s latest housing accessibility report released Thursday reveals that the situation is the worst it has been since the early 1990s and will get worse before it gets better.
RBC’s aggregate affordability measure for Canada increased 3.7 percentage points to 54% in the first quarter of 2022, as home ownership costs rose nationwide.
“The Bank of Canada’s ‘strong’ interest rate hike campaign will further inflate short-term property costs, putting RBC’s national affordability measure on track for the worst levels,” he said. RBC senior economist Robert Hogue in the report. “However, we see that the growing price correction is finally bringing some relief to buyers.”
RBC believes property values will fall more than 10 percent next year.