According to a recent report by the Canada Mortgage & Housing Corp., even doubling the homebuilding activities in Canada could only bring housing affordability back to the levels that existed before the Covid-19 epidemic.
The new report revises the earlier and more optimistic predictions, and highlights the growing scale of housing affordability in the United States.
Housing prices surge
A combination of factors has intensified over the past few years, and this is what’s causing Canada’s current housing crisis.
The low-interest rate period in 2020-2021 has fueled an unprecedented surge of home purchases.
The rapid growth of the population following the lifting of restrictions on pandemics led to an escalating market in which prices soared across many cities and regions.
According to the CMHC, mortgage costs accounted for 54% of average Canadian households’ income in the past year.
Future targets and revised projections
The CMHC released its latest report on Thursday to address the issue. It suggests that a substantial increase in building is needed.
By 2035, the country will need to increase homebuilding by 480,000 units annually to regain affordability at its current levels.
The current annual rate is approximately 250.000 units.
The national housing agency’s earlier estimates had suggested a construction boom similar to that of the current one, and aimed for completion by 2030. However, they set a higher goal, which was restoring affordability back to levels in 2004.
The CMHC now states that “restoring affordability to levels seen in the last two decades is not realistic, particularly after the price spike post-pandemic,” emphasizing the extent of the affordability problem.
The CMHC revised its forecasts and timeline due to the long processes associated with new home construction.
Updated estimates include rezoning processes, which adds years to the development schedule.
While these projections are not the official targets of government, they provide an idea about how big the problem is.
In spite of these new expectations, Mark Carney who was elected as Prime Minister in April with promises to address the housing crisis has kept his election pledge that he would increase homebuilding within the next decade. The ultimate goal is to reach 500,000 houses per year.
Urban impact and economic headwinds
Bloomberg surveyed economists who predict that Canada will have fewer housing starts between 2025-2027.
The projected slowdown in the construction industry is due to the impact of rising interest rates on the sector and the general uncertainty that the economy faces.
The CMHC’s report shows the impact that increased home building could have on affordability. By 2035, doubling current rates of construction would see this ratio fall to just 41%, a marked improvement over the 54% it is now, but still a substantial portion of the household income.
The report states that without this increase in pace, there would be little improvement to this ratio within the next decade.
Montreal is the largest city in Canada, but it has the greatest housing shortage. If current trends continue, affordability will worsen.
Toronto, Canada’s biggest city, needs to increase homebuilding by 70% annually in order for affordability to improve.
This report states that although housing costs and rents have been increasing in Vancouver and Toronto for many years, this has now become a burden to Canadians. Many low-income households and some middle class families are struggling to find affordable and suitable housing.
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