The Canadian Mortgage and Housing Corporation (CMHC) says another 3.5 million homes must be built by 2030 to make them affordable.
The agency released a report Thursday explaining the need for a different approach to housing supply shortages at a time of growing demand and affordability concerns.
“Increasing supply will be difficult. Critically, increasing supply takes time, as construction time is significant, but it is also time to progress through government approval processes,” the report said. “This delay means that we must act today to achieve accessibility by 2030.
- You can read the full report at the bottom of this story.
If the current pace of new construction continues, CMHC said the country’s housing stock is expected to increase by 2.3 million units by 2030, reaching a total of nearly 19 million units. But to make it accessible to all Canadians, the agency said an additional 3.5 million homes were needed.
However, easing housing market conditions and labor shortages in the construction sector could prevent Canada’s housing stock from rising to more than 22 million by 2030.
“Currently, there are supply problems, labor shortages and the cost of funding is rising, so there are obviously short-term challenges,” CMHC Deputy Chief Economist Aled Ab Yorwert said during a conference call.
BMO economist Robert Kavcic says it will be difficult to achieve what CMHC wants to achieve.
“The unemployment rate in construction is close to a record low; “Vacancies are at a record high, we have a deep shortage of skilled crafts, and the price of construction materials is already rising rapidly,” he said. “So, unless the economy really turns around and needs a stimulus, effectively doubling the pace of new construction over the next decade will be extremely difficult without significant inflationary pressures.
Regulatory systems need to be more efficient, CMHC says
In the first quarter of 2022, there were 81,500 vacancies in construction, more than twice the number observed in the first quarter two years ago. Home sales, meanwhile, fell nearly 22 percent in May from a year earlier and nearly nine percent between April and May as the average, off-season adjusted housing price fell nearly five percent to $ 711,000 during that period.
CMHC says achieving affordable housing for everyone in Canada will require developers to become more productive and make full use of land to build more units.
The housing agency also says governments need to make regulatory systems more efficient so that projects are approved faster.
CMHC notes that two-thirds of the supply gap is in Ontario and British Columbia, two markets that are facing significant declines in affordability.
Around 2003 and 2004, the average household would have to spend nearly 40% of their income on buying an average house in Ontario and nearly 45% in British Columbia. By 2021, this number is nearly 60 percent.
The report says additional supplies will also be needed in Quebec, as accessibility in the province has declined over the past few years.
The situation should get worse before it gets better
The latest report on RBC housing affordability, released on Thursday, reveals that the situation is the worst since the early 1990s and will worsen before it improves.
RBC’s overall affordability measure for Canada rose 3.7 percentage points to 54 percent in the first quarter of 2022 as housing ownership costs rose across the country.
“The Bank of Canada’s forced campaign to raise interest rates will further increase property costs in the short term, putting RBC’s national accessibility measure at its worst,” RBC senior economist Robert Hoag said in the report. “However, we see that the growing price adjustment will ultimately bring some relief to buyers.”
RBC estimates that property values will fall by more than 10% next year.
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