Understanding Canada’s housing supply gaps: What Canadians need to know

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Skyrocketing home prices can feel like an inescapable fact of life if you’re a would-be home buyer in Canada. Sure, you can skip over stories about ballooning interest rates and look the other way when you pass yet another “Sold over asking!” sign, but there’s no avoiding it: Canada is in the midst of a housing affordability crisis.

New research from Canada Mortgage and Housing Corporation (CMHC) may offer some insights. In a recent report, CMHC’s team of housing economists and researchers confirmed earlier findings that building an additional 3.5 million new homes – over and above the currently predicted rate of construction – is needed for Canada to achieve affordability by 2030.

Of course, a lot would need to go right for that to happen, and a problem of this scale requires an “all hands on deck” approach to help Canada’s housing supply catch up with rising demand. Here’s what you need to know about the country’s current housing supply gaps, as well as some of the market-oriented solutions that CMHC is calling for to help address this nationwide problem.

Speaking of supply…

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The first step to fixing any problem is understanding it, and here, the issue boils down to a single word: supply. In a healthy market, adding new homes over time would gradually bring existing homes’ high prices down to earth.

According to CMHC’s report, the rate at which housing supply is added has consistently failed to meet demand in major urban centres like Toronto, Vancouver and Montréal, pushing prices to eye-popping levels.

It’s not for a lack of trying. In 2017, the federal government introduced the National Housing Strategy, a 10-year, $82+ billion plan to give more people in Canada a place to call home. It includes supply programs aimed at increasing the number of purpose-built rental units and converting existing buildings into affordable housing.

Similar initiatives at the provincial and municipal levels have injected much-needed funds into the fight for affordability, but government funding can only do so much to reach the estimated $1 trillion investment needed to close the housing supply gap. New, innovative strategies and collaborative solutions will be needed as well in order to effectively turn the tide.

Obstacles to increasing housing supply

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Rules about development and land use play a big role in determining what gets built, and where. In an earlier report, CMHC found that municipalities that impose greater restrictions on land use – the kind that result in drawn-out processes involving zoning, fees, approval times, community consultation, density limits and environmental assessments – tend to face higher levels of housing unaffordability.

Builders in the Greater Toronto and Vancouver areas face the most regulations and the longest approval delays. Those in Saskatchewan and parts of Alberta (outside Edmonton) deal with the shortest.

But regulation isn’t the only issue slowing down development. Another barrier to housing supply is the capacity of the private construction industry to put shovels in the ground. According to CMHC’s projections, even if home builders kicked the construction of new homes into high gear, housing starts would only increase by between 30% and 50% across Canada. And that’s under best-case scenarios—but conditions are far from favourable for developers these days, especially given the current skilled labour shortage. Higher interest rates can put a damper on investment capital flowing into construction, dissuade builders from taking on debt to fund projects, and slow the hiring of much-needed talent.

Possible solutions

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While almost all experts in the field agree that more supply must be built, there isn’t a consensus on how to get it built. According to CMHC, an industry-wide change in thinking must occur to facilitate increased efficiency and productivity.

CMHC has also called on builders to reexamine best practices and ways of working in order to increase productivity. Worker shortages during the pandemic forced many firms to innovate, showing that the industry can get more done with fewer workers when it needs to. Building on those insights, CMHC notes that choosing to build taller, multi-unit buildings (as opposed to single-detached homes) requires less labour and simplifies the complex logistics of transporting heavy equipment and supplies.

Likewise, moving away from custom builds and towards mass-manufactured homes can increase efficiency as well—and the same goes for reimagining existing structures as housing. In other words: not all “new units” need to involve new construction.

It will take all hands on deck

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CMHC wants us to think of housing as a system; improving the whole means strengthening each of its parts. Increasing housing supply in Canada will require governments at all levels to work with private builders to create a market solution that sticks. In the coming months, CMHC will continue to build its case for supporting investment from the private sector, as it works with government, private and non-profit partners to investigate and implement innovative solutions to address this important problem. To find out more, visit CMHC's Housing Observer blog.

Learn more about the work CMHC is doing to rise to the housing challenges of today and tomorrow here.