Prices ease a little but the housing supply gap widens

Canada’s housing supply gap is widening, not narrowing. The Canada Mortgage and Housing Corporation (CMHC), which first sounded the alarm in 2022, has now quietly moved away from its original 2030 target for restoring housing affordability. In its most recent update, the agency presents projections on a rolling 10-year basis, a sign progress has fallen short of expectations. The corporation’s new focus on housing starts, rather than completions, captures the impact of bottlenecks.

In 2022, CMHC estimated Canada needed to build roughly 500,000 housing units per year through 2030 to return affordability back to early-2000s levels. Last year, housing starts were less than half that, just 245,000 units. Effectively acknowledging that early-2000s affordability is no longer realistic, CMHC has scaled down the target to 430,000 to 480,000 annual starts over the next decade and now aims to restore affordability only to 2019, not early-2000, levels. To achieve even this more modest target, however, housing starts would have to double.

Where do these ambitious supply targets come from, given that the housing market has softened and the rental market is cooling — clear signs excess demand is easing, at least in the short term. In making its forecasts, CMHC doesn’t just look at population growth. It estimates how many units are required each year in order to gradually restore affordability — which it defines as the higher of either 2019 prices or the price at which households spend 30 per cent of their income on housing.

How realistic is this goal? Unfortunately, not very.

The Canadian Renters Report shows that 40 per cent of renters are delaying homeownership because they expect further price declines. Meanwhile U.S. tariffs, rising unemployment and geopolitical instability that’s pushing energy prices higher are deepening uncertainty in the housing market.

And new construction remains expensive. Developers face high costs for materials, labour, land, and fees, including steep development charges. When the economics of new builds deteriorates, buyers retreat to the existing housing stock, further depressing the pace of new construction. The Toronto and Vancouver condo markets illustrate this clearly: starts in major metro areas fell 44 per cent in the first quarter compared with the same period last year. And housing starts were down 10 per cent nationwide over that period.

A depressed market discourages investors. Homebuyers face hefty mortgage payments and maintenance expenses and rising property taxes and home insurance premiums. Investing in new construction often means paying a premium price with no guarantee home prices or rental revenue will rise fast enough to offset costs.

The private market responds to demand, not need, and as expected returns shrink, builders pause or cancel projects. In contrast, public and non-market housing, where need is greatest, is a small share of total supply and closely tied to government incentives. We are also lagging in that: in 2024, Statistics Canada reported 245,900 households were on the waitlist for social and affordable housing. Innovations such as prefabrication could help with quicker delivery, but scaling these new approaches requires a consistent backlog of orders — something the currently depressed market lacks.

CMHC presents its projections as policy-relevant reference points, not government commitments. And Ottawa has its declared priorities right: reducing costs, slashing development charges and accelerating approvals. But so far implementation has been slow.

Development charges remain a major cost driver. Municipalities rely on them to fund infrastructure and reducing them requires replacing foregone revenues. User fees, property taxes and targeted transfers are being discussed, but priorities differ so intergovernmental progress is slow.

Permitting delays remain Canada’s most persistent supply-side obstacle. It takes about 250 days to obtain a building permit in Canada, nearly three times longer than in the U.S. Canada ranks second-last among OECD countries on this metric. In Toronto and Hamilton, delays can stretch to 25 and 31 months, respectively, according to the Canadian Home Builders’ Association. Unless delays are reduced, efforts to double housing starts will struggle to gain traction.

Governments’ consistent failure to meet housing targets erodes public trust. The growing disconnect between ambition and reality isn’t just a federal problem; provinces are struggling with it, too. CMHC’s latest supply gap report suggests that without a course correction grounded in execution rather than aspiration, Canada risks losing all credibility on one of its most urgent policy fronts.

The stakes are high. CMHC estimates that if current trends persist, homebuyers could face a 33 per cent increase in ownership costs by 2035. Unless we move from talk to action, the targets will remain out of reach and Canada’s housing affordability crisis will only deepen.

Tasnim Fariha is a senior policy analyst at the C.D. Howe Institute.