TD analysis delves into federal strategy to tackle housing crisis
The federal government recently unveiled its new plan to tackle Canada’s housing crisis – and in a new analysis, TD economist Rishi Sondhi highlighted the fact that the proposals will require new housing construction to be sustained at rates well above historical maximums.
The measures, which propose constructing 3.87 million new homes over the decade, also fall short of Canada Mortgage and Housing Corporation’s (CMHC’s) estimate of 5.8 million required new homes by 2030. The national housing agency believes that pace of homebuilding is required to restore affordability to levels seen in 2003/04.
Supply-side challenges and initiatives
The supply-side measures, while aggressive, face various obstacles, according to Sondhi. Interest rates remain high, and while cuts are anticipated by next summer, the current economic climate complicates large-scale construction efforts. The construction sector is already operating near its peak, with housing starts trending at around 242,000 units, close to the all-time high of approximately 270,000 units.
Moreover, Sondhi noted that the workforce in the construction industry is aging, and recent immigrants, crucial for population growth, are less likely to enter the construction field, according to Bank of Canada data. In response, the federal government plans to invest in training and credential recognition to alleviate labour shortages.
Additional supply-side efforts include the Apartment Construction Loan Program (ACLP), now enhanced with a $15 billion injection to facilitate more purpose-built rental projects. The plan also aims to unlock surplus public lands and modernize the National Building Code, though it requires provincial cooperation, which has been met with scepticism.
Demand measures and economic impact
On the demand side, the government introduces measures like increasing the Homebuyers Plan withdrawal limit and extending the foreign buying ban, which is unlikely to significantly alter market dynamics. Sondhi said these measures target a narrow segment of the market and are unlikely to pull many new buyers into the market.
A significant policy shift aimed at reducing non-permanent residents from 6.5% to 5% of the population by 2027 could negatively affect rent growth, posing new challenges for investors in the housing market.
The government also plans to boost construction productivity, which has historically lagged behind other sectors. Initiatives include promoting industrialized homebuilding and investing in innovative construction technologies like mass timber and modular construction.
Despite these efforts, Sondhi remains cautious about the immediate impact of the plan. “The coming years should provide an important litmus test for how well policies geared towards purpose-built housing can support rental construction,” he said, acknowledging the slow projected population growth.
As the federal government gears up to implement these measures, the effectiveness of Canada’s Housing Plan in alleviating the housing affordability crisis while navigating economic constraints will be closely monitored by industry stakeholders and policymakers alike.
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