Millions of new homes are required by 2035
A new Oxford Economics report has stated that it will take 10 years for Canada’s housing market to rebalance and make it more affordable for Canadians to buy their dream home.
In a video brief following the release of the report, Tony Stillo (pictured), director of Canada economics at Oxford Economics, said another decade is required to build enough homes to restore affordability for housing across the country. To achieve this, Stillo said, 4.2 million new homes will need to be built between 2024 and 2035.
“This includes 2.9 million dwellings to satisfy growth in households, 700,000 new dwellings to make up for past shortfalls and ensure a normal vacancy rate, and around 600,000 new dwellings to remedy suppressed household formation due to unaffordability,” he said.
Stillo also said that an average of 300,000 housing units must be built yearly until 2035 to ensure that house prices in the country become more manageable for the average Canadian.
“This is historically high, [but] it’s well within the nation’s homebuilding capacity,” the economist said.
Stillo added: “While it will take a long time to construct these new dwellings, we expect stronger growth in housing supply than in housing demand in the coming decade will mean house prices will rise more slowly than incomes.”
Stillo also said that housing affordability should improve progressively, with home ownership back within reach of the typical household by 2035.
Is CMHC’s target for home construction feasible?
In 2022, Canada Mortgage and Housing Corporation (CMHC) announced plans to expedite the construction of 3.5 million new homes – but that’s not a realistic goal, according to Oxford Economics.
“Our analysis also finds that CMHC’s aspirational target to build 3.5 million new houses by 2030, on top of those required for household formation, is not feasible and significantly overstates the actual number of new dwellings required to restore affordability,” Still said. “Construction capacity constraints, worker shortages, and other challenges make the requisite near tripling of the current pace of new home building almost impossible.”
Stillo also pointed out that the plan may result in housing oversupply, which will also cause other economic issues.
“It would result in approximately 1 in 5 dwellings being unoccupied, raising the risk of an oversupplied market and a prolonged slump in housing prices, especially as ageing baby boomers begin selling or bestowing their homes in the mid-2030s,” he said. “Additionally, devoting too many resources to residential construction would likely crowd out business non-residential capital formation, hurting Canada’s long-term economic potential and productivity growth.”
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