If you've been reading headlines lamenting the housing supply in Canada and are wondering what's going on, you're not alone.
Housing is a fundamental need for all people, but that need isn't so easy to satisfy in Canada right now. So how did we get to a place where housing is becoming not only increasingly unaffordable, but also difficult to find for so many people – especially as our population continues to grow?
To help explain what's going on in the housing market, the TD Stories team sat down with TD Economist Rishi Sondhi. He spoke to us about what's happening with the Canadian housing supply right now, and what we can expect to see in the next two years.
What is the housing supply like in Canada right now?
Last year, the number of newly listed homes (a key measure of resale supply) declined 7%, but this mostly reflected low levels of listings in the first half of the year, and they increased in the second half. Listings have remained close to those second half levels in the first two months of 2024. Even though they have risen from where they were in the early parts of last year, it would be a stretch to call them elevated.
Instead, they are trending at levels that could be considered typical (i.e. in line with historical averages). Regionally, this story is playing out across the largest provinces, although listings are considerably below long-term norms in provinces with smaller populations where supply is more volatile, such as Saskatchewan and Nova Scotia.
When it comes to the market for new builds, the level at which new homes are being started isn't necessarily low, but it is struggling to keep up with population growth.
When you look at how housing has been keeping up with population growth over time, it was faring well until about 2016, which is when federal immigration targets picked up. Around that time, population growth began to outpace the rate at which new houses were being completed in many parts of Canada. Since then that gap has widened as population growth has continued to climb.
With the population rising, it's very difficult to build enough new houses to keep up with demand.
How quickly are new homes being built across Canada?
Despite high borrowing costs and persistent labour shortages in the construction industry, builders have been able to sustain a pace of housing starts (an economics term that refers to the number of new units started within a certain time frame) that's roughly 20% above pre-pandemic levels.
These high levels mean builders are completing projects at the highest level since at least the early 1970s, with 182,000 units finished in Census Metropolitan Areas (designated areas made up of multiple connected municipalities) across Canada 2023. Completions have remained high through the early part of 2024.
We've also seen a resurgence in purpose-built rental (i.e. apartments) construction that has been supported by skyrocketing rental prices and by government programs, such as the federal government's decision to remove the GST on purpose-built rental construction. Purpose-built starts are by far the highest they've been since at least 1990.
More construction sounds like a good news story. Is there a "but" … coming?
To some extent. The number of new units under construction is at record highs, but this is partly because it takes so long to deliver new projects to the market so there are many simultaneous projects on the go increasing these numbers. As of February 2024, it took 22 months to finish a construction project in Canada.
Part of this has to do with the shift to building purpose-built apartments and condos, which take longer to complete than single-family homes. However, construction timelines have lengthened across all types of homes.
Even with relatively high levels of construction the main concern is that we will struggle to keep pace with increased demand due to our growing population. Canada's population grew by more than 1 million people in 2023 and TD Economics expects it to expand by 770,000 in 2024.
TD Economics now estimates that Canada could be short over 300,000 housing units from 2024-2026 as population growth collides with a slower pace of homebuilding after 2023's very healthy rate.
How are governments responding?
Governments at all levels have taken steps in the right direction. One major example is the federal government's decision to remove GST on purpose-built rentals. Ontario, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island (PEI) have followed suit, by relieving the provincial taxes on these projects. TD Economics reports and analysis suggests this could help increase the number of available units by 5,000-10,000 over the course of a year.
As another example, municipalities, such as Vancouver and Toronto have changed zoning regulations to allow for more so-called "gentle" density, which is, for example, allowing multiplexes to be built on land that was previously zoned for single-detached housing only. Vancouver has also made strides in purpose-built rental construction through its housing strategy.
In a 2022 report, the Canadian Mortgage and Housing Corporation estimated that an additional 3.5 million units above what's already planned would be required by 2030 to restore affordability to 2003/04 levels (a time of peak affordability). This is a tall order. Although that lofty target doesn't need to be met to make a real difference in terms of affordability, it's clear there's more that needs to be done to increase supply.
Read more about this and other Canadian real estate topics in Rishi Sondhi's latest Provincial Housing Outlook.