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Under our base case scenario, the share of an average household income needed to cover ownership costs would fall to mid-2022 levels by 2025\u2014still extremely taxing. We think access to the housing ladder (albeit improving) will remain limited, which wouldn\u2019t relieve much tension in the rental market.<\/p>\n
Stabilizing immigration will take some steam out of demand<\/h2>\n The federal government is taking steps to reduce immigration, but the measures will not shrink housing demand.<\/p>\n
In November, it announced keeping the permanent immigration target in 2026 unchanged from 500,000 in 2025. This will still be up from the 2024 target level of 485,000. In January, the government further said it would cap the issuance of study permits for international students for two years starting in September 2024. And in March, it indicated it would reduce the proportion of temporary workers in Canada from 6.6% to 5% by 2027\u2014which is a 20% decrease in the non-permanent resident population. <\/p>\n
These measures will curb Canada\u2019s record population growth in the years ahead, but average growth between now and 2030 will still be faster than in any of the 25 years before 2018.
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Cutting immigration more aggressively would also not instantly restore affordability. It would slow down the growth in housing demand, not shrink it. It would ease upward pressure on home prices and rent only as long as the increase in demand undershoots the expansion of the housing stock\u2014reducing the supply gap. <\/p>\n
However, the downside of significantly cutting immigration would be considerable for Canada\u2019s economy over the long run. The population is aging rapidly with at least 500,000 baby boomers reaching retirement age each year until the end of this decade. Our economic growth potential would be hampered if their departure from the labour force isn\u2019t replaced by newcomers. <\/p>\n
A tall order for homebuilders<\/h2>\n The pace of housing construction would need to jump by nearly half in Canada just to meet future demographic growth. <\/p>\n
If building new housing were only relied upon to meet future demand, housing completions would have to rise from an average of 218,000 in the past three years to about 320,000 annually over the 2023-2030 period (accounting for a normal rate of attrition in the existing stock). Higher deliveries would need to happen in the near term given our expectation for peak population growth in 2023-2024. <\/p>\n
However, the construction industry has a capacity issue. The level of housing production needed is far above anything ever achieved in Canada. The all-time peak for completions was 257,000 in 1974. The 47% increase needed from recent levels would seriously conflict with production capacity limits. Much of it has to do with labour constraints. Builders already struggle to attract and retain workers. The job vacancy rate in the construction sector (5.1% in Q3 2023) is among the highest across Canadian industries. This could be difficult to resolve over the longer term.<\/p>\n
The sector\u2019s aging workforce risks perpetuating the labour shortage. One in five construction workers are at or will reach retirement age within the next 10 years. This represents 330,000 workers to replace if they do retire, making it that much harder to expand the sector\u2019s production capacity.<\/p>\n
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Meanwhile, housing starts have moderated since rebounding strongly in 2021. Not only have earlier supply chain disruptions during the pandemic led to soaring prices for materials but the spike in inflation, high interest rates and labour shortages have seriously increased project costs and uncertainty in the sector. <\/p>\n
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Buyers negatively impacted by higher interest rates, a loss of affordability and growing economic uncertainty is why pre-construction home sales (destined for owner-occupants or condo investors) have plummeted in many parts of Canada (including Ontario) since spring 2022. <\/p>\n
The construction industry must also build a lot more homes while reducing greenhouse gas emissions. Canada\u2019s building stock accounts for 13% of the country’s emissions, making homebuilders key in implementing change to achieve the Net Zero climate target. <\/p>\n
Seven recommendations to take on the supply and affordability challenge<\/h2>\n Addressing Canada\u2019s housing needs will largely rest on the ability to significantly expand the stock of housing. Multi-pronged actions will be required to address capacity issues and build homes Canadians can afford. Here are recommendations to scale up housing construction, lower building costs, and ensure we build the right mix of housing while getting the most out of what we already have. <\/p>\n
1. Aggressively expand the construction sector\u2019s labour pool.<\/strong><\/p>\nCanada could need more than 500,000 additional construction workers on average to build all homes needed between now and 2030\u2014and even more than that in the short term to meet peak growth in demand. All avenues should be pursued to get more people working in the sector. <\/p>\n
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\n\u2022<\/strong><\/li>\nPrioritize construction skills among new immigrants<\/strong><\/li>\n<\/ul>\n <\/button><\/p>\n
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Canada should materially expand the Federal Skilled Trades Program, allocate more points to qualified candidates in the program based on labour market needs, and fast track candidates endorsed by employers. Provinces should do the same in nominee programs. The federal immigration department should maintain a dialogue with the construction industry to ensure immigration programs address structural shortages in skilled trades. <\/p>\n
Immigrants working in construction tend to earn above-average wages, establish themselves faster, and rely on social programs less than other immigrants. Recent immigrants are under-represented in the construction labour force. Immigrants with an apprenticeship certificate and non-apprenticeable trades certificate represented just 2.4% of landed immigrants between 2016 and 2021. That\u2019s down from 9.6% during the 1980s. Canada\u2019s immigration programs tend to prioritize university education and language skills to the detriment of occupations that don\u2019t require those like skilled trades. Canada must realign its immigration system by refocusing on the mismatch of skills and long-term labour market needs.<\/p>\n<\/p><\/div>\n<\/p><\/div>\n<\/p><\/div>\n
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\n\u2022<\/strong><\/li>\nSet ambitious targets for skilled trade school enrolments<\/strong><\/li>\n<\/ul>\n <\/button><\/p>\n
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Provinces must reverse the decades-long decline. Promotional campaigns run with the industry should attract a new generation of skilled workers including women, indigenous people, and other under-represented groups. The industry should effectively showcase rewarding careers in skilled trades to high school students and partner with career counselors to identify good candidates.<\/p>\n<\/p><\/div>\n<\/p><\/div>\n<\/p><\/div>\n
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\n\u2022<\/strong><\/li>\nIncentivize aging construction workers to remain in jobs longer<\/strong><\/li>\n<\/ul>\n <\/button><\/p>\n
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Employers should consider offering special benefits or work arrangements to slow down the flow of retiring workers.<\/p>\n<\/p><\/div>\n<\/p><\/div>\n<\/p><\/div>\n<\/div>\n
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2.\tDevelop and adopt innovative designs, building techniques and technology.<\/strong><\/p>\nContinuing to build homes the same way it\u2019s done in the past will make it more difficult to ramp up construction to the level needed and meet GHG emissions targets. New approaches must be pursued to increase the number of homes produced per worker. This won\u2019t be easy. The construction industry has a lackluster track record on productivity. There are more residential construction workers per housing completion today than there were two decades ago. This trend must reverse. <\/p>\n
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\n\u2022<\/strong><\/li>\nFoster wider adoption of prefabricated housing<\/strong><\/li>\n<\/ul>\n <\/button><\/p>\n
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Building entire homes or sections of homes in a factory can significantly increase efficiency, compress timelines, and make costs more predictable. It has several advantages over traditional stick-build construction including lower material waste, and more productive use of labour as workers stay on the factory premises and use state-of-the-art machinery and tools\u2014enabling more efficient workflows. Canada lags in the development of this industry compared to world leaders Sweden (where prefabricated elements are found in 84% of detached homes), Germany (20%) and Japan (15%). Several factors have stifled growth. Carrying large overhead costs in the highly cyclical residential construction industry has deterred companies from making the heavy up-front investment in capital. Manufacturers must put up more of their capital toward the cost of materials and operating expenses compared with traditional homebuilders. Banks can support the industry\u2019s development by recognizing its unique funding needs and mitigating higher risk. The industry also battles with the perception that prefabricated homes are cheaply made. Governments can help grow the industry by requiring prefabricated elements in a certain share of projects they fund\u2014to sustain a minimum volume of business during downcycles. The industry needs to redouble efforts to promote prefabricated housing\u2019s benefits among developers and dispel any stigma. <\/p>\n<\/p><\/div>\n<\/p><\/div>\n<\/p><\/div>\n
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\n\u2022<\/strong><\/li>\nCreate a catalogue of pre-approved building designs <\/strong><\/li>\n<\/ul>\n <\/button><\/p>\n
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This could simplify and speed up the process of building a home from approval to completion\u2014 taking a page from the post-war strawberry box house program. This approach is especially well suited for basic homes at the more affordable end of the spectrum. It could also help rapidly grow our stock of \u201cgreen\u201d homes by embedding lower carbon footprint designs. Projects using pre-approved designs should be fast-tracked.<\/p>\n<\/p><\/div>\n<\/p><\/div>\n<\/p><\/div>\n<\/div>\n
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3.\tSpeed up project approvals.<\/strong><\/p>\nThe rules and regulations governing housing development and construction\u2014often well-meaning when introduced\u2014have accumulated greatly over the years. They now represent a complex and cumbersome set of rules that add tremendous time and costs to projects. Project approval timelines in Canada can be among the lengthiest in the world. Streamlining permitting processes, implementing artificial intelligence tools, and speeding up conflict resolution mechanisms would help bring new housing faster to market and reduce development costs and uncertainty. These would make a better investment environment for private or non-profit participants.<\/p>\n
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\n\u2022<\/strong><\/li>\nStreamline approval processes <\/strong><\/li>\n<\/ul>\n <\/button><\/p>\n
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Provincial and local governments should remove steps and layers of any process that brings minimal or questionable benefits. This could include reducing the number of studies required and sharpening public consultation and engagement practices to capture the views of the broad community, not just those of a vocal few. Authorities could even exempt small projects (10 units or less) that largely comply with regulations and require only minor variances. <\/p>\n<\/p><\/div>\n<\/p><\/div>\n<\/p><\/div>\n
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\n\u2022<\/strong><\/li>\nLegislate timelines for approvals and make approving bodies accountable for meeting requirements<\/strong><\/li>\n<\/ul>\n <\/button><\/p>\n
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The aim is to tighten maximum timeframes for circulation, review and commentary between regulatory departments and agencies.<\/p>\n<\/p><\/div>\n<\/p><\/div>\n<\/p><\/div>\n
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\n\u2022<\/strong><\/li>\nPrioritize housing projects with quicker turnaround time <\/strong><\/li>\n<\/ul>\n <\/button><\/p>\n
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The crisis deepens in many Canadian cities with each passing day. It\u2019s imperative that project stakeholders and regulatory authorities fast-track projects that add supply in a shorter timeframe. Projects making use of mass timber or prefabricated elements\u2014known for faster execution speed\u2014could be given preferential treatment.<\/p>\n<\/p><\/div>\n<\/p><\/div>\n<\/p><\/div>\n
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\n\u2022<\/strong><\/li>\nReward municipalities that use best practices<\/strong><\/li>\n<\/ul>\n <\/button><\/p>\n
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The federal government\u2019s $4-billion Housing Accelerator Fund and Ontario\u2019s $1.2-billion Building Faster Fund are good examples of how this can be done. These programs offer meaningful financial incentives to municipalities that bring positive changes. <\/p>\n<\/p><\/div>\n<\/p><\/div>\n<\/p><\/div>\n
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\n\u2022<\/strong><\/li>\nSharpen conflict resolution mechanisms<\/strong><\/li>\n<\/ul>\n <\/button><\/p>\n
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Governments must clear up backlogs and set rules to filter out questionable appeals meant to stall projects and raise costs.<\/p>\n<\/p><\/div>\n<\/p><\/div>\n<\/p><\/div>\n
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\n\u2022<\/strong><\/li>\nSlim down and harmonize building codes<\/strong><\/li>\n<\/ul>\n <\/button><\/p>\n
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Standardizing building codes across jurisdictions would reduce complexity and risks for developers, and potentially enable homebuilders (including prefabricated home manufacturers) to operate at larger scales. <\/p>\n<\/p><\/div>\n<\/p><\/div>\n<\/p><\/div>\n<\/div>\n
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4.\tEase zoning restrictions to make a more productive use of land. <\/strong><\/p>\nToronto had 69% of its (net) residential land area restricted to low-density detached and semi-detached homes before recent rule changes by provincial and municipal governments. This represented a very inefficient use of its land base and costly infrastructure. Allowing multiple residential units to stand on single residential lots\u2014as Ontario (and Toronto) and B.C. (and Vancouver) did not long ago\u2014will encourage a more productive use of land over time. <\/p>\n
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\n\u2022<\/strong><\/li>\nModernize zoning regulations to allow more density and diverse housing mix<\/strong><\/li>\n<\/ul>\n <\/button><\/p>\n
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Curbing restrictions that stifled the development of mid-rise and rental housing (known as the \u201cmissing middle\u201d) in cities such as Toronto and Vancouver should gradually bring more housing options to neighborhoods including established ones. Removing obstacles to creating new viable housing options (e.g. rentals, townhouses, small condo projects) for currently over-housed Canadians could help free up highly sought units for families. The permitted density must be set higher near transit corridors to better leverage public transit infrastructure and reduce traffic.<\/p>\n<\/p><\/div>\n<\/p><\/div>\n<\/p><\/div>\n
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\n\u2022<\/strong><\/li>\nEase restrictions against converting commercial properties to residential or mixed-use<\/strong><\/li>\n<\/ul>\n <\/button><\/p>\n
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There\u2019s potential to expand the residential area of cities by unlocking underused shopping malls and office buildings. Mixed-use communities offer many advantages including proximity to shopping and amenities that reduce driving congestion. <\/p>\n<\/p><\/div>\n<\/p><\/div>\n<\/p><\/div>\n<\/div>\n
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5. Lower the cost of building new housing. <\/strong><\/p>\nCanada\u2019s challenge is not only to massively expand our housing stock but to do so at prices people can afford. The cost of building new homes has soared and poses serious obstacles to increasing the supply of affordable housing. It\u2019s estimated that materials and labour account for roughly half the costs of new units in most cities. Government charges can represent more than 20% of the cost and the remainder (30% or so) is taken up by land. Efforts should be dedicated to lower or at least contain every cost item.<\/p>\n
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