Housing Affordability Crisis: Canada Rethinks Benchmarks
Canada’s housing market faces a stark reality: achieving pre-pandemic affordability levels is no longer feasible. This shift forces a recalibration of expectations and a focus on new strategies to address the ongoing crisis, impacting potential homeowners and renters alike.
New Affordability Targets
The nation’s housing agency, Canada Mortgage and Housing Corp. (CMHC), acknowledges the impossibility of restoring housing affordability to 2004 levels. Instead, the agency will use 2019 as a more practical standard for comparison. This strategic adjustment reflects the dramatic changes in the housing market since the onset of the pandemic.
Pandemic’s Impact
The shift to remote work and historically low borrowing costs triggered a real estate boom. This surge inflated home prices across Canada. According to the CMHC, the country’s affordability landscape underwent fundamental changes post-pandemic, making a return to two-decade-old affordability levels unrealistic. The typical home price is about $700,000, still 30 percent above 2019 figures.
Building More Homes
To return to 2019 affordability, the agency indicates that homebuilding must double. The country needs almost 500,000 new housing units annually over the next decade. The initial housing supply shortage report from 2022 suggested an additional 3.5 million housing units were required by the end of this decade to revert to 2004 affordability standards.
“The post-pandemic surge in housing costs changed Canada’s affordability landscape, and restoring affordability levels last seen two decades ago is no longer realistic,”
— CMHC
The average monthly rent surpasses $2,000, according to rentals.ca. In Toronto, the average home price could reach $1.9 million by 2035, a 63 percent jump from 2024. Meanwhile, in the Ottawa-Gatineau region, prices may reach $914,949, an approximate 52 percent increase. Nova Scotia could see a 13.5 percent rise in home prices. Data from the Canadian Real Estate Association indicates a 30% jump compared to 2019 prices. Recent data shows the average home price in Canada is $696,000, according to the Canadian Real Estate Association.
Impact of Building
Increasing the housing supply could alter how Canadians view real estate. Building more homes could slow price growth. Aled ab Iorwerth, a CMHC deputy economist, stated that increased supply might make people less inclined to bid aggressively on housing. The rise in supply could redirect savings from housing to markets and exchanges.
In contrast, doubling the rate of homebuilding could slow price growth, potentially leading to value declines in some locations. According to Mr. ab Iorwerth, the increase in supply will take pressure off home prices. His opinion is that Canadians could put their savings into other investments.
If home building doubles, home prices in Toronto could increase by 20 percent over the decade, Ottawa-Gatineau might see a 1.2 percent decrease, and Nova Scotia might experience a 21 percent drop.
