A recent report from TD Economics suggests that Canada’s housing plan may face challenges. These challenges are due to supply-side limitations and demand measures that might not produce results.
What is Canada’s Housing Plan?
TD Bank Economist Rishi Sondhi said that Canada’s housing plan, which was revealed last month, aims to enhance housing affordability. The plan contains various measures targeting demand, supply, and productivity. It aims to construct 3.87 million new homes by 2031.
The new housing initiative, “Canada’s Housing Plan,” aims to tackle the country’s affordability challenge and introduces measures desired by industry stakeholders. Canada’s housing plan aims to deliver 3.87 million homes by 2031, including 2 million net new homes beyond the 1.87 million predicted by CMHC.
Out of the 2 million additional homes, 1.2 million are planned through the federal initiative, with the remaining 800k relying on support from other levels of government. If considering the target from 2025-2031, this means around 550k new units annually.
The federal target is less than CMHC’s goal of 5.8 million new homes by 2030, which aims to restore affordability to 2003/04 levels.
Challenges in the Canadian Housing Plan
Some of the challenges to Canadian Housing that have started rising are high interest rates and capacity limitations. Additionally, some other challenges to Canadian housing are the demand-focused initiatives in the plan that are not expected to have a substantial impact, as stated by Sondhi.
The report suggests that considering the current affordability challenges, the federal government should avoid creating demand. Thus, the proposed demand-focused measures are unlikely to change resale housing forecasts much, according to Sondhi. However, the plan could improve construction productivity, which has been one of the challenges to the Canadian housing industry.
While the federal housing plan might not significantly affect demand in the housing supply in Canada, it will help in reducing the percentage of non-permanent residents in the population by 2027.
If this policy is implemented, it could hurt rent growth and demand in the housing supply in Canada, making such projects less appealing to investors. This type of demand in the housing supply in Canada has been huge, especially with Bank of Canada data showing that investors made 25% of mortgaged home purchases in the third quarter of 2023.
Regarding the housing supply in Canada, Sondhi mentioned that the federal housing plan is likely to improve the Canada Mortgage and Housing Corporation’s (CMHC) measure of housing starts.
However, aiming for 550,000 new units per year will be challenging for the Canadian housing market. The extent and timing of the increase in housing starts remain unclear.
The report pointed out that homebuilding is one of the challenges for the Canadian housing industry as there have been labor shortages. Residential developers are competing with non-residential projects for tradespeople. Additionally, Sondhi added that several provinces have shown concerns about Canada’s Housing plan.
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