Housing gap worse than first thought: 5 million extra homes needed by 2030, CIBC says

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When the Canada Mortgage and Housing Corporation (CMHC) announced that Canada would need an extra 3.5 million homes by 2030 to keep up with demand, the figure was already staggering.

But a new report from CIBC deputy chief economist Benjamin Tal suggests the housing supply gap is even worse than first thought.

In his research note entitled, ‘The housing crisis is a planning crisis,’ Tal argues that the total number of homes needed by 2030—above and beyond the current pace of construction—is actually closer to five million homes.

He said the discrepancy is due to a lack of proper planning around population, with growth targets consistently falling short of reality. The biggest reason for this, he explains, is an under-estimate of non-permanent residents, which he says make up more then 90% of the forecasting gap.

“You cannot build an adequate supply of housing for population growth that you fail to forecast,” Tal wrote.

“That significant forecasting/planning gap is a direct result of the fact that currently there are no credible forecasts, targets, or capacity plans across governments for non-permanent residents — the population which accounts for the vast majority of the planning shortfall,” he added. “That must change.”

Can’t plan for what’s not in the plan, Tal says

Tal notes that the planning process for municipalities to accommodate future growth is a lengthy process, taking up to a decade to “identify, service and allocate land for housing, then [to] auction that land for developers to construct and sell housing units on.”

“Therefore, accurate forecasts of population growth are key for adequate housing supply.”

But past forecasts have regularly missed the mark.

When Statistics Canada and CMHC estimated population and housing demand 10 years ago, they expected the country’s population would reach 38.7 million people. Instead, Canada’s population passed the 40 million mark as of June 2023.

“That was a big miss,” Tal said. “The reality is that today municipalities are facing 1.4
million more people than they were told they needed to plan for— in total that’s a shortfall of almost three years of housing supply.”

Even more recent population forecasts have failed to keep up with the rapid pace of population growth, with Statistics Canada’s August 2003 projections falling short by roughly 700,000 people.

What can be done?

Last month, Immigration Minister Marc Miller announced a national cap on the number of international students accepted into the country, which is expected to reduce intake by about 35% to a total of 364,000 students in 2024.

While Tal called the measure a “bold move in the right direction,” he says more still needs to be done.

“Even if the cap works as designed, the strong pace of growth of other non-permanent residents would keep Canada’s population growth closer to 2% annualized growth,” Tal says, which is above CMHC’s current 1.5% annual growth projections for the next seven years, or about six million additional international arrivals beyond what is forecast.

What is most needed, Tal argues, is “meaningful forecasting and integrated planning” that is applied to all permanent and temporary visa approvals.

“A full matrix of targets by application type and year, as exists for permanent residents, is an essential step to assist planning at all levels, for the Ministry of Housing, provinces/territories, municipalities, as well as for the development industry,” Tal says. “Transparent, timely, and vetted [forecast] sourcing is key.”

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