Canada Slashes Forecast for Making Housing More Affordable

A Canada Mortgage & Housing Corp. report lowered expectations for construction's impact on housing costs, stating that increasing homebuilding to 480,000 units annually by 2035—nearly double the current rate of 250,000—would only restore affordability to pre-pandemic (2019) levels. This revised forecast indicates that even aggressive construction targets may not significantly improve long-term housing affordability beyond pre-existing conditions.

Analysis

A new report from the Canada Mortgage & Housing Corp. (CMHC) significantly tempers expectations regarding the impact of increased home construction on housing affordability in Canada. The agency states that Canada must nearly double its current homebuilding rate, from approximately 250,000 units per year to as much as 480,000 units annually by 2035, merely to restore affordability to levels observed in 2019, prior to the Covid-19 pandemic. This revised forecast, characterized by a strongly negative sentiment (-0.7 score) and pessimistic tone, indicates that even a substantial acceleration in construction activity may not yield affordability improvements beyond pre-existing conditions. The report underscores the persistent structural challenges within the Canadian housing market, suggesting that addressing the affordability crisis will require more than just an increase in housing supply, and implies that significant price relief from construction alone is unlikely in the medium term.

Key Decisions for Investors

• Investors should moderate expectations for rapid housing price corrections in Canada stemming from increased supply, as the CMHC report suggests even aggressive building targets will only restore pre-pandemic affordability levels by 2035.
• Consider opportunities in Canadian building materials suppliers, construction companies, and developers, as the targeted near-doubling of homebuilding to 480,000 units annually implies sustained demand for their services and products, despite the muted outlook on overall affordability.
• Monitor Canadian government policy responses and future CMHC updates, as the current report's downbeat forecast may pressure policymakers to explore additional demand-side measures or alternative supply-side strategies to address housing affordability.
• Given the persistent affordability challenges highlighted, investments in Canadian multi-family residential properties and rental portfolios may continue to offer stable returns due to sustained rental demand.