Though home values have declined over the past three years, the typical Canadian home price is around $700,000, which is 30 per cent higher than in 2019.Sean Kilpatrick/The Canadian Press
Canada’s national housing agency says it is no longer possible to build enough homes to bring housing affordability back to 2004 levels and it will start using 2019 as a more realistic benchmark.
Price levels in 2019 predated the pandemic shift to remote work and the spike in home values across the country.
The surge in housing costs after the pandemic began has changed the country’s affordability landscape, according to Canada Mortgage and Housing Corp. “Restoring affordability levels last seen two decades ago is no longer realistic,” the organization said in a report released on Thursday.
Even though home values have declined over the past three years, the typical home in Canada costs around $700,000. That is still 30 per cent higher than in 2019, according to data from the Canadian Real Estate Association. Meanwhile, the nation’s average monthly rent is more than $2,000, according to rentals.ca.
In order to return to 2019 levels of affordability, the housing agency says the country must double homebuilding efforts over the next decade to nearly 500,000 new housing units a year.
That conclusion is similar to the one reached in the agency’s first housing supply shortage report issued in 2022. At the time, CMHC said the country needed to build an additional 3.5 million housing units by 2030 to return to 2004 levels of affordability.
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The agency had initially chosen 2004 as a benchmark because the economy at the time was stable and housing costs were relatively low in proportion to average incomes.
CMHC had to revise its approach because of the change in how Canadians worked and lived after the pandemic started. During that time, scores of Canadians embraced working from home, causing residents to flee to cheaper parts of the country, and pushing up home prices in regions outside of major job centres. For example, in Barrie, which is north of Toronto, and in Chilliwack, a city well outside of Metro Vancouver, the typical home price nearly doubled to peak close to $1-million.
CMHC deputy chief economist Aled ab Iorwerth says the pandemic was a shock to the housing system. Without a significant increase in housing construction, the CMHC report predicts home prices will continue to outpace wage growth.
In that scenario, the agency estimates the average home price in Toronto would reach $1.9-million by 2035, a 63-per-cent increase over 2024. In the Ottawa-Gatineau area, the average home could cost $914,949, meaning a nearly 52-per-cent increase over the same period. And in Nova Scotia, home prices could increase by 13.5 per cent, ringing in at an average $579,703.
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In contrast, if the country were to double the rate of homebuilding, real estate prices would not climb as quickly and in some cases, values would decline.
The CMHC report predicts that home prices in Toronto would increase by 20 per cent over the next decade, decrease by 1.2 per cent in the Ottawa-Gatineau area and fall by 21 per cent in Nova Scotia.
According to Mr. ab Iorwerth, more housing supply could disrupt Canadians’ perception of real estate being an investment. On a call with reporters, he said increased supply would slow growth in home prices, and in turn, Canadians would be “less keen to bid aggressively on housing.”
“They’ll put less of their savings into housing because they anticipate less capital growth,” he said. He added that Canadians could invest their savings into money markets or the stock exchange.
Although this year’s supply shortage report reflects the new 2019 benchmark, Mr. ab Iorwerth said that CMHC’s first report achieved its goal of showing Canadians how much supply was required.
The real estate development industry and investors frequently cite CMHC’s initial recommendation to build 3.5 million additional homes. And all levels of government, including the newly elected government under Prime Minister Mark Carney, are pushing the country to ramp up housing construction.
CMHC adheres to the commonly used measurement for affordability in which residents do not pay more than 30 per cent of their before-tax income on housing costs.