CMHC estimates that around 3.5 million net new housing units are needed by 2030 to restore affordability. While this figure has garnered significant attention, a recent study by the Parliamentary Budget Office (PBO) provides another take on this issue.
The PBO notes that household formation grew to 460,000 net new households in 2023. Additionally, they estimate that suppressed household formation was 631,000 households in 2021, meaning the number of households would have been 4.1% higher if attainable housing options were available.
The PBO also estimates that the total vacancy rate dropped to a record low of 5.1% in 2023. With household formation expected to grow faster than net completions (272,000 households vs. 255,000 units annually, on average), excess housing demand is expected to intensify. This will push the vacancy rate even lower to 3.9% before stabilizing around 4% by 2030.
The PBO estimates the housing gap in 2030 to be 1.3 million units. This gap consists of excess demographic demand (385,000), suppressed household formation (631,000), and a return to an average vacancy rate (250,000). Combined with the baseline outlook for net completions, 3.1 million net new housing units would need to be completed by 2030 to close the housing gap. This scenario translates to a need for 436,000 units per year, on average, between 2024 and 2030. This pace would require an 80% increase above the record level of net completions in 2023, sustained for seven years.
While CMHC’s and the PBO’s housing gap projections initially seem reasonably close (3.5 million vs. 3.1 million), there is a major difference in assumptions. CMHC’s estimate of 3.5 million units needs to be compared to the PBO’s figure of 1.3 million units. The difference reflects CMHC’s estimate of what it would take to return the market to the affordability levels seen in 2003 and 2004.
If we were to combine the PBO’s baseline projections for net housing completions and gap estimates, CMHC’s number would grow to 5.1 million units – an average of 639,000 net completions per year. This figure aligns closely with CIBC’s estimate. The report’s author highlights immigration as the key driver for the difference in projections.
Independent Opinion
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