Across Canada, you could hear the eyes of Gen Zers rolling. The headline in The Globe said it all: “CMHC gives up on comparing housing affordability to 2004 levels.”
Where a previous headline-making report by the Canada Mortgage and Housing Corporation, the federal agency whose stated purpose is to make housing affordable, had set out a series of policies aimed at returning housing costs, relative to income, to 2004 levels – by 2030 – the new report dismisses this as “no longer realistic.”
That earlier report was written in 2022, three years ago. The full impact on the housing market of the pandemic, and government policies enacted in response, had yet to be reckoned with. Moreover, 2030 is now only five years away – less than the seven or eight years it takes, on average, to build new housing, from design to completion.
The basic affordability target remains 30 per cent of monthly before-tax income, counting mortgage payments, property taxes, insurance, utilities and maintenance. For most parts of the country, that’s still within reach.
But in some markets – Toronto and Vancouver, in particular – prices, already high by 2019, have soared still higher since then. The affordability ratio in Toronto in 2024 was 74 per cent; in Vancouver, 99 per cent. Winding these markets back to 2004 levels, in just five years, would require quite extraordinary declines in prices, of a kind that is neither likely nor advisable.
CMHC gives up on comparing housing affordability to 2004 levels
So the CMHC now suggests a target of 30 per cent or 2019 levels, whichever is higher. That in itself will be a stretch in some cases. Housing costs in Toronto and Vancouver in 2019 were 59 per cent and 71 per cent of income, respectively. And the measures required to get there remain every bit as heroic as the CMHC had earlier assessed would be needed to get back to 2004 levels.
As before, the agency calculates we will need to nearly double housing starts nationwide, from a projected 245,000 annually to nearly 480,000. Given how we have struggled to increase housing starts to date – starts last year, at 245,000 (yes, the same as the CMHC’s business-as-usual projection), were no higher than they were in the early 1970s, when the population was barely half what it is now – that remains a tall order.
It will be especially difficult given the many other claims on scarce productive resources – labour, capital and materials – the Canadian economy will have to accommodate in coming years. We’re supposed to roughly triple defence spending over the same period, as you may have heard.
We’re also under pressure to invest more on plant and equipment across the economy, the better to improve our anemic productivity record. And we’ve just decided to deprive ourselves of much-needed labour, via the sudden restrictions on immigration the government was stampeded into making.
The good news, in a bad-news sort of way, is that our productivity performance in housing construction is even worse than it is generally. The failure to generate more housing starts in recent decades has not been for lack of resources being thrown at it. From 1997 to 2023, spending on residential construction as a share of GDP more than doubled; so did employment. Yet starts rose at less than half the pace.
Total housing starts in Canada up 2% in 2024 from 2023, CMHC says
There is, in short, ample room for improvement. Much of it can be achieved if the promised deregulation of the housing market actually takes place. This isn’t only a matter of the much-discussed loosening municipal zoning regulation, to allow for the construction of more multiunit dwellings. Speeding up the approval process – just one to two years of that seven-to-eight year timetable is actually spent building – would help better match supply to demand, dampening price swings.
It’s also about reforming construction labour laws, notably in Quebec, where it has historically taken one-half to two-thirds more workers to build each unit than in other large provinces. Indeed, across the country, residential construction productivity is lower now than it was 25 years ago.
And it’s about embracing new technology: modular housing, prefabricated components, robotics and so on. The residential construction industry is in many ways a backwater: Nearly 70 per cent of firms have fewer than five employees. That has to change, if we’re even to come close to hitting the CMHC’s targets.
And if we do? There has been much absolutist rhetoric to the effect that House Prices Must Fall if affordability is to be restored – more, that is, than they already have (housing prices in Toronto are currently 16 per cent off their 2022 peak). Again, for most of the country, that’s simply not true.
The CMHC calculates that, to hit its revised affordability targets, prices would need to be, on average, “roughly a quarter lower than they would otherwise be in 2035.” (Emphasis added.) But its business-as-usual projection – that is, without any increase in supply – is for prices to rise substantially in that period, even in the most overpriced markets: 63 per cent in Toronto, 55 per cent in Montreal, 32 per cent in Edmonton, and so forth.
The effect of all this frantic housing construction the agency hopes to see would in most cases be merely to hold the increase in prices to a more modest rate: 20 per cent in Toronto, 9 per cent in Montreal, 25 per cent in Edmonton, etc. Only in a few markets – Ottawa, ex-metropolitan Ontario, Nova Scotia – does the agency project absolute declines in housing prices. The rest of the work of reducing the housing-to-income ratio is being done by the denominator: rising incomes.
So you see what we’re up against – and why the CMHC was wise to pick a more modest target. If, as the agency estimates, it will take a 70-per-cent increase in starts in Toronto just to return housing costs to the 59 per cent of income they were in 2019, imagine what it would take to return to the 50 per cent or so they were in 2004, still less to the traditional 30-per-cent benchmark.
And if massive increases in supply are what we are after, it is a little hard to square with the kind of massive decreases in prices – 37 per cent, if the task of restoring affordability were to be achieved without help from rising incomes – demanded in certain quarters. The vast majority of new housing construction, under any realistic scenario, will have to be funded privately. It defies reason to think that private capital would put that kind of money into a collapsing market.
(So let government do it? Just to finance the construction of units for the 10 per cent of households the CMHC defines as in “core housing need” would, according to one study, cost between $200- and $300-billion. Governments simply do not have that kind of money.)
Yet to suggest that restoring affordability is not so simple a matter as letting prices fall – or that reducing prices is itself so easily accomplished – is to invite the kind of abuse that the newly appointed federal housing minister, Gregor Robertson, received. Asked whether prices would need to fall – implicitly, told to say that they must – the minister committed the crime of suggesting they need not, to the fury of extremely online housing activists, for whom price reductions are divine dogma.
Opinion: The bitter truth is that cheaper housing means a retirement crisis for homeowners
It’s tempting to put this down to the sort of magical thinking that often animates our politics. But housing has become for many people a war of class and generation: a matter of fat-cat boomers making out at the expense of first-time homebuyers. This served as a convenient organizing myth in the recent election – remember that widely distributed photo of a man of a certain age giving the finger to a photographer?
He was supposedly flipping the bird to the nation’s youth. He wasn’t, of course: His ire was directed purely at the photographer and anti-Liberal protesters. But the picture was taken up by right-wing social-media types, in hopes of creating a viral phenomenon that, we were told, would surely tip the election to the Conservatives.
That inevitable Tory victory did not materialize, and neither did the supposed age gap. Look it up: The final poll averages show the Liberals won among the 18-34 set, as well as the geezers – not by the same margins, to be sure, but by enough to dispel the claim that house-poor youth flocked to the Conservative banner.
Rob Carrick: To make housing more affordable, drop the tax hammer on real estate investors
None of this is to suggest that house prices are not an issue. While the crisis of affordability is not so general as sometimes suggested, it is acute for certain people in certain markets. But solving it, as the CMHC study suggests, is neither so easy – let prices fall! – nor so difficult – make prices fall! – as one might suppose from some of the discussion surrounding the issue.
There is a reason people in government are averse to the idea. It isn’t just that homeowners represent the majority of the population, and the electorate. It is that for years they have been encouraged to plan their retirements around them. Knock out a big chunk of their wealth in an ill-advised dash for “affordability” and you will not just have a lot of angry voters on your hands, but – especially given Canada’s alarming levels of private debt – an economic crisis.
It will be achievement enough to restrain prices from increasing – certainly if this is to be accomplished solely by increases in supply. If that presents too daunting a challenge to policy makers, then perhaps it’s time to think about measures to restrain demand – or at least, stop inflating it – at the same time. Tighter rules on mortgage insurance, anyone?
Read more on The Globe and Mail
