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Current projections for the amount of additional housing Canada needs are way off the mark and out-of-date population forecasting is to blame, according to one top economist.

Canada needs to build five million extra units by 2030 on top of annual construction, said Benjamin Tal, deputy-chief economist with CIBC World Markets in a report on Feb. 6.  That’s well above widely circulated estimates of 3.5 million additional homes needed by the end of the decade.

“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,” Tal said. “That must change.”

The figure of 3.5 million additional new homes above the “business as usual” pace by 2030 to solve the affordability crisis was first floated by the Canada Mortgage and Housing Corporation in June 2022. It later affirmed its projection, which has been widely circulated in media reports about the housing shortage and affordability crisis, in September 2023.

However, the latter projection was “obsolete” before it was out of the gate, according to Tal, because it was built on a base population assumption of 38.9 million — 1.2 million short of the actual population.

As of October 2023, Canada’s population was 40.5 million, a 1.1 per cent increase from the previous quarter, Statistics Canada reported.

CMHC isn’t the only one to have underestimated Canada’s population growth.

A decade ago, Statistics Canada, along with the federal housing agency, forecast the population would reach 38.7 million in 2024.

“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,” representing an almost three-year shortfall in the housing supply.

Even the federal statistics agency’s population forecast for 2023 is already out of date, Tal said, noting that it called for the population to hit 39.4 million.

While all this is bad news for people searching for somewhere to live, it also bodes ill for affordability.

“The current recessionary conditions in the Canadian housing market will hardly dent the affordability crisis home buyers and renters currently face,” he said.

Tal isn’t the only economist who is pessimistic that housing affordability will be restored any time soon.

Marc Desormeaux, principal economist at Desjardins Group, doesn’t see affordability returning to pre-pandemic levels over the next two years despite a reduction in interest rates and a slowdown in the economy. Population growth is one reason for that.

“We expect strong population growth to remain a tailwind for housing market activity,” Desormeaux said in a Feb. 6 note, despite the cuts to non-permanent residents programs and foreign student admissions announced by the federal government.

Canada’s housing shortage boils down to a forecasting failure, said CIBC’s Tal.

“The housing shortage issue is largely a planning issue with official planning targets falling notably short of actual population growth,” he said. “You cannot build an adequate supply of housing for population growth that you fail to forecast.”

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Toronto’s benchmark housing market for the seventh consecutive month in January, but a surge in home sales compared to the same period a year ago has the region’s real estate board warning that prices might not stay subdued for long. — Shantae Campbell, Financial Post

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McLister on mortgages

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Today’s Posthaste was written by Gigi Suhanic, with additional reporting from Financial Post staff, The Canadian Press and Bloomberg.

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