Prime Minister Mark Carney has set an ambitious goal to ramp up Canadian housing completions to 500,000 per year over the next decade to tackle the housing shortage.
But are that many new homes needed to make housing more affordable and accessible? Maybe not, according to TD Bank economist Rishi Sondhi.
In a new report, TD’s analysis suggests that 400,000 completions a year may do the trick – but that’s still a lofty goal, says the report.
“Construction sector productivity and a retiring workforce are structural challenges that will need to be overcome if the government wants to hit its 10-year target of 500,000 new homes each year,” says TD.
“However, this level probably isn’t required, as a 400,000 run rate should be enough to restore affordability over time.”
Why 400,000 could work
Carney’s housing plan includes several proposed policies intended to stimulate housing construction, including cutting GST for first-time homebuyers and a 50% reduction of development charges.
However, the policies reviewed by TD so far are “likely to fall well short” of closing the gap between the roughly 210,000 completions Canada averages annually and the federal government’s 500,000 goal, reads the report.
TD says 500,000 per year might be an “aspirational target,” but its modelling suggests that if Canada were to achieve annual completions of 400,000, then housing affordability might return to its pre-pandemic level.
“This assumes that Canada stays clear of a major recession, which would be a painful way to quickly improve affordability,” reads the report.
A smaller target would still be challenging
TD says 400,000 is a more manageable goal, but it’s still quite formidable given industry constraints.
“Productivity in the construction industry has been an issue, and construction, like other segments, will be facing a wave of retirements in the coming years,” says the report.
“In fact, industry estimates project a 108,000 shortage in Canada’s construction industry by 2034 after accounting for workforce needs and retirements.”
At current productivity levels, getting to 400,000 completions per year in 10 years would require Canada’s residential construction workforce to expand by 16% each year, says TD.
“This is untenable, especially given retirements and that the share of Canadian employment concentrated in construction is already elevated,” reads the report.
“Also, the federal and provincial governments have ambitious goals in infrastructure building, and these projects will compete for tradespeople.”
More realistically, Canada could hope for a combination of a rising construction workforce and an increase in productivity, says TD.
Prefabs could help, eventually
The federal government will likely be leaning on Canada’s prefabricated housing to meet its targets, said TD, but it isn’t a silver bullet.
“Prefabricated housing can lift productivity. However, the industry is currently small, and scaling up will require a sustained effort on the part of the federal government, if international experience is a guide,” said TD.
“Housing design codes that vary substantially across regions present another challenge for factory-made housing’s ability to scale up.”
