Canada needs to build homes in record numbers for a decade to drive down prices

Canada must deliver 3.2 million net new housing units by 2035 to close the country's supply gap, according to a new updated analysis by the Government of Canada's Parliamentary Budget Officer (PBO).

That works out to about 290,000 net new homes per year — a pace the country has never sustained. Net new takes into account the homes that have been demolished to make way for new additional homes.

The report comes as household formation surges and then slows. After hitting a record 482,000 new households in 2024, the PBO projects a sharp decline in 2025 and 2026 due to recent federal policies curbing immigration. Household formation is expected to remain well below the historical average of 176,000 per year until 2030.

On the construction side, the PBO expects a short-term boost, with completions averaging 256,000 units annually over the next three years. But beyond that, housing starts are forecast to fall back to historical norms, with about 2.5 million new units delivered over the next 10 years — equivalent to an annual average of 227,000 net new units per year between 2025 and 2035.

That leaves a cumulative shortfall of roughly 690,000 homes compared to what is needed to restore vacancy rates to long-term averages. Closing the gap would require an additional 65,000 homes per year on average, on top of the baseline forecast — pushing total requirements to 3.2 million by 2035.

"This pace of housing construction would more than match projected demographic demand and compensate for excess demographic demand experienced in recent years," reads the PBO's forecast.

There would be a need for 714,000 net new homes by 2035 just to account for the families and individuals who are not currently forming households because appropriate housing is too expensive or hard to find. But even if those homes were built, the rental market would still be tighter than usual.

To bring rental vacancy rates back to the more balanced levels seen between 2000 and 2019, the country would need to build an additional 248,000 homes by 2035, on top of that.

The PBO's projection is lower than Canada Mortgage and Housing Corporation's (CMHC) recent updated estimate, which called for 5.3 million new units to restore affordability by 2035. The PBO cautions that such aggressive targets risk overshooting demand, leading to abnormally high vacancy rates.

With affordability across the country worsening in recent years, both the PBO and CMHC have been releasing their own annual housing need forecasts, each projecting a 10-year timeline and updating their respective previous estimates. But their approaches differ.

"Even after accounting for increased household formation from lower house prices, reaching CMHC's targeted levels of affordability would require significant overbuilding of new housing units such that there would be abnormally high levels of unoccupied housing units and or households with second homes," reads the PBO's forecast.

While meeting the 3.2 million net new homes target could ease pressure on prices and rents, the report warns it will not be enough to solve the affordability crisis on its own. Factors like household incomes, interest rates, and the type and location of new housing will determine whether supply growth actually translates into more affordable homes.

Canada now faces the daunting task of maintaining record-breaking levels of housing construction year after year — nearly 290,000 homes annually for more than a decade — if it hopes to bring supply closer in line with demand.