Prime Minister Mark Carney has set an ambitious goal to increase Canadian housing completions to 500,000 per year over the next decade to address the housing shortage.
But do we really need that many new homes to improve affordability and accessibility? According to TD Bank economist Rishi Sondhi, maybe not.
TD’s analysis suggests that 400,000 completions a year could be sufficient, although still a challenging target, as stated in the report.
“Construction sector productivity and an aging workforce present structural challenges that must be overcome if the government aims to achieve its 10-year goal of 500,000 new homes annually,” TD mentions.
“However, it’s likely that this level is not necessary, as reaching a 400,000 run rate should be adequate to restore affordability over time.”
Why 400,000 could suffice
Carney’s housing plan includes various proposed policies to stimulate housing construction, such as reducing GST for first-time homebuyers and cutting development charges by 50%.
However, TD’s review suggests that the current policies are likely to fall short of bridging the gap between Canada’s average annual completions of around 210,000 and the government’s 500,000 target, according to the report.
TD indicates that while 500,000 per year might be an “aspirational target,” their modeling shows that achieving 400,000 completions annually could potentially restore housing affordability to pre-pandemic levels.
“This assumes that Canada avoids a major recession, which would be a harsh way to quickly enhance affordability,” the report mentions.
A more attainable goal
TD believes that 400,000 is a more manageable objective, yet still quite formidable considering the industry’s constraints.
“Productivity in the construction sector has been a concern, and like other sectors, construction will face a wave of retirements in the coming years,” states the report.
“In fact, industry estimates predict a 108,000 shortfall in Canada’s construction workforce by 2034 after accounting for workforce requirements and retirements.”
At current productivity levels, achieving 400,000 completions annually in 10 years would necessitate a 16% yearly expansion of Canada’s residential construction workforce, according to TD.
“This is unsustainable, especially considering retirements and the already high concentration of Canadian employment in construction,” the report notes.
“Additionally, the federal and provincial governments have ambitious infrastructure building goals, and these projects will compete for skilled workers.”
TD suggests that a more realistic approach for Canada would involve a combination of a growing construction workforce and increased productivity.
Prefabricated housing as a solution
The federal government is expected to rely on prefabricated housing in Canada to meet its targets, although it is not a one-size-fits-all solution.
“Prefabricated housing can improve productivity. However, the industry is currently small, and scaling up will require a sustained effort from the federal government, as seen in international experiences,” TD explains.
“Differences in housing design codes across regions pose a challenge for the scalability of factory-made housing.”
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