00:00:01

(Visual: Screen is divided into two sections featuring the guests, Aled Ab Iorwerth and Mathieu Laberge talking. The sections separate to reveal the host asking a question to the guest in a back and forth montage of the discussion ahead.)

ALED AB IORWERTH: Tackling this housing affordability challenge is enormous. It's absolutely critical to increase housing supply.

BRIE MARTIN: Why is there such a large housing supply gap?

MATHIEU LABERGE: Deficit of supply, combined with a loss of affordability over the recent couple of years?

ALED AB IORWERTH: What we're looking at in particular is; what it will take to get back to pre-pandemic levels of affordability.

BRIE MARTIN: What does this mean for the average person in Canada?

MATHIEU LABERGE: We need to build more, and in order to build more, we need to build differently.

00:00:31

(Visual: Animated introduction featuring various shapes of houses and doors, as well as a search bar where the term "Canada's housing market" is typed in.

(On-screen text: In-House, Canada's housing podcast)

NARRATOR: You're listening to In-House, Canada's housing podcast, where we share the latest on Canada's housing market.

(Visual: The camera cuts to a wide shot of all participants sitting at a table on which microphones, water glasses and laptop computers have been placed. Guests Aled Ab Iorwerth is sitting opposite Mathieu Laberge with Brie Martin sitting at the head on the table.)

00:00:46

BRIE MARTIN: Hello, everyone, and welcome to another edition of In-House. I'm Brie Martin.

(On-screen text: Brie Martin , Specialist, Media Relations |CMHC)

I'll be your host today, filling in for Joelle Hamilton, and today, we're tackling the very important topic of Canada's housing supply gap. We'll explore the real magnitude of the challenge and why the need to address housing supply is such a critical issue.

(Visual: The camera cuts to a single-person shot of Aled Ab Iorwerth.)

To help us break it down, we've got Aled Ab Iorwerth

(Visual: The camera cuts to a single-person shot of Mathieu Laberge.)

and Mathieu Laberge, two of CMHC's top economists. Aled and Mathieu, thanks for being here.

(Visual: The camera cuts to a wide shot of all participants.)

00:01:17

MATHIEU LABERGE: Thanks for having us.

00:01:17

ALED AB IORWERTH: Thank you.

00:01:19

BRIE: To start with, if you could give us a little information about just how big the challenge is today and what has changed since CMHC put out its last report on it back in the Fall of 2023.

(Visual: The camera cuts to a single-person shot of Aled Ab Iorwerth.)

00:01:35

ALED: The gap is enormous.

(On-screen text: Aled Ab Iorwerth. Deputy Chief Economist | CMHC)

We're basically talking about the need to double housing starts. Looking out a few years, we're predicting housing starts of maybe 240,000. We basically need to double that.

The magnitude differs across the country. It's particularly large in some of our key cities like Toronto, Vancouver, Montréal, but it's increasingly spreading to other cities, and including to Nova Scotia.

The gap is enormous, but I think the challenge is also important in order to help Canadians get back to affordability. Housing costs have become an enormous challenge, restricting people's mobility. They're spending a lot of money on housing, and it's creating challenges for young people who want to move into housing. Tackling this housing affordability challenge is enormous. In order to do that over the long term, I think it's absolutely critical to increase housing supply.

There's a lot of changes in this year's reports. We have much more sophisticated modelling, but we're also changing quite a lot of our key goals, parameters, aspirations. What we're looking at, in particular, is what it would take to get back to pre-pandemic levels of affordability. The resources we need to build more housing are enormous, so we're trying to establish realistic goals. This is still going to be very challenging – it's a stretch target – but we're looking at what it's going to take to get back to 2019 levels of affordability. That's one difference.

Another important difference is we have to be realistic about the amount of time this is going to take.

(Visual: The camera cuts to a wide shot of all participants.)

We had previously discussed how much housing we would need by 2030. We're now very close to that date in terms of building time. Time for construction, time for approvals is enormous, so we're moving to a rolling 10-year horizon. We're hoping that this conveys more realistic goals, but it's still an enormous challenge.

00:03:45

MATHIEU: As Aled mentioned, it's a stretch goal, but I think it's still achievable. Just to give a sense of the magnitude of changes that need to occur, we're speaking about needing to build between 430,000 and 480,000 units a year.

(Visual: The camera cuts to a single-person shot of Mathieu Laberge.)

(On-screen text: Mathieu Laberge, Chief Economist &SVP, Housing | CMHC.)

That's quite a lot, but when you take a step back and compare that to our estimate of potential capacity for building houses in Canada, it's about 400,000. So, as Aled said, it's a stretch goal, but it's possible, and the consequence of it being a stretch but achievable goal is that we'll actually need to change the way we build houses to make it possible.

(Visual: The camera cuts to a wide shot of all participants.)

00:04:28

BRIE: You mentioned that we need to build a lot of houses to address the supply gap, but can you tell me how we got here? Why is there such a large housing supply gap in Canada?

(Visual: The camera cuts to a single-person shot of Mathieu Laberge.)

00:04:40

MATHIEU: I think it's been building for decades. That's what we need to understand collectively. This is not something that happened overnight or even in the past couple of years. It's something that really built up starting in the '80s. You started to see less and less investment in housing in general and even more in multiple housing, especially purpose-built rental apartments.

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For most of the 1990s and even the early 2000s, we were actually in a building deficit in Canada. What happened is that since COVID, the affordability part of that equation also blew up across the whole country. It used to be a phenomenon of large cities, especially Vancouver and Toronto. Post-COVID it's something that's everywhere and touches every Canadian.

So, we have the confluence of a long-term phenomenon of a supply deficit combined with a loss of affordability over the recent couple of years. That has led to where we're at now. Walking it back and making housing affordable for Canadians across the country will take time. It will take a sustained effort and a significant change in the way we're doing things.

(Visual: The camera cuts to a single-person shot of Aled Ab Iorwerth.)

00:05:58

ALED: I agree. I think we've been facing this problem for a couple of decades at least. Rental construction fell off a cliff around 1980, but the homeownership market has been facing affordability challenges since around 2005, particularly in Vancouver and Toronto. Demand for housing went up, incomes went up and population growth went up, but the supply system did not respond. So, we've been facing this for a long time, and now we need to really get to grips with the supply issue and improve that. It will, as you say, take time, however.

(Visual: The camera cuts to a wide shot of all participants.)

00:06:37

BRIE: You both mentioned Toronto and Vancouver. Our latest report also shows that the issue is not just in Toronto and Vancouver, so where do we need to build more houses?

(Visual: The camera cuts to a single-person shot of Aled Ab Iorwerth.)

00:06:50

ALED: The problem is becoming more pervasive and moving beyond those cities. It's a problem outside of Toronto and the rest of Ontario, including in Ottawa. It's becoming an issue in the rest of British Columbia outside of Vancouver. It's an issue in Montréal; it's an issue in Nova Scotia. As you mentioned earlier, there's been a marked deterioration in affordability since COVID. Demand patterns have changed, people may be wanting bigger housing and the economy has recovered quite strongly, particularly in Quebec.

So, demand for housing has gone up, but the supply system has really not responded. In other places in Canada – in the Prairies in particular – there is a lot of supply, so there's not as much of an affordability challenge in the Prairies, but certainly in several of Canada's key cities it's a problem.

(Visual: The camera cuts to a single-person shot of Mathieu Laberge.)

00:07:47

MATHIEU: I think you really need to look at it as something that evolved very quickly over the last couple of years. Toronto and Vancouver are facing a situation that's different from any other cities.

(Visual: The camera cuts to a wide shot of all participants.)

The affordability issues in Toronto and Vancouver have been building up since 2004, 2005, starting in homeownership in very central areas and spreading outside the core and in the rental market, but really what made a big difference is COVID.

(Visual: The camera cuts to a single-person shot of Mathieu Laberge.)

What happened with increased mobility and remote work is that people could keep their job in downtown Toronto or downtown Montréal or downtown Vancouver, but work from Halifax or Red Deer or wherever, really.

That made it possible for households to move around seeking arbitrage, where they can pay lower housing costs but keep the same work, but that also had the effect of spreading affordability issues across a much larger number of urban centres in Canada.

(Visual: The camera cuts to a wide shot of all participants.)

00:08:59

BRIE: If we manage to add supply and try to close the housing supply gap, what would be the impact of this additional supply on house prices and rent?

(Visual: The camera cuts to a single-person shot of Aled Ab Iorwerth.)

00:09:11

ALED: It would be to try and limit how much house prices go up. We have predictions that, without increasing supply, house prices will continue to become more and more unaffordable. There's that challenge, but there's equally a challenge in the rental system. Rents will continue to rise because of the absence of supply, so if we don't tackle this problem, it will become a bigger and bigger problem that starts to pile up and become worse.

(Visual: The camera cuts to a wide shot of all participants.)

00:09:44

BRIE: Keeping that in mind, what is the path forward? How do we make a dent in the supply gap?

00:09:51

MATHIEU: We need to build more, and in order to build more, we need to build differently.

(Visual: The camera cuts to a single-person shot of Mathieu Laberge.)

What that means is more technology: When you look at the leading countries right now in the world that have the highest supply, but also the most nimble industries, they rely on AI, on machine learning, on off-site building (what we mean when we talk about "manufacturing" or "prefab"). This is something that, in Canada, we don't do much.

(Visual: The camera cuts to a wide shot of all participants.)

Just an example, in Sweden 90% of houses have a component that's built off site. In Canada, less than 5%.

We also need to adjust our workforce to the new technologies. So it means we don't train people the same way; we don't train in the same technologies, either.

(Visual: The camera cuts to a single-person shot of Mathieu Laberge.)

So people need to learn how to magnify the use of AI and machine learning and also how to build an assembly line for houses, just as we learned maybe a hundred years ago to do for cars in Canada, which is a thriving industry.

Finally, it means also tapping into the resources we have locally that are highly available.

(On-screen text: SUBSCRIBE)

I'm thinking about anything that's high-rise wood frame, for example. Again, in Sweden about 10% to 20% of the housing stock is made out of wood. In North America, in Canada, it's much, much lower, again, less than 5%. All this together will make it easier to build more, but also faster, so you accelerate both the volume and the pace of building.

(Visual: The camera cuts to a single-person shot of Aled Ab Iorwerth.)

00:11:27

ALED: I think we also need to improve the whole regulatory system. Certainly with respect to mass production, the system of regulations plays a part there, but we also need to make the system a lot more flexible, a lot faster to approve. I think a lot of fundamental changes are needed, and governments need to align on how to increase housing supply.

(Visual: The camera cuts to a single-person shot of Mathieu Laberge.)

00:11:49

MATHIEU: Absolutely. I think there are two ways to change regulations to make it easier and faster for builders to build. The first one is also technology.

00:11:58

ALED: Yeah.

00:11:58

MATHIEU: How to standardize approaches across municipalities. Right now, a builder that wants to build in municipality B instead of A has to learn a whole new system, so there's a high cost for them to move from one city to another. There's also the whole notion of… If we go for that notion of standardization, there's a whole notion of internal trade. In Canada there has been increasing talk about our internal trade.

(Visual: The camera cuts to a wide shot of all participants.)

We need to look again at making our regulations for housing more standard across provinces, across municipalities, so it's easier for the industry to scale. When the industry can scale, we get bigger businesses and more ways to invest in the technologies we need to increase building capacity.

00:12:50

BRIE: We've talked a bit about the industry perspective, but let's bring this home for our listeners. What does this mean for the average person in Canada who's looking to rent an apartment or looking to buy a house?

(Visual: The camera cuts to a single-person shot of Aled Ab Iorwerth.)

00:13:04

ALED: The average person looking to rent or buy a house right now is facing a big challenge: not only is it costly, but even finding a place is hard. The vacancy rates in southern Ontario and southern British Columbia, for all intents and purposes, are close to zero, so people will struggle to find a place to live, and if they do find a place to live, it will be very costly.

To repeat: we need more housing supply so that people can move to Vancouver and find the work they want or move to Toronto and get the job they want and, in the process, help the Canadian economy. I think for the average person it means that we're changing the trajectory for house prices and for rents and trying to get them into more housing affordability.

(Visual: The camera cuts to a single-person shot of Mathieu Laberge.)

00:13:55

MATHIEU: What you mention here, Aled, is so key, because right now in Canada, people are shying away from better jobs or moving for a better job because they can't make it work on the housing-cost side. This is preventing the Canadian economy from growing and being more productive, and that's a very important challenge we're facing as a nation right now.

What it means too is that it will take time. As we were saying earlier, we can't back out of decades of undersupply over a couple years, but there are a lot of incentives.

(Visual: The camera cuts to a wide shot of all participants.)

You were speaking about regulations, Aled. There are a lot of incentives or initiatives right now being put forward to make that change. The Housing Accelerator Fund is one, but all levels of government are working together to try to reduce that. There's more to do, but it's already ongoing. I know the industry. There are businesses across Canada that are looking at those technologies.

(Visual: The camera cuts to a single-person shot of Mathieu Laberge.)

So change is coming. We're dedicated to bringing the information and programs to accelerate that change, but it will take some time to see significant changes.

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00:15:15

BRIE: You've given us a lot of information about Canada's housing supply gap. What would you say are the top takeaways from all of this?

00:15:24

ALED: Supply is key to addressing affordability, and we need more housing supply.

(Visual: The camera cuts to a single-person shot of Aled Ab Iorwerth.)

We increasingly need it across the country. It's not just a Toronto and Vancouver problem; it's in many other provinces now. We need to change the way we're doing construction, doing business in housing. We need more efficient processes, we need more productivity and we need all levels of government to support this effort.

(Visual: The camera cuts to a wide shot of all participants.)

00:15:48

BRIE: Those are some excellent points.

(Visual: The camera cuts to a single-person shot of Mathieu Laberge nodding.)

(Visual: The camera cuts to a single-person shot of Aled Ab Iorwerth.)

 A big thank you to both of you for sharing your thoughts and insights, and thank you to our viewers for joining us for another episode of In-House.

(On-screen text: In-House, Canada's Housing Podcast)

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00:16:00

NARRATOR: Did you know we're not just on YouTube? You can now find us on Spotify, Apple Podcasts and Amazon Music. Don't miss our next episodes for more real, data-driven discussions. If you're learning from and/or enjoying this podcast, please share this episode, follow us or subscribe. Reach out and let us know what you think. Thanks for listening and see you next time.

(Visual: Animated transition to the logos of CMHC and the Government of Canada.)