The housing shortage isn’t getting better

If you thought there already weren’t enough homes to go around, the Canada Mortgage and Housing Corp. (CMHC) wants you to know you ain’t seen nothing yet

Driving the news: The CMHC says housing starts—a measure of how many new homes are being built—could nosedive 32% this year if inflation sticks around and interest rates remain high. 

  • Even if inflation returns to a 2% target and interest rates begin to fall, the CMHC expects housing starts to still drop by 19%.

Why it matters: For housing to become affordable again, the CMHC says housing starts would need to reach at least 500,000 every year, beginning this year—their latest forecast shows, at most, 211,000 starts. 

That means prices are going—you guessed it—up.

  • Home prices will bottom out this year before rebounding to record highs by 2025, according to the CMHC forecast.
  • “We need a much higher level of starts if we want affordability to improve,” CMHC chief economist Bob Dugan said.

Why it’s happening: It’s become much more expensive to build new housing in the past year due to a combination of higher interest rates, more expensive building materials, and a shortage of workers. 

  • Because of higher costs, many developments that may have been profitable in 2019 no longer make economic sense for builders.

Zoom out: Higher housing costs will also cascade down to the rental market, as Canadians priced out of home ownership bid up the cost of rental units. The CMHC expects rents to rise significantly in every major city across the country.