Canada’s Housing Supply Challenge: A Call for 3.2 Million New Units by 2035

As Canada grapples with an ongoing housing crisis, an updated analysis from the Government of Canada’s Parliamentary Budget Officer (PBO) highlights the urgent need for the country to deliver 3.2 million net new housing units by 2035. This ambitious goal serves to address a significant gap in housing supply, which has become a pressing issue for both policymakers and residents alike.

The Scale of the Shortfall

To put the magnitude of this challenge into perspective, Canada must achieve a staggering average of approximately 290,000 net new homes annually—a pace the country has never sustained. This figure accounts for the homes that are demolished each year, emphasizing that true growth involves adding new units to replace those lost. This report arrives at a time when household formation rates have surged but are set to experience a significant slowdown.

Fluctuating Household Formation

The PBO’s projections reveal that Canada saw a record 482,000 new households formed in 2024, driven largely by demographic trends and economic factors. However, this figure is expected to drop sharply in 2025 and 2026 due to recent federal policies aimed at curtailing immigration. In fact, household formation is anticipated to remain significantly below the historical average of 176,000 per year until 2030, further complicating the housing supply issue.

Construction Trends: A Mixed Outlook

On the construction side, the PBO forecasts a short-term uplift, projecting that housing completions will average around 256,000 units annually over the next three years. However, beyond this immediate period, the forecast suggests a return to historical norms, with a target of about 2.5 million new units over the next decade—equating to a lower annual average of 227,000 net new units from 2025 to 2035.

This results in a cumulative shortfall of approximately 690,000 homes compared to what is required to bring vacancy rates back to long-term averages. Closing this gap will necessitate constructing an additional 65,000 homes annually, highlighting the sheer scale of the challenge posed by the housing crisis.

Addressing Underlying Needs

The implications of these projections are vast. A staggering need for 714,000 net new homes is identified, specifically for families and individuals who are currently unable to form households due to the unaffordable or inaccessible nature of existing housing options. Even if new units were constructed to address this deficit, the rental market would likely remain tight, necessitating further action.

To restore rental vacancy rates to more balanced levels, particularly those observed between 2000 and 2019, an additional 248,000 homes must be constructed by 2035. This multi-faceted approach highlights the complexities of the housing crisis and the numerous factors at play.

Diverging Estimates: PBO vs. CMHC

Interestingly, the PBO’s estimate of 3.2 million new units is notably lower than the Canada Mortgage and Housing Corporation (CMHC), which has projected a need for 5.3 million new units to ensure affordability by 2035. The PBO has cautioned that such aggressive targets could lead to an oversupply of housing, which may in turn generate abnormally high vacancy rates—a phenomenon that could destabilize the market further.

Both the PBO and CMHC have been consistently updating their forecasts and methodologies, reflecting the evolving nature of Canada’s housing crisis. While the CMHC presents a broader target, the PBO focuses on realistic scenarios informed by projected demographic needs and housing supply capabilities.

The Complex Path to Affordability

Meeting the 3.2 million net new homes target could alleviate some pressure on housing prices and rental rates, yet it will not suffice to fully resolve the affordability crisis. Factors such as household incomes, interest rates, and the characteristics of the homes being built will fundamentally shape the extent to which this increased supply translates into greater affordability for Canadian families.

Conclusion: A Daunting Task Ahead

Canada now faces the monumental challenge of sustaining record-breaking levels of housing construction, maintaining an average of nearly 290,000 homes annually for over a decade. This is essential if the nation hopes to bring housing supply in line with growing demand. As policymakers seek solutions to a problem that affects every facet of Canadian society, the insights from the PBO serve as a crucial starting point for developing a comprehensive strategy to address one of the most significant challenges facing the country today. The road ahead is fraught with complexity, but the necessity for action has never been clearer.