TD report calls into question Liberal housing plan's promise of 500,000 housing starts a year

Yahoo

03-06-2025

The Liberal government was elected on an ambitious housing plan that promises to build about 500,000 new homes a year, but a report by Toronto-Dominion Bank released on Tuesday said the proposed policies will fall short of achieving that objective.
'Policies reviewed so far are likely to fall well short of closing the gap between the roughly 210,000 completions that Canada averages yearly, and the federal government's goal of getting to 500,000 units delivered over the next decade,' the report said.
The Liberal housing plan, sold as Canada's most ambitious since the Second World War, promises several initiatives to kick-start housing construction, including cutting the GST for first-time homebuyers for new homes at or under $1 million, lowering development charges and reviving a 1970s program called the Multiple Unit Residential Building (MURB) program, which will provide more tax incentives for purpose-built rentals.
'All told, these measures could lift housing starts by some 15,000 to 20,000 units above our baseline,' the report said. 'However, the impact could be more apparent over the medium term.'
Rishi Sondhi, economist at TD and author of the report, said the target for housing starts could fall to 400,000 units a year for housing affordability to be restored to pre-pandemic levels.
'When the pandemic hit you saw house prices soar across Canada and that really eroded affordability, so to get to conditions where they were before the pandemic struck, you need 400,000 units,' he said. 'Which is probably a more reasonable affordability backdrop, but it's not the most pristine Canada has ever seen, which was maybe more the early 2000s.'
In the short-term, the report estimates housing starts will actually decline in 2026 to 215,000, from the 245,000 housing starts recorded in 2024.
There are a number of factors playing out in the economy that are having an impact on the slowing in housing starts. They include slower population growth, oversupply in the Toronto condo market, rising construction costs and economic uncertainty.
Another big challenge to hitting the target for housing starts is the labour supply in the construction industry, which is set to shrink over the next decade as a number of employees hit retirement age.
Canada's residential construction sector employs 600,000 people, according to estimates by the Government of Canada. A report by BuildForce Canada published last year estimates the construction industry's workforce would have to grow to just under 1.04 million workers to close the housing gap.
'In fact, industry estimates project a 108,000 shortage in Canada's construction industry by 2034 after accounting for workforce needs and retirements,' the report said. 'At current productivity levels, getting to 400,000 completions per year in 10 years would require Canada's residential construction workforce to expand by 16 per cent each year.'
Sondhi said this labour shortage issue will be compounded by ambitious infrastructure projects planned by federal and provincial governments, which means residential construction and infrastructure projects will be competing for the same workers.
Sondhi said it is difficult to model out the number of housing starts that will result from the additional measures in the Liberal housing plan including reducing red tape, fast-tracking approvals and leveraging preapproved, standardized housing designs across the country.
'Even here, the stuff that isn't modelled out is probably not going to be enough to close the gap on its own,' said Sondhi.
One policy initiative in the federal government's housing plan that could boost supply to hit its target, Sondhi said, is billions in financing promised for prefabricated homebuilders in Canada, which will be administered under a newly created federal housing entity called Build Canada Homes.
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The report highlights other jurisdictions, such as Japan and Sweden, where prefabricated homebuilding was adopted to help boost housing supply in those countries. Research has estimated modular housing could speed up construction timelines by 50 per cent and cut costs by 20 per cent, according to the report.
'My stance is that it would have to play an important role if the government is going to hit its target, because the other things outside of this are not going to do the trick,' said Sondhi.
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