Key points

• Canada’s housing supply gap is largely unchanged from last year according to the CMHC. However, this masks variations across major cities.
• Alberta leads the supply recovery, with Calgary estimated to have cut its gap in half and Edmonton showing no measurable gap.
• Despite moderating demand, failing to build enough homes during today’s softer market will leave Canada short on supply when demand rebounds. 

Supply gap has narrowed unevenly across Canada

Last fall, I wrote about the housing supply gap and how, according to the Canada Mortgage and Housing Corporation’s (CMHC) estimates, Alberta would have to build approximately 14,000 more homes per year out to 2035 than it was—mostly in Calgary—to bring housing affordability back to pre-pandemic levels*. Nationally, housing starts needed to nearly double to close the supply gap. The country currently faces a long-term housing supply gap of 187,000 to 238,000 homes per year over the next decade.

The CMHC has updated its estimates in a newly issued report, finding that Canada’s supply gap is broadly unchanged from last year. The report highlights that the supply gap narrowed in Toronto and Calgary, stayed the same in Vancouver, and widened in Ottawa and Montreal.

Canada’s housing market is entering a period of normalization, on the back of slower population growth and more balanced rental markets. However, the key risk the report highlights is that Canada does not build enough during today’s market softening and falls short of housing when demand strengthens again.

That being said, there are some common themes across Canada’s largest markets. Purpose-built rentals—residential buildings designed and constructed to be rented out by a single owner or management company, rather than sold off as individual condo units—now account for two thirds of all apartment starts in key markets.

Compared to last year, some of the key markets facing relatively larger supply gaps have seen their rental market conditions move towards a more balanced market, in large part due to purpose-built rentals adding much-needed supply and slowing rent growth.

However, the report highlights another emerging trend, owner-occupied housing faces supply challenges, indicating a changing housing supply mix and a market for prospective homeowners that is less balanced than it is for renters benefitting from increased supply.

The Alberta story

While it only lists Calgary and Edmonton, the CMHC report largely echoes what we’ve been observing in the broader housing market in Alberta. As we expected, housing starts have fallen below last year’s record highs and are down about 15% year-to-date.   However, the level remains well above the 10 year average of about 34,000 units, with August posting a strong reading of 53,400 units (seasonally adjusted at annual rate).

According to the report, Calgary is one of the few major cities to narrow the housing supply gap. Back-to-back years of record housing starts allowed supply to catch up and inventories to build, leading to a softer rental market.

Edmonton’s housing market continues to show no measurable supply gap, meaning the expected level of homebuilding is expected to keep affordability in check. Developers have continued to launch new projects—mainly condominiums—adding to supply.

Bottom line: Despite progress in some major markets, there is still work to be done to continue to bridge the gap between today’s softer market conditions and the longer-term journey of returning to pre-pandemic affordability levels and preparing for the next wave of demand. 

Tomorrow we’ll dive into the current makeup of Alberta’s housing supply and some of the emerging trends in the market, as well as how it compares to national trends.

*CMHC defines affordability as adjusted house prices (homebuying affordability ratios) being no higher than 30% of gross household income, or in particularly unaffordable regions, they should remain at or below 2019 levels.

Answer to the previous trivia question: The U.S. Federal Reserve’s dot plot shows the projections of Federal Open Market Committee members for future interest rates in subsequent years and the long run.

Today’s trivia question: Which classic fantasy novel was published on this day in 1937?