The federal government’s plan to achieve affordable housing levels through additional building is “completely unrealistic” and comes with a price tag of over $1 trillion, according to a new report.
The Fraser Institute report “Canada Needs to Save Much More to Finance an Ambitious Investment Agenda” looks at what Canada needs to do to improve housing affordability and attract more business investment.
In the report author Steven Globerman notes the Canada Mortgage and Housing Corporation (CMHC) estimates an additional 3.5 million housing units will need to be built by 2030 to maintain affordability.
Globerman, a senior fellow and Addington Chair in Measurement at the Fraser Institute, said for the federal government to meet the goal, an estimated $331 billion to $364 billion in additional capital investment will be needed each year from 2025–2030, requiring more private sector investment and domestic savings.
Using a baseline cost estimate of building a single unit, which was developed by Steve Lafleur of the Macdonald-Laurier Institute, Globerman estimated how much financial capital will be needed to finance the construction of 3.5 million more homes.
In a low-cost scenario, the per-unit cost was estimated to be $472,376, while in a high-cost scenario, the estimated per-unit cost is $520,274.
Based on the lower cost estimate, an additional 3.5 million housing units by 2030 would need projected funding of $1.653 trillion over the next five years.
“If one uses his higher cost estimate, the projected funding needed is approximately $1.821 trillion,” he wrote.
Using those numbers, he said additional investment of $330.6 billion will be needed each year until 2030 to meet Ottawa’s goal in a low-cost estimate scenario. If the high-cost estimate is used, $364.2 billion each year will be needed.
That means the domestic savings rate will need to increase between 12.3 and 13.6 percentage points to generate the savings needed to finance the increased investment in construction.
Achieving such large increases in the domestic savings rate and capital investment would require “unrealistic and unsustainably high” interest rates, Globerman said.
“The implication is that the federal government’s investment goals, especially with regard to increasing the supply of residential housing, are unrealizable over the foreseeable future,” Globerman wrote.
He said implementing policies to encourage increased domestic savings and channelling those savings into high-priority investment activities should be a public policy imperative.
He also recommended the government aim to save more and reduce public spending since it competes with the private sector for funding. It’s better, said the report, if housing developers borrow money in the domestic capital market to build the additional homes needed rather than through the government offering developers subsidies, loans, and tax credits.
The report also recommended reducing regulations.
“The regulatory burden can arguably be substantially reduced without necessarily compromising legitimate public policy objectives such as reducing harmful environmental externalities.”
A 2024 report by CIBC said the CMHC’s target of 3.5 million additional homes was “obsolete” based on an increase in population numbers due to immigration.
“This projection assumes a base population of 38.9 million—no less than 1.2 million short of the actual official population,” the CIBC paper found.
It estimated the number of additional homes needed at closer to 5 million.
