Canada’s Plan To Fix Housing? Just Change What Affordable Means

Canada’s building boom and slowing population growth finally pushed it closer to its affordability target. Just kidding. The Canada Mortgage and Housing Corporation‘s (CMHC) 2026 Housing Supply Report shows it was never a real target. Despite billions in subsidies and slower population growth, its estimated gap barely budged. The agency’s latest report pushes the target further back, while lowering the bar for affordability. The affordability target has shifted from 2004 levels to pre-pandemic levels. If you have questions about the agency’s math, good—your brain still works. 

Canada’s Housing Supply Gap Barely Narrowed With Building Boom

Canada faces an annual supply gap of 187,000 to 238,000 homes on top of current construction levels, according to the agency. The country is building roughly 231,000 new homes annually, but that’s not even close to what’s needed, says the CMHC. They estimate 417,000 to 469,000 new homes need to be added per year to roll affordability back to 2019 levels, by 2036. That works out to 4.4 million homes over the decade at roughly double the current building pace. 

The agency estimates the national gap is “broadly unchanged,” but regions have diverged. In Montreal and Ottawa, the gap to restore affordability is widening. Annual activity in those cities needs to rise by a minimum of 42,000 and 22,000 homes, respectively. Meanwhile, in Toronto, its shortfall shrank from 31,000 in 2025 to 20,000 in this report, though the agency largely attributes the affordability-driven declines to falling prices, not supply. Prices are roughly the same as last year in the region, and there are fewer young adults in the city. But let’s not ruin a good narrative with facts on such a beautiful day, right? 

Canada’s also building the wrong types of homes for affordability. They estimate 66% of new apartment starts in major cities are purpose-built rentals. “The greater long-term risk may not be excessive rental construction. Instead, it may be insufficient condominium and ground-oriented housing supply that leaves too few ownership options when demand strengthens again,” writes the agency. 

The rental boom isn’t an accident, but an intentional decision from policymakers. Taxpayers are funding incentives for institutional investors to build for-profit rental buildings. It appears to be a bailout to keep builders and the industry busy, but it has a knock-on effect. There’s only so much land, lumber, and labour. The stimulus was meant to prop up the cost of building, not improve affordability. 

CMHC Discovers That Developers Don’t Build To Lower Prices 

The CMHC warns that developers are amplifying the gap by throttling building. “The key risk is that Canada does not build enough during today’s market softening and falls short of housing when demand strengthens again,” writes the CMHC. 

In an uncharacteristic candid admission, they warn that developers don’t build for demographics. “While we assess affordability over a 10-year horizon, developers base construction decisions on near-term expectations for demand, absorption, financing conditions and profitability,” writes the agency.  

Not exactly true. Developers build for the market, and healthy markets involve demographic targeting. When the highest bidders are taxpayer-paid incentives, the incentives are the primary market. Why find 1,000 first-time buyers if the Government of Ontario will back an institution to buy the homes? But we digress. 

CMHC Changes Affordability Target To Just A Few Years Ago

The agency’s latest report makes a lot of sense—in isolation. Zooming out and trying to find some context makes it hard to understand how the agency is modelling this. Back in 2023, they warned that 3.5 million homes built by 2030 would restore 2004 affordability levels. For those just tuning in, a lot’s changed since then. 

Canada’s population grew 3.2% in 2023, adding a staggering 1.27 million. The country added 744,324 people in 2024, representing a 1.8% annual growth rate. Interest rates were also cut from 5.00% to 3.25% in 2024. That year, the CMHC reiterated the need for 3.5 million homes to flatten the affordability curve. Nearly half the population growth and almost 35% cheaper financing had zero impact. Even more has changed since then. The CMHC’s report also changed a lot, but not in the direction one would expect. 

Canada’s population growth is virtually zero, and rental vacancies have surged. Conservatively, the 2023 forecast estimated the population adding 700,000 annually. Assuming an average of 2 people per home, it would be fair to assume the 3.5 million gap shrinks to 2.1 million new homes. Nah. 

The agency now says adding 4.4 million homes by 2036 will restore affordability to 2019 levels. That’s not a typo—the target affordability is now the same as pre-pandemic. Using RBC’s math, the goal post went from 36% of the median household income, to hitting 42.7% if we try really hard. To be blunt, the target for affordability is one where the majority of households couldn’t get a mortgage. That’s… a funny definition of affordability. 

Canada’s National Housing Agency Serves Two Conflicting Roles

Why didn’t the CMHC say in 2023 that building 3.5 million homes would roll prices back to pre-pandemic levels? They’re introducing the narrative of <wait for it> pent-up household formation. An army of middle-aged people aren’t forming households due to a lack of homes. Hitting that 4.4 million home target won’t just restore affordability to the good old days of 2019, but it will restore the social contract. 

We were unaware that the CMHC’s modelling dabbled in anthropology and behavioural finance. Academics attribute the decline in household formation to everything from phone addiction to higher education. Who knew the solution was as simple as making the cost of carrying a mortgage 42.7% of the median household’s income? 

It’s true that young adults are living with their parents longer, but the problem isn’t just affordability. Countries like Japan have a massive housing surplus, yet household formation is still in a freefall. Household formation is driven by economic optimism, wage growth, and youth prosperity—not empty boxes they could have for just a little more than 40% of their household’s income.

This is probably a good time to point out that the CMHC is serving two conflicting roles at this point in history. It’s the national housing agency, providing critical research to inform housing policy. At the same time, it’s a mortgage insurer that faces risk if prices fall, and reduced performance bonuses. The success of one half of the business literally threatens the other and vice versa. This isn’t the first time this contradictory setup has proven problematic. 

A few years ago, the agency argued that prices would fall as supply increases. Internal chats show they knew it wasn’t possible, as higher prices motivate building. The CMHC publicly presents as having a primitive understanding of supply and demand. However, they’re fully aware that supply and demand doesn’t just apply to finished homes, but the inputs too. Home prices rise with construction activity, they don’t fall. Builders aren’t a charity, they run a business. The only way affordability improves is when the incentives stop being misplaced.