Reassessing Canada's Housing Shortage: Missteps in Measuring Demand and Supply
Canada’s housing market is saturated with a narrative of housing stock shortfall, with institutions like TD Bank, National Bank of Canada, and the Fraser Institute sounding alarms about an escalating housing crisis.
Their analyses frame housing starts (or completions) as falling woefully short of population growth, presenting an image of an acute housing shortage with dire consequences for affordability. Yet, these critiques reveal significant methodological oversights.
They may overstate the deficit by neglecting to consider nuanced household formation dynamics and housing stock turnover. This article critiques these analyses and integrates alternative perspectives, including a compelling new assessment by Mortgage Sandbox.
The Core Flaws in Mainstream Analyses
Misguided 1-to-1 Comparison
The central critique of TD Bank and Fraser Institute reports lies in their simplistic reliance on a 1-to-1 comparison between annual population growth and housing completions. For example, the Fraser Institute notes that 2022 population growth outpaced housing completions by 4.7 people per unit, the most significant ratio in decades. This metric, though striking, is fundamentally flawed. As of the 2021 Census, the average Canadian household consists of 2.4 people, meaning fewer homes than people are typically needed to meet demand.
Such analyses implicitly assume that every new individual requires a separate housing unit, ignoring the composition of families, shared accommodations, and other living arrangements. Immigration patterns further complicate this picture, as many new arrivals initially reside with family or in group settings, which reduces immediate housing demand. Those 4.7 people represent two households.
Failure to Account for Housing Turnover
Another glaring omission is the failure to integrate data on housing stock turnover. Housing completions represent the creation of new units, but they ignore units lost to demolition or conversion. According to the Canada Mortgage and Housing Corporation (CMHC), accurate estimates of housing stock growth must subtract units lost to obsolescence. Without this adjustment, any calculation risks overestimating the shortfall.
Additionally, aging populations, particularly baby boomers, represent a latent supply source. Many live in underutilized homes and are expected to downsize or move to assisted living facilities in the coming decade. This demographic shift could release a significant number of homes to the market.
Mortgage Sandbox’s Counter-Narrative
Mortgage Sandbox challenges the dominant discourse, arguing that Canada may have built a housing surplus up until 2024. Even in 2024, with an unprecedented population surge, there should have been enough housing stock, based on historical population-to-housing ratios and demolition-adjusted housing stock.
The problem, likely, is that there isn’t enough of the right type of housing stock for current buyers. The average household size is 2.4, and most new housing stock is studios and one-bedroom apartments. For many families who need more space, the mismatch means the competition for any larger homes hitting the market will be fierce.
See the file at this link to review our analysis.
The housing crunch could be partly or wholly mitigated by several emerging trends.
Record Levels of Construction
Markets like Victoria, Vancouver, Kelowna, Edmonton, Calgary, London, Toronto, and Ottawa have record or near-record levels of housing construction. Many of these units will be completed over the coming 18 months.
Hamilton, Ottawa, and Montreal still have high levels of construction, they are just lower than in the past 3 years.
A Recalibrated Housing Stock
Mortgage Sandbox redefines what constitutes adequate housing growth by incorporating demolitions, conversions, and the 2.4-person household metric. Our analysis indicates that Canada has maintained a housing surplus for much of the last two decades.
Government Policies and the Path Forward
Immigration Adjustments
The federal government has recently revised its immigration policies to moderate housing demand. These include:
Reduced Immigration Targets: Lowered permanent resident goals for 2025–2027 focus on skilled workers and current residents, slowing the influx of new housing demand.
International Student Caps: A phased reduction in study permits limits the rapid population growth linked to educational migration. In 2023, Canada had over 1 million international students with valid study permits, a 29% increase from the previous year.
Labour Market Alignment: Reforms to the Post-Graduation Work Permit and Temporary Foreign Worker programs ensure immigrants contribute effectively to economic and housing stability.
These policies acknowledge that uncontrolled population growth strains infrastructure, including housing.
Unlocking Baby Boomer Housing
As life expectancy trends suggest, baby boomers are entering an era of “right-sizing.” Downsizing by this cohort could release many single-family homes into the market. Statistics Canada data underscore that the average Canadian man and woman will reach their early 80s, aligning with expected timelines for major housing transitions.
Read: Baby Boomer Retirement Tsunami
Read: City of Toronto — Right-Sizing Housing and Generational Turnover | Report for Action
The Affordability Lens
The National Bank’s recent affordability report adds another layer to this discussion. Although it documents slight improvements in affordability, largely due to falling interest rates, it underscores the chronic imbalance between incomes and housing costs. Detached homes remain unattainable for most new Canadians, suggesting that larger floorplans are in short supply.
Moreover, government measures such as extended amortization periods don’t help the supply problem; they increase how much debt Canadians can take on while they compete against each other for limited supply. Ultimately, the buyer with the deepest pockets still wins in a bidding war — with a little more debt and a higher purchase price than before the extended amortization policy was implemented.
A Balanced Perspective
While the TD Bank and Fraser Institute’s warnings are not without merit, their methodologies require refinement to truly capture Canada’s housing market dynamics. A nuanced understanding of household size, stock turnover, and emerging demographic trends provides a clearer picture of supply adequacy.
Mortgage Sandbox’s recalibration offers a new lens through which to examine the problem, suggesting that Canada’s housing deficit may be less severe than feared.
However, it is important to acknowledge that extreme imbalances may persist in specific “in-demand” regions such as Greater Toronto and Greater Vancouver. While Mortgage Sandbox’s analysis focuses on national-level trends, it has not examined these high-demand areas in detail. Similarly, the other analyses fail to evaluate these markets using a methodology that accounts for household formation or the impact of teardowns and conversions. These omissions are particularly problematic in regions where housing affordability and availability are most strained, emphasizing the need for localized studies to complement broader assessments.
Looking ahead, Canada must pursue a twin strategy of targeted housing construction and smart policy interventions.
With an aging population, evolving immigration policies, and a keen focus on affordability, the country has the tools to avert a housing crisis. However, policymakers can only craft solutions that reflect reality by addressing the methodological oversights in current analyses.
