Canada’s real estate market is currently navigating an unprecedented period, characterized by a severe imbalance between housing supply and overwhelming demand. This dynamic is consistently driving up home prices, particularly in the nation’s most coveted urban centers. The challenge is multi-faceted, stemming from record population growth, shifting demographics, and long-standing policy approaches that have struggled to keep pace with an evolving housing landscape.
A recent report from Statistics Canada revealed that Canada’s population expanded by a record one million people in 2022, with international migration accounting for nearly all of this surge. This trend is set to continue, as the federal government plans to welcome an additional 1.5 million immigrants by 2025. Such ambitious immigration targets, while vital for economic growth and demographic stability, raise significant concerns about their impact on an already strained housing market. Statistics Canada itself acknowledges that this influx of newcomers presents “additional challenges for some regions of the country related to housing, infrastructure, and transportation.” The pervasive issue of insufficient supply has become a dominant theme in industry discussions, leading many to criticize governments for their perceived lack of foresight and concrete plans regarding housing development.
Understanding Canada’s Population Growth Drivers and Housing Demand
Canada’s robust immigration strategy is underpinned by several critical factors. Primarily, there is an acute need to fill a growing number of job vacancies across various sectors, addressing skilled labor shortages and supporting economic expansion. Additionally, Canada remains a welcoming haven for refugees fleeing regions devastated by natural disasters, conflict, and humanitarian crises. These humanitarian efforts, combined with economic imperatives, contribute to a consistently high demand for housing.
Brendon Ogmundson, Chief Economist at the BC Real Estate Association, succinctly captures the essence of the problem: “We don’t have adequate supply because of the relentless level of demand from huge immigration and population growth, aside from the millennials who have been here. All of these people need to live somewhere, and without the supply, we get a lot of bidding on scarce assets, which pushes prices up.” This statement underscores the dual pressure from both new arrivals and a significant domestic demographic entering prime homebuying years. Millennials, now the largest demographic in many provinces, are increasingly looking to settle down and start families, further intensifying the competition for available housing. This combined demographic force creates a continuous upward pressure on housing prices and rents nationwide.
The Critical Role of Housing Supply in Market Stability
The persistent shortage of housing supply is arguably the most significant factor driving Canada’s real estate challenges. As spring markets emerge, Canada’s most desirable cities once again face tight conditions, leading to rapid price increases. Toronto and Vancouver, in particular, are experiencing the squeeze most acutely. John Pasalis of Realosophy in Toronto highlights the direct consequence of this scarcity: “When you have 20 or 30 people bidding on each property, it’s going to push prices up… At the end of the day, people still needed housing, so part of (pricing) is just the overwhelming demand for homes that help fuel price growth.” This intense competition transforms the homebuying process into a high-stakes bidding war, often pushing properties far beyond their initial asking prices and making homeownership an increasingly distant dream for many.
Current Housing Supply Landscape in Key Markets
The impact of this mismatch between housing demand and supply is palpable, manifesting not only in rapidly rising home prices but also in escalating rental costs. Even amidst efforts to boost construction, the supply deficit persists.
For instance, according to the Canada Mortgage and Housing Corporation, Toronto witnessed its highest level of housing starts since 2012 in the past year, with 45,109 units completed in the Greater Toronto Area (GTA) – a 7.6% year-over-year increase. Despite this impressive figure, the GTA’s housing market remains notoriously tight. March supply levels were a stark 44.3% lower compared to March 2022, indicating that new construction is simply not keeping pace with the surging demand. This paradox of increased starts amidst dwindling available inventory underscores the sheer scale of the housing shortfall.
Vancouver faces similar, if not more severe, supply constraints. Last month saw a 35% decrease in new listings compared to March 2022, placing supply approximately 22% below the 10-year seasonal average. Brendon Ogmundson notes that even with sales volumes remaining 20-25% below historical averages, the critical lack of supply is once again triggering an uptick in prices. To illustrate, Vancouver had around 8,600 listings on MLS in March, which is more than 17% below the 10-year seasonal average. Ogmundson suggests that “15,000 to 16,000 listings is healthier,” highlighting the significant gap that needs to be closed. Despite this limited inventory, the Real Estate Board of Greater Vancouver reported an average price of $1.14 million for all residential properties in March – a 9.5% decrease from the peak of March 2022 but a 1.8% increase compared to February 2023, signaling a renewed upward trend.
The outlook remains concerning. Ogmundson warns, “It will only get worse, and at a time when (interest) rates are still at 20-year highs. Rates will come down, and we’ll have all that new immigration, and supply still can be low. My worry is that we’ll see prices rising again — 10% plus just isn’t healthy for the market.” Tom Davidoff, an associate professor and director of the Centre for Urban Economics and Real Estate at the University of British Columbia, reinforces this sentiment, explaining that despite continued construction completion, “There’s still a tremendous supply shortage in the sense that homes are beyond affordable for many, many households and that’s from lingering, lack of supply.”
Current Policy Responses and Their Effectiveness
Governments at various levels have attempted to address the housing crisis, though their approaches have often been criticized for misdiagnosing the core problem. Historically, policies in British Columbia, for instance, have focused on reducing demand through measures like the foreign buyer tax and the federal mortgage stress test. However, experts like Brendon Ogmundson believe this strategy misses the mark, as the primary driver of demand is not speculative foreign money but rather domestic demographic forces, particularly millennials who constitute the province’s largest demographic.
“It’s hard to fight that with any type of policy,” Ogmundson states. “The assumption over the past 10 years that it’s all foreign money, foreign capital for investment, is not the case. Demand is still really strong even with all that we’ve done on that side [to curb it].”
Vancouver real estate agent Steve Saretsky points out a critical flaw in current development trends: “Developers are building one and two-bedroom high-rises, which are great for investors and maximizing cash flow. But it’s not so great for young families who can’t afford single-family houses.” He emphasizes the “missing middle” in housing – the severe shortage of townhouses, duplexes, and row homes – which represents the largest segment of unmet demand. “We need to be building a lot more of that product and a lot less of these glitzy high-rises,” Saretsky asserts. Tom Davidoff adds that the lack of affordable housing, particularly rental affordability, disproportionately impacts lower-income households, making it a critical social issue.
Despite these challenges, there are signs of shifting policy. Davidoff notes, “I think we are certainly seeing policy responses, for better or worse. Making sure that what gets built is largely rental as opposed to owner-housing. There’s been a shift to upzoning, which is very healthy.” He commends the Province of B.C. for taking steps to ensure municipalities undertake their fair share of construction, citing the province’s Homes for People plan. This ambitious initiative commits $4 billion over three years and $12 billion over 10 years to build thousands of new affordable homes.
A significant proposed reform is the abolition of single-family zoning, particularly in dense urban areas like Greater Toronto and Greater Vancouver. Davidoff argues, “It’s nonsensical (single-family) would be public policy (but) provinces are making some steps in (the other) direction. Generally speaking, let the market build the housing it wants to build up to reasonable density limits.”
Ambitious targets have been set by some jurisdictions. Ontario, for example, aims to construct 1.5 million new homes by 2031. However, concerns abound regarding the feasibility of such aggressive goals, particularly given the ongoing shortage of skilled construction workers and potential industry bottlenecks. To facilitate this, the Ontario government has indicated a willingness to open up parts of the greenbelt, while the federal government has introduced a housing accelerator fund to boost supply. Toronto City Council, in December, approved a comprehensive housing plan to transform zoning bylaws, allowing multiplexes in areas previously restricted to single-family homes, legalizing rooming houses citywide, and targeting 285,000 new homes over the next decade.
Yet, skepticism remains. John Pasalis cautions, “In the past 10 (years), I think we built 650 (thousand homes). You cannot triple or double completions overnight—the construction sector is running at full capacity. What we’re actually seeing on the ground is our builders slowing down with new launches. Construction starts will actually trend down over the next year, not increase.” This underscores the systemic challenges within the construction industry that cannot be overcome solely by legislative changes or funding initiatives.
Government Perspectives on the Housing Challenge
There has been a notable shift in how Canadian governments perceive the housing crisis. Brendon Ogmundson observes less blaming of housing issues on speculators and foreign investors, even after the federal government introduced a foreign homebuyer ban (and subsequent amendments). This marks a departure from earlier narratives that primarily focused on curbing demand. Now, there’s a growing recognition and emphasis on addressing the supply side of the equation, which Ogmundson views as a positive, albeit belated, development.
Tom Davidoff has advocated for upzoning coupled with developer fees, proposing that politicians are often reluctant to embrace such market-based solutions. “I think there’s too much belief that government should achieve affordability by telling people how much they can charge rather than letting the market forces decide,” he argues. He suggests that while some people cannot afford market prices, the solution is not deeply subsidized units that only a few benefit from, but rather a broader systemic change.
Steve Saretsky points out that while governments are exploring subsidies for transit-oriented communities, the scale of action required—tying government funds to permits issued—is still insufficient. “There’s a lot of discussion around that politically right now… but no real action,” he laments, highlighting the gap between rhetoric and tangible implementation.
Realtors Navigating a Competitive Market
The persistent supply squeeze creates arduous conditions for Canadian realtors and their clients. Higher prices, intense bidding wars, and a sheer lack of available housing characterize daily operations. Realtors are working tirelessly to support clients through this challenging landscape, hoping for a more balanced market in the future.
John Pasalis advises that clients must be prepared to walk away if they are priced out of the market. “That’s what was happening way more in 2021 and 2022,” he recalls. “Right now, people who are in the market know what they can afford – prices aren’t increasing very rapidly. The challenge now is low supply, lots of buyers but not a lot of listings, making for a very competitive market.” This means buyers are informed but still face immense pressure.
Steve Saretsky observes that the homebuying process is taking significantly longer for many. “I think there are a lot of frustrated buyers out there and that’s why we’re seeing these multiple offers. People are stuck, throwing in the towel, and trying to find a house in the last six months [when] inventory hasn’t got any better. We thought it would, as it usually gets better in the spring, but it hasn’t, at least not yet,” he explains, capturing the widespread exhaustion and disappointment among prospective homeowners.
The Path Forward: Strategies for Sustainable Housing Solutions
The consensus among experts points towards a multifaceted solution centered on increasing affordable, dense housing through significant zoning reforms. This represents a monumental, yet crucial, goal for Canada’s future.
Brendon Ogmundson unequivocally states the immediate need for more housing. “We can either change neighbourhoods pretty dramatically with zoning and build more in what they call gentle density—row houses and the kind of thing you see in European cities—or we can keep things the way they are, and we’ll have status quo affordability, which no one is satisfied with.” He advocates for a shift towards development models that integrate seamlessly into existing communities while maximizing housing units.
Tom Davidoff reiterates his call for the abolition of single-family zoning, particularly in high-demand areas. “There’s way too much of it in the country, especially in Greater Toronto and Greater Vancouver. It’s nonsensical that would be public policy,” he asserts. He champions allowing market forces to build housing up to reasonable density limits, freeing developers from restrictive zoning. Furthermore, he proposes a system where density rights are sold: “Freeze the zoning you get for free at current regulations. Then, charge for extra density. If you want to build more, you have to pay for the right. And selling those density rights can be extremely lucrative.” This revenue, he suggests, could then be channeled into direct cash transfers to low-income households, providing effective support rather than relying on limited subsidized units.
Steve Saretsky underscores the necessity for greater political discussion and coordinated action across all levels of government. “You’ve got the federal government saying, ‘Here’s our immigration target. You guys at the municipal level can figure it out.’ So, you let a million people into the country and have no plan, no coordination for infrastructure,” he critically notes, emphasizing the disconnect between immigration targets and housing infrastructure planning.
While some new supply, particularly condos, is coming online, Saretsky cautions that it often doesn’t meet the needs of growing families. “The problem is a lot of that supply is condos… raising families in a two-bedroom condo is not really what we’re used to. It’s not ideal, so we’ll continue to see a lot of demand for three-bedroom townhouses, row homes and duplexes.” He expresses hope that municipalities will embrace more flexible zoning to permit and encourage the construction of these crucial “missing middle” housing types, which he believes will significantly alleviate price pressures.
Industry professionals like Saretsky, Pasalis, Ogmundson, and Davidoff are united in their call for innovative ideas and decisive action to tackle Canada’s housing supply crisis. While there is no single or simple answer, and the needs of each jurisdiction may vary, the path forward appears to lie in comprehensive zoning reforms that enable increased density and a greater diversity of housing types. Simultaneously, creative financial mechanisms, such as charging developers for upzoning, could generate vital funds to support desperately needed low-income rental housing. By fostering collaboration and adopting a long-term, supply-focused vision, Canada can hope to build a more equitable and affordable housing future for its growing population.