Canada’s housing market continues to face significant challenges, with millions of households experiencing what is termed as “core housing need.” A report from the Office of the Parliamentary Budget Officer (PBO) revealed that 2.4 million Canadian households are currently in this situation, a number expected to rise to 2.6 million by 2027.

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Understanding Core Housing Need

A household is considered to be in "core housing need" if their living conditions meet one or more of the following criteria:

• The home requires major repairs.
• The home does not have enough bedrooms for the household size.
• The combined cost of rent or mortgage (including utilities, property taxes, etc.) exceeds 30% of the household’s before-tax income.

In some cases, households are also considered to be in core housing need if the cost of renting or owning housing exceeds 30% of their income relative to the median cost of adequate and suitable housing in their area.

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Main Causes of Housing Shortage

The rise in core housing need has been primarily driven by two key factors:

1. Higher Interest Rates: In response to economic conditions, interest rates have increased, making mortgages and rents more expensive for Canadians.
2. Immigration and Housing Stock Adjustment: Canada has seen an influx of immigrants, but the housing market has struggled to adjust quickly enough to meet the demand, leading to increased competition and higher costs for housing.

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The Federal Housing Strategy

To address these issues, the federal government launched a 10-year national housing strategy in 2017, with the goal of reducing housing need for 530,000 households by 2027-28. This strategy has introduced initiatives like rent subsidies, support for community housing, and direct funding for construction and renovations.

Programs such as the Rapid Housing Initiative have also been launched, aiming to assist around 606,373 households by 2027. However, the report indicates that despite these efforts, Canada will still see a significant increase in core housing need by 2027. In fact, by that year, there will be approximately 926,000 more households in core housing need compared to 2017.

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The Strain of High Costs

The financial burden on renters has increased significantly in recent years. In 2023, rents for new tenancies rose by an average of 24.1%. This spike is largely attributed to a combination of increased immigration and the slow pace of new housing construction to accommodate the growing population.

However, the report also suggests that in the longer term, immigration will contribute to an increase in housing supply, which may help moderate rent prices. Additionally, a reduction in immigration from 2025 to 2027 is expected to alleviate some upward pressure on rents.

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Housing Strategy Spending

The national housing strategy has allocated substantial funds to address housing affordability. On average, Canada spends $6.1 billion annually on housing programs, a 50% increase compared to the previous decade. A significant portion of this spending has been directed to CMHC’s Financing for Housing programs, which have received a $1.3 billion annual increase in funding.

Despite these efforts, the challenge of meeting the housing needs of Canadians remains significant. The government’s housing initiatives have had a positive impact, but much work remains to be done.

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The Role of Private and Public Sectors

Kristen Devaney, Chief Financial Officer at PCI Developments, highlighted the importance of government programs like the Rental Construction Financing Initiative in enabling the development of affordable housing. However, Devaney also noted the ongoing challenges in the housing development process, including inflation, rising labor and material costs, and higher interest rates.

The collaboration between government and private sector efforts will be crucial in ensuring that sufficient housing supply is available to meet demand, particularly in the face of economic challenges.

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Conclusion

While Canada’s housing affordability crisis remains a pressing issue, significant efforts through federal programs are underway to address the growing need. However, the path to resolving the housing shortfall is long, and it will require continuous investment and coordination between all levels of government and the private sector. With demand continuing to outpace supply, the solution lies in balancing short-term relief with long-term strategies that can build sustainable housing solutions for Canadians across the country.