Report says fewer new homes needed, but Canada's housing crisis far from over

There is some relief from Canada’s housing crisis on the horizon says a new report from Oxford Economics, which says 500,000 fewer homes than it originally forecast will be needed in Canada over the next 10 years. 

Oxford bases its prediction on a move by the Liberal government last October, which lowered its immigration target levels for permanent resident admission to Canada to fewer than 400,000 annually between 2025 and 2027. That’s a 20% decline from the government’s previous target. 

The levels set last fall are 395,000 permanent resident admissions in 2025, reducing to 380,00 in 2026 and 365,000 in 2027. 

The Oxford report says Canada’s population is expected to decline to 41.1 million in 2026 from 41.3 million in 2024, marking its first decline since Confederation in 1867, leading Oxford to revise its household formation forecast down from 2.9 million to 2.5 million between now and 2035. 

“Overall, this means about 500,000 fewer homes will need to be built to rebalance the housing market by 2035 than we previously estimated,” write the report’s authors, economist Michael Davenport and Tony Stillo, director of Canada economics at Oxford. 

The immigration targets introduced in October include reducing the share of temporary residents to 5% of the population by the end of 2026, which Oxford says will lead to a net outflow of 445,000 temporary residents each year over the next two years. 

The targets for new temporary residents arriving in Canada were set at 673,650 this year, 516,600 in 2026 and 543,600 in 2027.  

The Oxford report forecasts the decline in immigration levels will result in 1 million fewer people, roughly 2%, living in Canada by 2030 compared to previous estimates. 

It takes some pressure off the need for new housing, but will also slow GDP growth this year by 0.1 percentage point to 1.3%, says Oxford, returning to a growth rate of 1.7% next year and 2027, still 0.5 percentage points lower than previously expected. 

“We think weaker growth in consumption and housing due to a smaller population will dampen the boost to Canada’s economy from lower interest rates and stronger global demand,” says the Oxford report, adding the reduction of housing needs will contribute to closing the current housing supply gap, a critical element of the country’s housing crisis. 

“Accordingly, we now project a less daunting wave of new homebuilding in the coming decade,” says the report. 

The Canada Mortgage and Housing Corporation says last year, builders started 245,120 homes, up from 240,267 in 2023. The winter months are the slowest for new home starts, with numbers increasing in March and April. 

Oxford sees construction of new homes increasing, based on a further decline of interest rates, stabilizing building costs and government initiatives introduced in the last two years taking effect, which should prevent rapidly escalating prices, but a full solution to the housing crisis isn’t likely on the horizon. 

“We expect stronger growth in housing supply than demand over the medium term will cause house prices to rise at a slower pace than incomes on average,” says the report. “However, even with a smaller population over the next two years and slower population growth thereafter, we still think it will take around a decade to restore housing affordability at the national level.”