New CMHC analysis explores why Canada builds fewer homes than the U.S.

Canada’s housing shortage could look very different today if builders had been able to respond to rising demand as quickly as their American counterparts, new research from the Canada Mortgage and Housing Corporation (CMHC) suggests.

The federal housing agency estimates Canada could have built nearly 30 per cent more homes between 2006 and 2024 if its housing supply had reacted to demand the way it does in the United States. Home prices, meanwhile, could have been roughly 10 per cent lower.

The findings, outlined in a new analysis by CMHC chief economist Mathieu Laberge, point to a mix of regulatory, geographic and demographic factors that have limited Canada’s ability to add housing in some of its fastest-growing markets.

Why Canada lags behind

One of the biggest differences between Canada and the United States is how easily builders can bring new housing projects to market.

In many U.S. metropolitan areas, zoning and land-use rules are less restrictive, making it easier to increase housing supply when demand rises. In Canada, particularly in major cities, tighter regulations can slow development and limit the number of homes built.

Using CMHC’s Integrated Housing Model and drawing on research from the Organisation for Economic Co-operation and Development, researchers simulated what housing outcomes might have looked like if Canada’s housing supply had been as responsive as the U.S. market.

The result was a substantial increase in housing starts and a noticeable reduction in home prices.

Source: CMHC

The agency said previous research has linked restrictive zoning and land-use policies to higher housing costs and fewer new homes, especially in high-demand markets where rezoning approvals can be difficult to obtain.

Geography plays a role

Not all of Canada’s housing challenges stem from policy.

The report notes that many of the country’s largest cities face physical constraints that can make development more difficult. Vancouver is hemmed in by mountains and water, while Montreal’s island geography limits where growth can occur.

Those constraints stand in contrast to many Prairie cities, where land is more readily available. Edmonton, for example, has historically recorded higher housing starts per capita than many other large Canadian cities.

Canada’s population distribution also affects how the housing market functions.

Unlike the United States, where workers can often relocate to another large city with similar employment opportunities, Canadians have fewer alternatives when housing costs rise in major urban centres.

Someone priced out of New York may find comparable career opportunities in cities such as Chicago, Dallas or Philadelphia. Canadians working in Toronto have a much shorter list of realistic alternatives, particularly when housing costs in Vancouver are also among the highest in the country.

That concentration of people and jobs in a handful of cities can reduce pressure on the housing industry to respond quickly to changing demand, the report argues.

Similar productivity challenges

The comparison is particularly notable because Canada’s residential construction sector has experienced many of the same productivity challenges as the United States.

Both countries have seen long-term declines in construction labour productivity, with only temporary improvements during the COVID-19 pandemic. Yet despite those similarities, the U.S. housing industry has generally been quicker to ramp up construction when demand increases.

The findings suggest broader structural factors may be playing a larger role in housing outcomes than productivity alone.

Reforms may pay off over time

CMHC cautioned that making Canada’s housing supply more responsive will not happen overnight.

Still, the agency said recent government initiatives could help improve housing outcomes in the years ahead.

Among them is the Housing Accelerator Fund, launched in 2023 to help municipalities reduce red tape and speed up approvals for new housing. Several cities have already introduced changes aimed at lowering regulatory barriers to construction.

CMHC also pointed to the federal government’s Build Canada Strong agenda, which includes investments in housing, infrastructure and economic development.

While the benefits of those reforms may take years to materialize, the agency said measures that make it easier and faster to build homes could gradually improve affordability and help Canada’s housing market respond more effectively to future demand.

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