Canada is projected to fall short of its housing needs by nearly 700,000 homes by 2035, according to a report released by the Parliamentary Budget Officer (PBO) on Tuesday. The country requires 3.2 million new homes over the next decade to address the housing gap, but current estimates suggest only 2.5 million homes will be built during that time.

The PBO's analysis indicates that while new home construction is expected to increase in the next three years, it will eventually revert to historical averages. The report anticipates an average of 227,000 new homes will be completed annually over the next ten years. This projection leaves a significant shortfall of approximately 700,000 homes.

Demand for housing may see some relief due to recent changes in immigration policy, which have reduced the number of newcomers to Canada. The government has lowered its targets for permanent residents in 2025 and 2026, as well as the number of temporary residents and international students allowed into the country. In 2024, Canada saw a record formation of 482,000 new households, but the PBO estimates that this number will decline to an average of 159,000 new households per year from 2025 to 2035.

The PBO report highlights that the current vacancy rate in Canada is at 3.3 percent, significantly below the historical average of 6.4 percent from 2000 to 2019. To fully close the housing gap, the country would need to construct about 290,000 homes annually for the next decade, a level of construction that has never been achieved in a single year.

In contrast, the Canada Mortgage and Housing Corporation (CMHC) has estimated that Canada needs between 430,000 and 480,000 new homes each year to restore housing affordability. Aled ab Iorweth, the CMHC’s deputy chief economist, noted that their methodology incorporates regional differences and population movements, which can significantly impact housing demand.

The PBO's findings suggest that if the housing gap is not addressed, vacancy rates could rise to 13 percent by 2035, leading to an excess of unoccupied homes. The report emphasizes that the current pace of construction must increase dramatically to meet the growing demand for housing in Canada.