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CMHC's Housing Forecast Misses What Matters: Why the Next Two Years Require Strategy, Not Pessimism
CMHC's Housing Forecast Misses What Matters: Why the Next Two Years Require Strategy, Not Pessimism
The Canada Mortgage and Housing Corporation just lowered its construction forecast to 200,000 to 225,000 annual starts through 2028. That number sits roughly 125,000 units short of what the federal government says we need to hit affordability targets. The immediate reaction has been predictable: hand-wringing about the market, concern about supply, alarm about unmet goals.
Nobody is asking the better question. Why are we treating a supply contraction as a planning failure when it's actually exposing a demand mismatch we've ignored for years?
The Condo Glut Is Not a Supply Problem
Toronto and Vancouver have a documented surplus of unsold, completed condominium units right now. Units that exist. Units nobody is buying. The pre-construction funding model that powered a decade of development, where investor deposits financed vertical construction before shovels hit dirt, has collapsed because the buyers can't close and the rent doesn't cover the mortgage.
CMHC is pointing to that surplus as a reason builders are pulling back. The standard reading is that excess inventory chills new starts. The structural reading is different: we built the wrong product at the wrong price point for a decade, and now the market is refusing to finance more of it. When a 47-year-old couple in Mississauga can't afford a three-bedroom townhome but developers keep launching 520-square-foot condos priced for yield-chasing investors, that's not a supply shortage. That's a product mismatch dressed up as market conditions.
The federal government's target of 3.87 million homes by 2031 doesn't specify what kind of homes. The arithmetic assumes units are fungible. They aren't.
Population Growth and the Circular Trap
The 2024 cap on temporary residents has already started to slow population growth, CMHC pegs 2025-2026 increases at 1.1%, down from the 3%-plus spikes in 2022 and 2023. Fewer people arriving means less rental demand, which means worse math for developers considering new builds.
Here's the trap: the federal government wants millions of new homes built while simultaneously tightening the immigration flow that provides both the construction labor and the end-user demand for those homes. You can't run the demand engine and the brake pedal at the same time and then blame developers for slowing down.
Builders aren't irrational. When a two-bedroom rental pencils to negative cash flow at current financing costs, and the policy environment signals softer tenant demand ahead, the decision to pause isn't pessimism. It's arithmetic.
Trade Tariffs Are a Floor, Not a Ceiling
U.S. protectionism has increased the cost of softwood lumber and steel components, two inputs you can't substitute out of residential construction. CMHC's forecast treats this as a headwind. It's actually a floor. Materials won't get cheaper under a trade war. Labor won't get cheaper as boomers retire out of the skilled trades faster than apprentices enter them. The $0 GST waiver on new purpose-built rentals was supposed to offset some of this. It hasn't, because waiving tax on a project that loses money at underwriting doesn't make the project viable.
The question isn't whether starts will recover in 2029. The question is what happens to prices and availability in the two-year gap while the private market sits this cycle out.
What Strategy Looks Like
Pessimism says the market is broken and we should panic. Strategy says the market is sending a clear signal and we should listen. If private developers won't build because the math doesn't work, the response isn't to bemoan their retreat. The response is to ask what changes the math: lower land costs, pre-approved zoning for missing-middle housing, public acquisition of shovel-ready sites, direct subsidies that actually move IRR calculations.
Mid-sized Prairie cities are seeing stable construction activity because land is cheap and two-story builds don't require the same financing leverage as 40-story towers. That's the model working. The Toronto condo model is the model broken.
The CMHC forecast is accurate. The federal target might not be. Treating a demand-supply mismatch as a supply crisis guarantees we'll build the wrong things in the wrong places for the wrong households, again. The next two years won't fix themselves with optimism. They'll fix with specificity: what we build, where, for whom, and who pays the gap between private IRR and public need.
CMHC's Housing Forecast Misses What Matters: Why the Next Two Years Require Strategy, Not Pessimism
The Canada Mortgage and Housing Corporation just lowered its construction forecast to 200,000 to 225,000 annual starts through 2028. That number sits roughly 125,000 units short of what the federal government says we need to hit affordability targets. The immediate reaction has been predictable: hand-wringing about the market, concern about supply, alarm about unmet goals.
Nobody is asking the better question. Why are we treating a supply contraction as a planning failure when it's actually exposing a demand mismatch we've ignored for years?
The Condo Glut Is Not a Supply Problem
Toronto and Vancouver have a documented surplus of unsold, completed condominium units right now. Units that exist. Units nobody is buying. The pre-construction funding model that powered a decade of development, where investor deposits financed vertical construction before shovels hit dirt, has collapsed because the buyers can't close and the rent doesn't cover the mortgage.
CMHC is pointing to that surplus as a reason builders are pulling back. The standard reading is that excess inventory chills new starts. The structural reading is different: we built the wrong product at the wrong price point for a decade, and now the market is refusing to finance more of it. When a 47-year-old couple in Mississauga can't afford a three-bedroom townhome but developers keep launching 520-square-foot condos priced for yield-chasing investors, that's not a supply shortage. That's a product mismatch dressed up as market conditions.
The federal government's target of 3.87 million homes by 2031 doesn't specify what kind of homes. The arithmetic assumes units are fungible. They aren't.
Population Growth and the Circular Trap
The 2024 cap on temporary residents has already started to slow population growth, CMHC pegs 2025-2026 increases at 1.1%, down from the 3%-plus spikes in 2022 and 2023. Fewer people arriving means less rental demand, which means worse math for developers considering new builds.
Here's the trap: the federal government wants millions of new homes built while simultaneously tightening the immigration flow that provides both the construction labor and the end-user demand for those homes. You can't run the demand engine and the brake pedal at the same time and then blame developers for slowing down.
Builders aren't irrational. When a two-bedroom rental pencils to negative cash flow at current financing costs, and the policy environment signals softer tenant demand ahead, the decision to pause isn't pessimism. It's arithmetic.
Trade Tariffs Are a Floor, Not a Ceiling
U.S. protectionism has increased the cost of softwood lumber and steel components, two inputs you can't substitute out of residential construction. CMHC's forecast treats this as a headwind. It's actually a floor. Materials won't get cheaper under a trade war. Labor won't get cheaper as boomers retire out of the skilled trades faster than apprentices enter them. The $0 GST waiver on new purpose-built rentals was supposed to offset some of this. It hasn't, because waiving tax on a project that loses money at underwriting doesn't make the project viable.
The question isn't whether starts will recover in 2029. The question is what happens to prices and availability in the two-year gap while the private market sits this cycle out.
What Strategy Looks Like
Pessimism says the market is broken and we should panic. Strategy says the market is sending a clear signal and we should listen. If private developers won't build because the math doesn't work, the response isn't to bemoan their retreat. The response is to ask what changes the math: lower land costs, pre-approved zoning for missing-middle housing, public acquisition of shovel-ready sites, direct subsidies that actually move IRR calculations.
Mid-sized Prairie cities are seeing stable construction activity because land is cheap and two-story builds don't require the same financing leverage as 40-story towers. That's the model working. The Toronto condo model is the model broken.
The CMHC forecast is accurate. The federal target might not be. Treating a demand-supply mismatch as a supply crisis guarantees we'll build the wrong things in the wrong places for the wrong households, again. The next two years won't fix themselves with optimism. They'll fix with specificity: what we build, where, for whom, and who pays the gap between private IRR and public need.
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