Canada Faces 3.2 Million Home Shortage: PBO Report Signals Challenges for Mortgage Market
OTTAWA, August 26, 2025 – A recent report from the Parliamentary Budget Officer (PBO) has highlighted a daunting challenge for Canada’s housing and mortgage markets, estimating that the country needs to build 3.2 million new homes over the next decade to close the housing gap. However, current construction trends suggest Canada is not on track to meet this target, potentially intensifying pressure on housing affordability and mortgage demand.
The PBO’s analysis projects that an average of 227,000 new homes will be completed annually over the next 10 years, totaling approximately 2.5 million homes. This leaves a shortfall of nearly 700,000 homes compared to the 3.2 million needed to meet demand. To fully close the gap, Canada would need to build around 290,000 homes per year—a figure that exceeds the record 276,000 homes completed in 2024.
Impact on the Mortgage Market
The housing shortage has significant implications for the mortgage industry. With demand outpacing supply, home prices are likely to remain elevated, making it harder for first-time buyers to enter the market. The historically low vacancy rate of 3.3% in 2024, compared to the 2000–2019 average of 6.4%, has already contributed to soaring home prices, pushing many prospective buyers to seek larger mortgages or delay homeownership altogether.
“High demand and limited supply continue to drive up home prices, which directly affects mortgage affordability,” said Aled ab Iorweth, deputy chief economist at the Canada Mortgage and Housing Corporation (CMHC). “This gap means more Canadians are stretching their budgets, taking on larger loans, or being priced out entirely.”
The PBO report notes that reduced immigration targets may ease some demand, but the record-high formation of 482,000 new households in 2024 indicates that housing needs will remain strong for years. The PBO expects household formation to slow to an average of 159,000 per year from 2025 to 2035, but this will not fully alleviate the pressure on the housing market.
Contrasting Projections and Affordability Challenges
The PBO’s estimate differs from the CMHC’s June report, which suggested Canada needs 430,000 to 480,000 new homes annually to restore affordability to pre-COVID levels. The PBO argues that such a high construction rate could lead to a 13% vacancy rate by 2035, resulting in an oversupply of unoccupied homes. This discrepancy highlights differing methodologies, with the CMHC factoring in regional population shifts and homeowners upgrading properties, such as moving from condos to detached houses.
For mortgage lenders, the housing shortage creates a complex landscape. While high demand fuels lending opportunities, it also increases the risk of over-leveraged borrowers. “Lenders are seeing more clients seeking pre-approvals for higher loan amounts, but with rising interest rates and stricter qualification criteria, approvals are becoming tougher,” said a spokesperson for a major Canadian bank.
Policy Implications and Market Outlook
The PBO report does not account for recent federal commitments, such as the Liberal government’s spring election promise to double housing construction. PBO Yves Giroux emphasized that the success of these initiatives depends on effective implementation by federal, provincial, and municipal governments.
For prospective homebuyers, the outlook remains challenging. “Affordability is a moving target,” said ab Iorweth. “We’re seeing population growth in more affordable regions like Calgary and Edmonton, but in high-cost cities like Toronto and Vancouver, the gap between income and home prices continues to widen.”
Mortgage brokers are advising clients to explore options like longer amortization periods or co-ownership models to navigate the market. Meanwhile, industry experts urge governments to streamline zoning regulations and incentivize construction to boost supply.
As Canada grapples with this housing shortfall, the mortgage market will face ongoing pressure. Without significant policy interventions, the dream of homeownership may remain out of reach for many Canadians, even as interest rates and lending conditions evolve.
This article is based on a report by The Canadian Press, first published on August 26, 2025.