New CMHC modelling shows broad demand-side fixes can worsen Canada’s housing crunch
Canada’s housing agency sharpened its warning that poorly designed demand-side support for buyers risks doing more harm than good in an already stressed market, even as supply remains far short of what is needed to restore affordability.
Canada Mortgage and Housing Corporation (CMHC) estimated that Canada needs about 3.5 million additional homes by 2030, on top of current construction projections, to get back to early‑2000s affordability levels.
In a new analysis, Mathieu Laberge, chief economist and senior vice-president, housing insights at CMHC, focused squarely on the trade‑off between short‑term buyer relief and longer‑term price pressures.
Demand‑side interventions, he argued, have often been favoured because their impact appears quickly compared with the multi‑year timeline of new construction.
But CMHC’s latest modelling suggests that when those measures are not tightly targeted or backed by fresh supply, they end up eroding affordability for many of the households they were meant to help.
“Demand-side interventions, which directly help households secure housing, are often favoured because of their more immediate impact,” Laberge said.
“A basic principle of supply and demand shows that if demand increases without proportionate supply, prices will increase.”
He added that CMHC’s new modelling showed this dynamic “occurs with housing demand-side interventions” and that over time they “may worsen housing affordability, instead of improving access to housing.”
Laberge said well‑intentioned measures could unleash “pent‑up demand” as young adults left parents’ homes or shared apartments once extra support improved their purchasing power.
In a tighter market, that shift represents “immediate new demand for housing,” he said, while extra construction lagged.
“This puts renewed upward pressure on prices for all households, not only those benefitting from the intervention, thus reducing affordability for those not benefitting from it.”
In one CMHC scenario, support is extended to about 20% of potential buyers. Beneficiaries see their monthly mortgage payments fall by roughly 4%, and 17,000 people initially attain homeownership.
But prices for other buyers rise about 0.6%, with the intervention carrying an estimated $2.7 billion to $4.3 billion in direct fiscal cost and $1.6 billion in unintended higher housing costs for households that received no help.
A broader scenario, covering 70% of potential buyers, amplified those side‑effects. Laberge said that while 76,000 new households were created at the peak and 52,000 people accessed ownership, other homebuyers faced a 2.1% price increase.
The total economic cost climbs to between $9.3 billion and $11.4 billion in direct spending, plus $2.1 billion in higher costs for unsupported buyers.
“While they support access to homeownership for a select group, they impose costs on a much larger number of households,” he said.
Targeting and matching supply
CMHC’s modelling pointed to two safeguards.
“The first one is to target interventions as strategically as possible, to those with the greatest need,” Laberge said, arguing that narrower programs limit demand shocks while delivering higher social value per dollar spent.
“The other way to mitigate the adverse effects of demand-side interventions is to match them with proportionate supply, to offset the impact of increased demand on prices,” he said.
In the limited scenario, CMHC estimated that about 7,800 extra housing starts per year would have offset the demand boost; in the broader scenario, the requirement rose to roughly 28,000 annual starts – implying a 3% to 11% jump in activity, broadly in line with CMHC’s earlier supply-gap estimates.
Those findings arrived as multiple forecasts suggested Canada is still falling well short of the build‑rate needed to close the gap. CMHC’s recent housing outlook pointed to a prolonged slowdown in homebuilding through 2028, even as the agency maintained that roughly 3.5 million extra homes are required by 2030 to restore affordability.
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