A daunting task is ahead if Canada is to close its housing gap, report suggests
A new report from the Parliamentary Budget Officer (PBO) projects that Canada will need to add 3.2 million net new housing units by 2035 to close the national housing gap. This would require an annual pace of construction exceeding the 2024 record high of 276,000 units for 11 consecutive years.
The report, titled Household Formation and the Housing Stock: Estimating the Housing Gap in 2035, provides a new projection that accounts for both demographic demand and “suppressed household formation”—the number of people who would form households if more attainable housing options were available.
A projected decline in formation
The PBO’s analysis suggests that household formation, which reached a historic high of 482,000 net new households in 2024, will decline sharply in 2025 and 2026. This is attributed to policy changes made by the government in 2024 to reduce immigration. The report projects that household formation will remain below its historical average of 176,000 until 2030, a trend that will bring the total number of households in Canada to 18.4 million in 2035.
Despite this projected decline, the PBO’s baseline outlook expects net housing completions to remain high for the next three years, averaging 256,000 units. After that, construction is expected to return to historical levels as lower immigration dampens demographic demand. Under this baseline scenario, the PBO projects that 2.5 million units will be added to the housing stock by 2035.
A stark difference in estimates
The report highlights a significant difference between the PBO’s housing gap estimate and that of the Canada Mortgage and Housing Corp. (CMHC). While the PBO estimates an additional 690,000 units are needed to close the gap, CMHC’s June 2025 report estimated a housing supply gap of 2.6 million units. The PBO’s breakdown of its 690,000-unit gap includes 714,000 units needed to address suppressed household formation and 248,000 to return the national vacancy rate to its historical average.
This disparity stems from how each organization defines the problem. The PBO’s estimate aims to return the national vacancy rate to its long-term historical average, while CMHC’s larger estimate is tied to a specific target for housing affordability. The PBO report states that CMHC’s affordability targets would require “significant overbuilding of new housing units,” which would lead to abnormally high vacancy rates and unoccupied second homes.
According to the PBO’s analysis, meeting CMHC’s target would require a total of 5.3 million new units by 2035, while the PBO’s own framework requires 3.2 million.
The challenge ahead
Closing the housing gap in Canada would require 3.2 million net new housing units by 2035, which translates into 290,000 units completed annually, on average. This would mean outperforming the 2024 record for more than a decade.
Based on the PBO’s estimates, this increase in housing stock would address a key driver of shelter costs, though it would not be enough on its own to resolve all affordability concerns, which are also influenced by factors such as household income, interest rates, and regional variations.
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