The Trudeau government’s promise of 3.87 million new homes is next to impossible

Open this photo in gallery:

The centrepiece of last week’s federal budget was the Trudeau government’s plan to build 3.87 million homes by 2031. Canada Mortgage and Housing Corp. estimates that 1.87 million homes are already going to be built – and Ottawa aims to more than double that pace.

How likely is that? Not very.

There are two extremely large obstacles: labour and capital.

Canada already has a record number of people employed in construction. Almost 1.6 million Canadians work in the sector, or 7.8 per cent of the labour force. Both figures are historic highs.

Also already at all-time highs: construction. There were 773,00 housing starts between 2021 and 2023 – more than any other three-year period in Canadian history.

Ottawa’s new housing policies could help to somewhat lower the cost of building. They will also nudge provinces and cities to make it easier to build. But doubling the pace of building, quickly, would almost certainly mean finding hundreds of thousands of new construction workers, immediately. Where’s the plan for that?

“I think the government miscalculated the labour constraint,” National Bank of Canada chief economist Stéfane Marion told me.

I asked Mike Moffatt, an economist who has advised the government on housing, what he thought of the work force challenge. “Labour shortages won’t be the issue,” he wrote in an e-mail. “The sector will run out of capital before it runs out of labour.”

That’s because Canada’s economy is already heavily tilted to residential real estate. Last year, 8 per cent of Canada’s gross domestic product came from homebuilding. That’s double the U.S. level. It’s nearly double the average of countries in the Organization for Economic Co-operation and Development.

“An extra two million homes will require at least an additional $1-trillion in investment,” wrote Mr. Moffatt. “A trillion dollars isn’t exactly easy to come by.”

An extraordinarily high share of our national wealth is already invested in housing rather than in productive business assets. In 2022, 37.9 per cent of Canada’s gross fixed capital formation – investment in assets – was tied up in dwellings. That’s the highest level in the OECD.

And the Trudeau government’s unreachable building target may aim too low. To achieve affordability solely through more housing, CMHC last year said the number of homes needed could be almost six million. CIBC economist Benjamin Tal pegs the shortfall at closer to seven million.

The logical conclusion is that we can’t build our way to affordability, at least not any time soon. Ottawa has to lean harder on the demand side of the equation. That means significantly reversing the unprecedented spike in the number of temporary residents. Population growth has to come down – way down.