Carney’s 500,000-home-a-year plan likely to “fall short”: TD report

Carney’s plan to build 500,000 new homes annually within a decade was a key element of his election campaign. However, a new TD Bank report says his plan is “likely to fall well short” of the target.

Carney’s plan to build 500,000 new homes annually within a decade was a key element of his election campaign. However, a new TD Bank report says his plan is “likely to fall well short” of the target.

Legacy media dubbed his plan to more than double the annual rate of building new homes “the most ambitious housing plan in Canada since the Second World War.” However, a new Toronto-Dominion Bank report calls the plan “untenable.”

TD released the report on Tuesday, estimating that Carney’s current policy suggestions to bring housing affordability back to pre-pandemic levels face several challenges. Rishi Sondhi, an Economist and author of the report, projected that new housing starts will instead decline by 30,000 by 2026.

If successful, Carney’s plan would set a record, doubling Canada’s previous high of 260,000 homes built in the mid-1970s and surpassing the current rate of 245,000 homes built last year.

His predecessor, Justin Trudeau, similarly pledged to break housing start records, though housing production continued to decrease under his watch.

His strategy is to cut GST on new homes for first-time homebuyers, reduce development charges by 50 per cent, use tax incentives, and invest nearly $40 billion into the prefabricated home industry with the federal Liberal government’s new Build Canada Homes Crown corporation.

As reported previously by Juno News, Carney’s old Brookfield Asset Management stands to gain billions from his housing plan due to investments in prefabricated modular homes. Carney also held shares valued at approximately $6.8 millionbefore running for office and placing his funds in a blind trust.

“These measures are likely to fall well short of closing the gap between what is currently completed and what the government is targeting,” Sondhi said in the report. “However, bringing annual completions to 500k may not be necessary to restore affordability to more reasonable levels. Our analysis suggests that 400,000 may do the trick. Granted, that’s still a tall order.”

Sondhi said reaching the lowered bar of 400,000 would require Canada’s residential construction workforce to expand by 16 per cent annually, but that the likelihood of achieving that increase is “untenable.”

The report claims that as more Canadians retire from the construction industry, the industry will face a 108,000-person shortage by 2034, not a boom, if all things remain the same. Sondhi said that even if the residential construction labour force rose by one per cent per year, productivity would have to increase by 50 per cent to hit 400,000 units annually in 10 years.

“In the short-run, homebuilding will be challenged by a myriad of factors, including elevated construction costs, economic uncertainty, rapidly slowing population growth, oversupply in the GTA condo market, and past declines in home sales,” Sondhi said. “Accordingly, we see the level of Canadian housing starts dropping from 245k units last year to about 215k by 2026.”

A massive focus for Carney’s housing plan is the Build Canada Homes company, which aims to act as a housing developer and finance prefabricated and affordable home builders. The report finds that modular homes currently represent only four to six per cent of Canada’s housing construction. However, his prefabricated home plan could speed up construction timelines by 50 per cent and cut costs by 20 per cent.

The report notes that for prefabricated homes to speed up construction and lower costs, there will have to be a “significant and stable” demand increase for the prefabricated home industry to “scale up.” Other international jurisdictions, such as Japan, however, have increased their housing stock using prefabricated homes after World War II.

The Japanese government used a mix of policies, such as doling out low-cost loans to stimulate supply and providing incentives to increase demand.

Along with transportation costs, the report indicated that the unique building designs across the over 5,000 municipal and provincial jurisdictions in Canada could pose an issue for mass production, as mass production of prefab homes works best when it’s all the same design.
“Most parts of the Liberal plan should add to the nation’s housing supply, but not enough to hit the half-million target,” the report said. “Prefabricated housing can lift productivity. However, the industry is currently small, and scaling up will require a sustained effort on the part of the federal government, if international experience is a guide.”