Canada faces an unprecedented housing construction challenge that will require sustained record-breaking building activity for the next decade. The Parliamentary Budget Officer's latest analysis reveals that the country needs 3.2 million new homes completed by 2035 to address the current housing shortage, even with immigration levels declining.

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Record-Breaking Construction Pace Required

The Parliamentary Budget Officer projects Canada needs an additional 690,000 new homes completed by 2035 to close the existing housing gap. This translates to approximately 65,000 extra units annually on top of the 2.5 million net completions already projected during this period. The PBO expects the average number of new households to be 159,000 a year between 2025 and 2035, representing a significant decline from recent highs. Despite this reduced household formation, the existing supply deficit requires massive construction increases. To meet total demand, Canada requires 227,000 new homes annually through 2035. This pace would need to match or exceed the record 276,000 homes completed in 2024 for eleven consecutive years. Such sustained high-volume construction has never been achieved in Canadian history.

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Current Construction Trends and Projections

Housing completions reached historically high levels in 2024, driven by years of accumulated demand and immigration-fueled population growth. The Parliamentary Budget Officer expects construction activity to remain elevated over the next three years before returning toward historical averages as lower immigration reduces immediate demand pressure. Canada experienced a record 482,000 new household formations in 2024, but this number is projected to decline sharply in 2025 and 2026. Household formation rates are expected to remain below the historical average of 176,000 until 2030, providing some relief for construction requirements.

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Years of Underinvestment Created Current Crisis

The current housing shortage stems from years of underinvestment in residential construction combined with rapid immigration-driven population growth. This combination created severe supply shortages across major Canadian markets and contributed to significant economic stress through housing affordability challenges. The federal government responded in 2024 by revising immigration plans and reducing targets for permanent residents, international students, and temporary foreign workers. These policy changes aim to balance housing demand with available supply while construction capacity catches up.

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CMHC Analysis Confirms Massive Supply Gap

Canada Mortgage and Housing Corporation conducted its own analysis in June 2024, estimating a housing supply gap of 2.6 million units nationwide. CMHC calculated this as the additional homes required to restore housing affordability to 2035 levels. Under CMHC's business-as-usual scenario, the housing agency projected 2.7 million unit completions between 2025 and 2035. This represents an average of 245,000 net completions annually, still falling short of the Parliamentary Budget Officer's requirements. The discrepancy between different analyses highlights the complexity of addressing Canada's housing shortage and the significant construction increases required under any scenario.

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Market Recovery Faces Multiple Headwinds

Canada's housing market showed early recovery signs in 2024 but has remained subdued in recent months. Consumer and business concerns about U.S. trade policy changes and import tariffs imposed by the Trump administration have dampened market activity. Resale markets have been particularly weak in Ontario and British Columbia, traditionally Canada's most active real estate regions. Even oil-rich Alberta, previously showing strength, now displays signs of cooling according to Canada Mortgage and Housing Corporation's latest industry outlook. The housing agency expects market recovery to begin in 2026 as economic fundamentals and confidence improve. However, housing starts will likely react more slowly as developers remain cautious and financing conditions stay tight.

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Financing and Development Challenges

Sustained record-level construction faces significant obstacles beyond market demand. Financing conditions remain challenging for developers, with higher interest rates increasing project costs and reducing profitability margins. Many developers are adopting cautious approaches to new project launches. Labor shortages in construction trades present another major constraint on achieving required building levels. The industry must attract and train significant numbers of skilled workers to support sustained high-volume construction activity. Material costs and supply chain issues continue affecting construction timelines and project economics. These factors could limit the industry's ability to achieve the ambitious construction targets outlined in the Parliamentary Budget Officer's analysis.

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Okanagan Region Housing Construction Update

The Okanagan Valley presents a microcosm of broader Canadian housing challenges, with significant construction activity but ongoing supply constraints. Kelowna led the Thompson-Okanagan in housing construction in 2024, with a significant uptick in new builds, particularly in high-density housing. According to the Chartered Professional Accountants of British Columbia (CPABC), the city saw a 27.6 per cent increase in housing starts last year, demonstrating the region's strong construction momentum. This growth primarily focused on multi-family developments and condominium projects responding to local demand. However, mortgage rates have eased from their peak but remain high relative to the 2010–2020 average, limiting buyer budgets in the Okanagan. Multi-factor analysis identifies the Okanagan as a higher-risk real estate market, reflecting broader economic uncertainties affecting regional construction planning.

The Okanagan housing market mirrors national trends with forecast of 84,500 home sales in 2025 provincially, representing projected growth from 2024 levels. Regional construction must balance this sales growth with available inventory and affordability constraints.

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Long-Term Economic Implications

Meeting the 3.2 million housing unit target requires unprecedented coordination between federal, provincial, and municipal governments. Regulatory streamlining, zoning reforms, and infrastructure investments will be essential to support sustained high construction levels. The increased construction and decreased demand will eventually combine to correct the historically low vacancy rate that contributed to soaring home prices in recent years, according to the Parliamentary Budget Officer analysis. Success in meeting these construction targets could significantly improve housing affordability across Canada. Failure to achieve these levels will likely perpetuate current affordability challenges and potentially worsen housing market conditions for both buyers and renters.

The scale of construction required represents both a significant economic opportunity and a substantial challenge for Canada's building industry. Achieving these targets will require sustained commitment, investment, and policy coordination at all levels of government.

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The construction boom ahead will create both opportunities and challenges for buyers and sellers in the Okanagan region. Whether you're looking to purchase your first home, upgrade to accommodate growing needs, or invest in new construction projects, having expert local guidance is essential. For expert guidance navigating these complex market shifts, contact Coldwell Banker Horizon Realty today.