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Canada's housing plan 'bumping up against' capacity restraints, interest rates

Canada's ambitious housing plan, unveiled by the federal government last month, faces significant challenges, according to a recent report from TD Economics. The plan aims to tackle housing affordability by implementing measures targeting both supply and demand aspects of the housing market. However, TD Bank Economist Rishi Sondhi suggests that these efforts are "bumping up against" capacity restraints and may not have a substantial impact as intended.

The plan sets an ambitious goal of constructing 3.87 million new homes by 2031, necessitating years of robust homebuilding. However, Sondhi points out that this goal faces hurdles such as elevated interest rates and capacity constraints in the construction industry.

On the demand side, the report questions the wisdom of stimulating demand in the face of poor affordability conditions. Measures aimed at boosting demand are not expected to significantly alter housing forecasts.

Nevertheless, the plan does aim to enhance construction productivity, which has lagged in the industry for years. This could be a positive development for an industry grappling with productivity challenges.

One notable aspect of the plan is the intention to lower the percentage of non-permanent residents in the overall population by 2027. While this could have a considerable impact on rent growth, it may also pose challenges for investors, as a significant portion of home purchases are currently made by investors.

Regarding supply-side measures, the plan seeks to increase housing starts, but achieving the target of 550,000 new units annually is deemed daunting. Capacity constraints, labor shortages, and competition with non-residential projects pose significant challenges to ramping up homebuilding.

Furthermore, the plan's success relies on coordination with other levels of government, which adds complexity to its implementation. Provinces have expressed concerns about various aspects of the plan, including funding allocation and coordination of efforts.

In summary, while Canada's housing plan aims to address affordability issues through a comprehensive approach, it faces formidable challenges on both the supply and demand fronts, which could impact its effectiveness in achieving its goals.



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