CMHC: Red tape reduced housing starts 30%

Key Takeaways:

• Restrictive land use regulations and structural factors between 2006 and 2024 resulted in Canadian housing starts being nearly 30% lower than their economic potential.
• Eliminating historic municipal development backlogs and rigid zoning rules over the two decade period would have lowered current Canadian home prices by approximately 10%.
• The high concentration of economic opportunities in just a few large Canadian cities reduces the competitive pressure on the residential construction industry to supply housing rapidly.

The Whole Story:

A new structural analysis released by the Canada Mortgage and Housing Corporation (CMHC) reveals that Canada’s housing starts could have been nearly 30% higher between 2006 and 2024 if the domestic housing industry possessed the regulatory flexibility of the United States. The federal housing agency’s report notes that enabling a more rapid response to supply demands over this nearly two-decade period would have resulted in benchmark home prices being close to 10% lower across the country today.

The comparative study, authored by CMHC Chief Economist Mathieu Laberge, identifies land use regulation as a primary bottleneck delaying Canadian residential development. In many major American metropolitan areas, fewer zoning laws, streamlined municipal approval pipelines, and reduced land use constraints allow developers to scale construction quickly as population demands rise.

Conversely, tighter municipal regulations and restrictive zoning policies in Canada’s largest cities create significant administrative backlogs, keeping multi-family and low-density starts below the thresholds required to balance historic immigration and demographic growth.

The analysis also highlights key demographic and geographic structural differences that have hindered the responsiveness of the Canadian construction sector. Unlike the United States, which benefits from a vast, interconnected network of major cities offering equivalent employment opportunities, Canadian housing demand is intensely concentrated within a select few large urban centres. Because Canadian households have fewer comparable metropolitan alternatives to relocate to for high-wage employment, real estate demand remains trapped in high-cost regions.

This geographic concentration alters market dynamics and shifts developer incentives. In the decentralized U.S. market, homebuilders face intense inter-city competition, which forces them to respond rapidly to shifting buyer demand. In Canada’s consolidated urban markets, the lack of regional alternatives reduces the competitive urgency for the construction industry to adapt or accelerate development timelines. CMHC officials concluded that addressing these structural and municipal imbalances is critical to unlocking long-term affordability and stabilizing future housing inventory.

“These challenges are most pronounced in Canada’s most expensive, high-demand markets, where lower rezoning approval rates make it harder to add new housing,” wrote Laberge. “Good news: regulations can be changed, offering opportunities to address these challenges.”