CMHC links trade reforms to housing surge and new pressure points for real estate portfolios
Eliminating interprovincial trade barriers could generate 30,000 additional housing starts per year and raise household incomes by 6 percent, according to a new report from Canada Mortgage and Housing Corporation (CMHC).
The agency projects these changes could shift real estate market fundamentals — with direct implications for pension funds and institutional real estate investors navigating supply constraints and pricing pressure.
CMHC estimated that increased construction would push total annual housing starts to nearly 280,000, accounting for roughly 15 percent of the additional supply needed each year to restore affordability levels last seen in 2019.
In its July 2025 report, the agency reiterated that Canada must build between 430,000 and 480,000 new homes annually to meet projected demand through 2035.
While CMHC focused on supply chain and policy reform, last year's Fitch Ratings warned that Canadian pension funds continue to face pressure in their real estate portfolios.
As reported by Benefits and Pensions Monitor, Fitch said higher borrowing costs, tighter financing, and valuation adjustments have weighed on fund performance.
Office assets remain particularly vulnerable due to the shift to remote work, with refinancing risks expected to persist into 2025.
Despite these headwinds, Fitch emphasized that Canadian pension funds hold strong liquidity and are “not forced sellers of assets,” enabling them to withstand short-term volatility.
As of December 31, 2023, the seven major pension funds tracked by Fitch managed $2.1tn in net assets.
CMHC’s report cited economic spillovers from trade reform as a catalyst for increased housing demand. As household incomes rise and unemployment falls, the agency projected that 300,000 additional households could initially enter the homeownership market.
However, as demand pushes prices higher, that figure may taper to 150,000 by 2035.
Rising incomes are also expected to support rent affordability. CMHC projected average rent increases of 3.1 percent — about half the pace of income growth.
This suggests a potential easing in rent-to-income ratios, which could strengthen the long-term income outlook for multi-family real estate investors.
Pension funds and institutional investors are already responding to this environment.
According to Benefits and Pensions Monitor, Equiton’s Aaron Pittman noted that despite more completions, rents remain high due to an extreme supply-demand imbalance.
Pittman said, “We’re so far behind the curve in Canada, demand has outstripped supply to such a degree that even as we put on additional stock, the rents will continue to increase.”
He estimated that “approximately 1,500 cranes in Toronto” would be needed just to level rents.
Pittman and Concordia University’s Erkan Yonder also underscored the role of artificial intelligence in forecasting rental trends.
Yonder said AI could improve rent prediction accuracy by 20 to 30 percent compared to conventional models.
He added that integrating immigration data into AI models would allow real estate investors to better anticipate future demand pressure, especially as population growth outpaces housing completions.
CMHC identified internal barriers such as provincial tax rules, transport limitations, and permitting challenges as ongoing obstacles to efficient supply delivery.
According to a Statistics Canada survey cited in the report, nearly half of construction firms listed distance and shipping costs as reasons for not sourcing inputs across provincial lines.
The agency argued that reducing these barriers could unlock underutilized domestic production. Canada is a net exporter of wood, aluminum, steel, and other key construction inputs.
Redirecting these materials to residential building could support supply targets without expanding imports.
Federally, the passage of Bill C-5 has moved to reduce red tape and accelerate permitting, though CMHC noted that most trade restrictions remain under provincial jurisdiction.
Several provinces — including Ontario, Alberta, Quebec, and British Columbia — have introduced legislation to align with this effort.
For pension funds managing real estate exposures, CMHC’s projections may signal new portfolio risks and opportunities.
While plan sponsors weigh office repricing and rate-driven stress, a potential upswing in residential construction and rent affordability could recalibrate multi-family and rental investment strategies in the decade ahead.
