A study by Canada's national housing agency says housing starts aren’t keeping pace with available residential construction resources due to restrictive regulations and a "highly fragmented" industry.

In an analysis published Thursday, Mathieu Laberge, Canada Mortgage and Housing Corp. senior vice-president of housing economics and insights, said Canada has the potential to build more than 400,000 homes per year — around two-thirds higher than the 240,267 housing starts last year.

That's based on a calculation of housing start potential for 2023 had it reflected the level of construction labour productivity of the early 2000s. It also reflects a scenario where the national rate of housing starts equalled that of the most productive major cities — Calgary, Edmonton and Vancouver.

"We could build, actually, a lot more based on what we used to do before, or based on what is being done right now in the best performing cities across the country in terms of housing starts," Laberge said in an interview.

He said those calculations even account for Canada's growing construction labour shortage, noting there were roughly 650,000 workers building homes in Canada in 2023, which is "the most we’ve ever seen."

Earlier this year, the shortage was cited by CMHC in its housing supply report as one of three main factors contributing to longer construction times.

"If you look 20 years ago, we built housing starts with a lot less labour, and so that begs the question: why? I haven't heard a compelling response to that," said Laberge.

"We need to get into why, from the early 2000s to early 2010s, were we able to build ... the same level of housing starts with a lot less labour than now."

Laberge proposes regulatory reform, particularly at the municipal level, as one solution to increasing productivity. He said rules around permit delivery, how many storeys and units a building can contain and development charges stand in the way of further development in many regions.

Some regions have seen movement on that front. Laberge's study points to zoning reforms introduced by the B.C. government, to be implemented by municipalities, allowing for more density.

"What we see is the highest performers in that ratio are also those that have the more flexible regulation," he said.

"When it comes to permitting process, that plays a big role. When it comes to densification and zoning, it plays a big role. When it comes to development charges, it plays a big role."

He also argues industry consolidation could help build homes more efficiently, with 69 per cent of construction businesses currently having fewer than five employees.

Fragmentation in the Canadian residential construction sector is more apparent in some regions of the country, according to the agency. It said low market consolidation hinders investment in research and development, efficient recruitment, training, resource allocation and project management.

The report said consolidation could help generate economies of scale and enable some production savings to be passed on to Canadians.

The federal government unveiled a plan last month to build 3.87 million new homes by 2031.

It said provinces, territories and municipalities will also need to step up, dubbing the plan a “call to action" for various levels of government to work together and create incentives that will spur housing development.

Laberge said that goal remains possible but it will require changes, like those he recommends, to happen soon.

"Structural changes take time," he said.

"What we need is for the structural changes to occur now, so that down the road, we get to a point where we need to be."

This report by The Canadian Press was first published May 16, 2024.