Canada Mortgage and Housing Corp. says the projected housing supply gap has shrunk slightly from last year, but that Canada still needs to build about 3.5 million more houses by 2030 than what's on track to restore affordability.

The federal housing agency says in its updated outlook that the supply picture has improved somewhat in Ontario, but has worsened in other provinces like Quebec, Alberta, and British Columbia.

Overall, CMHC estimates 3.45 million houses are needed beyond current construction trends, compared with 3.52 million in its outlook from June of last year.

Ontario still makes up the bulk of the shortfall with a 1.48 million gap, but that's down from the 1.85 million projected last year.

Quebec needs an estimated 860,000 units, up 240,000 from last year, B.C. needs 610,000 for a 50,000 increase, and Alberta needs 130,000 compared with the 20,000 projected last year.

The agency's target is based on the affordability level in 2004 when housing costs were relatively low and the economy was stable.

CMHC says its affordability target works out to housing taking up about 30 per cent of income in most provinces, but the target is 37 per cent in Ontario and 44 per cent for British Columbia.