Prime Minister Justin Trudeau greets contractors following a housing announcement in Dartmouth, N.S. on April 2.Darren Calabrese/The Canadian Press
Diana Mok is an associate professor at Western University.
Canada’s housing crisis heightened in 2020 and 2021, when families with median incomes faced an average house price that was as high as seven to nine times their annual income. Surging home prices and relatively stagnant income growth combine to make the dream of home ownership beyond the reach of most Canadians, especially young people, unless either house prices fall by half or earnings double.
The rental market is no more affordable. Renters spend on average more than 35 per cent of their incomes on rent. In tighter markets such as Toronto and Vancouver, rents could be as high as 45 per cent of income.
Housing unaffordability is a dire issue.
So, in an announcement on Thursday, the federal government pledged $1.5-billion for the purchase of apartment buildings to preserve rental units so they remain affordable. Two more announcements this week committed $6-billion for the Canada Housing Infrastructure Fund, intended to accelerate the construction and upgrading of housing infrastructure, and a $15-billion top-up to an existing federal apartment construction loan program, which would provide low-cost financing for building rental apartments.
These announcements were a step in the right direction, but they are far from enough.
Affordable housing advocates mostly agree that one of the solutions to our housing crisis is to streamline the bureaucracy around getting new construction approved to reduce lag times and increase supply.
Earlier last week, Canada Mortgage and Housing Corp. released its biannual housing supply report, which shows snapshots of the supply gap in the housing market. According to CMHC, Canada requires an estimated 3.5 million more housing units by 2030 to restore housing affordability to the 2004 level.
That 3.5-million-unit goal is simply not realistic.
The report showed the number of housing starts in 2023 in the six largest Census Metropolitan Areas (Toronto, Vancouver, Montreal, Ottawa, Edmonton, Calgary) totalled 137,915 for all types of residential construction.
But these housing starts are a legacy of the low-interest-rate environment in 2020-21, when the financial commitments between builders and lending institutions were made. They do not show the full impact of the Bank of Canada’s interest rate hikes over the past two years.
The supply of housing is much more sensitive to market conditions such as interest rates than is the demand, which could be driven by many other factors. Rising borrowing and construction costs could immediately slow down the supply.
Even the housing starts in 2023 were still too low. Let’s use Toronto as an example. To reach the goal of 3.5 million additional units by 2030, Toronto – which accounts for about 16 to 17 per cent of Canada’s total population – would need an average of at least 97,000 new units per year.
But building new units is not the only key issue – those units have to be affordable to Canadians.
The problem with a mere focus on funding new supply is that it accounts only for housing stock. It forgets about how the market operates. The supply of less pricey, more affordable units often relies on the trickle-down effect of aging housing units being sold or rented for less. But it’s not likely homeowners will be willing to sell their homes for less or landlords willing to drop their rents.
The reality is that prices and rents for the existing housing stock are not dropping fast enough in this trickle-down effect to what one would consider as affordable. Even if the 3.5 million new units could be built, prices might still be out of reach to many Canadians.
The housing announcements this week shed some new light on affordability by focusing on building more affordable units instead of just building more. They create strings-attached financial incentives to commit all levels of government to open dialogues about affordability. More importantly, the Canada Housing Infrastructure Fund intends to require municipalities to increase the supply of “missing middle” homes – duplexes, triplexes and townhouses. Rather than hoping existing home prices and rents will fall, the initiative would introduce a variety of new housing units that are more affordable in the first place.
But Canada can do more. Constructing new units is not the only way in which housing can be added to the market. Conversion of offices, warehouses and industrial buildings is one other avenue. More creative solutions from the household side are also possible. What about providing incentives for private households to rent walk-out basements, or creating new forms of ownership or mortgage structures?
While some of these alternatives can be implemented more readily, others might require longer-term planning. After all, affordability is not just a static goal to be reached by 2030. We need to think beyond. What’s next?