Craig Alexander has served as chief economist at Deloitte Canada, the Conference Board of Canada and Toronto-Dominion Bank.
It’s hard not to be cynical about the federal government’s housing policy and its ability to resolve Canada’s housing affordability crisis. In 2017, the federal government announced Canada’s National Housing Strategy: a 10-year plan to help improve affordability, availability and quality of housing. Yet six years later, housing affordability has worsened.
The Trudeau government has acknowledged the increasing challenge and steadily ramped up its efforts. Federal budget 2022 promised to put the country on a path to doubling housing construction over the next decade, helping Canadians buy their first home and reducing homelessness. Budget 2023 expanded these efforts.
Which brings us to the Fall Economic Statement (FES) that has Canada’s Housing Action Plan as Chapter 1. It includes a tracking for the impact of the National Housing Strategy, which is estimated to have created 151,805 new homes. For the buyers of those properties, this is a win. For the country, it is a drop in the bucket of what is needed.
The Canada Mortgage and Housing Corp. (CMHC) estimates that the country needs to build 3.5 million more homes by 2030 than it would normally construct to restore affordability, and the federal government quotes this in the FES.
The fall statement usefully outlines what the government hopes its current and newly announced policies will deliver.
For example, the Housing Accelerator Fund is expected to add 100,000 new homes. Low-cost financing is being provided with a goal of creating 71,000 rental properties. A co-investment fund is aiming to build 60,000 affordable homes. A Rapid Housing Initiative to create 12,000 affordable homes. A Federal Lands Initiative to free up government property to build 4,500 homes. Removing the GST from new purpose-built rental projects to incentivize more construction. Allocating $8-billion in funding for an Indigenous Housing Strategy.
As well, the government has correctly identified that one of the key challenges to increasing housing supply is having enough construction workers. The FES commits to helping increase the internal mobility of construction workers across the country, even if this is primarily a provincial government matter. In May, the federal government made changes to the Express Entry immigration system to prioritize workers needed by the construction sector, which may have added 1,500 builders since its adoption.
The government is also cracking down on short-term rentals, such as Airbnb, to reduce investor demand in the hope of shifting some of those properties into the hands of non-investor buyers. The FES notes that there are 18,900 such units in Montreal, Toronto and Vancouver.
All of these policy announcements have merit and are a step in the right direction, but they are not going to put the country on the track to doubling the pace of housing supply. To give a ballpark, perhaps the federal government efforts will reduce the housing-supply gap from 3.5 million units to three million units in 2030.
An added challenge is that fiscal and monetary policy are not working together toward a common goal. The outlook for robust federal, provincial and municipal government spending is not helping the Bank of Canada to restrain inflation. Thus, governments are fostering a higher-for-longer interest rate environment. And, the sustained higher mortgage rates will make housing less affordable for many Canadians.
The bottom line is that the federal government is chipping away at the mountain of housing unaffordability with sensible programs. But, much more substantive action is required to boost housing supply and it will take all levels of government to achieve this goal.
Greater efforts will also be required to constrain investor demand for real estate. Bank of Canada research suggests that 30 per cent of all new homes being purchased are by investors, which far exceeds the small pool of short-term rental units.
It is also time to be more honest with Canadians. There is no way Canada will ever close the 3.5 million housing gap that CMHC has identified. We are never going back to the affordability of the early 2000s assumed in the CMHC analysis. There is no way home construction will surge by 200 per cent, nor will Canada attract the roughly million construction workers required for the goal.
It would be helpful if the federal government would stop quoting the CMHC housing gap. Perhaps the government should set a realistic target for the National Housing Strategy, for example setting a target for the ratio of housing costs to household after-tax income that is more manageable than the financial burden faced by Canadians today.