New homes are constructed in Ottawa in August, 2023. Fewer homes are now being built, and fewer new homes are being sold across the country.Sean Kilpatrick/The Canadian Press
Canada is in a housing crisis, and it promises to get even worse. Within five years, the construction of new homes in the country’s hottest markets is projected to slow to near-zero. Less construction, fewer homes, and fewer jobs – all at a time when the country needs more housing than ever. How can Canada steer around this big, dangerous iceberg?
Across the country, particularly in Ontario and B.C., the housing market is slumping. A new study of the Greater Toronto Hamilton Area housing market, conducted by the Missing Middle Institute, finds sales of new homes have collapsed, and the construction sector is shrinking accordingly. The sector has shed the equivalent of 35,000 full-time jobs in the first nine months of this year.
None of this will improve in the short run. Home building is slow. Developing and building apartments – the most common type in our biggest cities – can take most of a decade. Because fewer homes are now being built, fewer will be finished in two to three years. Because fewer new homes are now being sold – that same report found condominium pre-sales had dropped 89 per cent year over year – fewer homes will be ready in five years.
In short, from 2028 onward, the country’s hottest markets will see their supply of new housing nearly disappear.
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Demand will not. While Ottawa’s recent tightening of immigration policy has reduced pressure, the country continues to experience a housing shortage. When demand outstrips supply, rents and prices rise. Buckle up.
For governments, this is a problem in multiple dimensions. The shortage of housing also means a huge hit to the Canadian economy; construction formed 7.5 per cent of GDP in 2023. Job losses will hurt Canadian families directly and indirectly.
It is imperative that governments get the home building industry back to work. Luckily, governments at all levels have tools that will help, if they choose to use them.
The largest responsibility lies with cities. Canadian municipalities now tax new housing to the tune of billions a year. “Development charges” and other don’t-call-them-taxes make up a significant chunk of the cost of a new home. Reduce these, as municipalities including Vaughan, Ont., have done. Or simply declare an exemption for all homes that break ground within three years.
Cities will argue that they need those funds. And yet: This week a City of Toronto report noted $2.8-billion of development charges sitting in reserve funds. If this money is so desperately needed, why does it keep going unspent? And why is so much earmarked to pay for things that benefit the entire region, including $1.4-billion in improvements to Toronto’s subways? New home buyers should not carry such burdens. Instead, those costs should be judiciously paid by senior governments, and – as they used to be, and as largely still are in Quebec – spread across the municipal tax base.
Opinion: Affordable housing is out of reach everywhere in Canada
It is better for everyone concerned if we add new homes to our cities. Builders, workers and residents pay taxes. Canadians find somewhere to live. And if we direct new residents into existing cities, they can use existing parks, roads and pipes. The costs of new housing can be controlled.
As for Ottawa: The federal government already plans to spend billions of dollars in housing through Build Canada Homes. The Parliamentary Budget Officer this week estimated BCH will add 26,000 homes over the next five years, half of them subsidized. Government does have a role to play, in those parts of the housing market where the private sector cannot or will not build.
But Ottawa should keep its efforts constrained, and do all it can to rejuvenate the private sector, which does the lion’s share of home building in Canada. It could cut the GST on all new housing, free up loans through the Canada Mortgage and Housing Corp., and provide guarantees to reduce risk for private builders.
Government can also help by not requiring new housing to solve every problem. BCH already appears to be doing this, favouring untested building technology and bespoke architectural designs. Impose enough demands on a building project, and the economics collapse. Instead, Ottawa needs to focus on scale and speed. The iceberg is rapidly approaching.
The Sunday Editorial: Three ways to worry about Canada’s surging debt. Find it tomorrow morning at globeandmail.com