We are in a Housing Crisis. Why Isn’t the Government in Crisis Mode?

This blog was provided by our partners at Intracorp Homes.

We keep hearing about the housing crisis in Canada, but it doesn’t feel like our government is treating it like a crisis. A CMHC report estimates that we need an additional 3.5 million housing units by 2030 to restore housing affordability, beyond what is already planned for construction.¹ In the same report, CMHC has reduced its forecast for the number of new housing units that will be built by 400,000 due to construction shortfalls. It is clear something is off. Our housing policies and building regulations are deterring investment in Canadian real estate and making it harder to build homes. This is creating a market where both money and houses are in short supply. We need to raise almost $2 trillion in private investment to meet the government’s housing targets.² So why isn’t the government creating conditions to attract investment?

INVESTMENT

Canada has some of the largest pension funds in the world. Whilst these pension funds were once a reliable source of funding for housing projects, they are now hesitant to invest in Canada. They see the market as too risky due to unpredictable taxes and unstable housing policies.

All levels of government have raised taxations and fee burdens over recent years, significantly increasing the cost of new housing. For example, in Vancouver, taxes and fees total 30% of a home’s purchase price.³ When homebuyers can’t bear this additional cost amidst a challenging economy, investors will not invest in new development and in turn, developers can not build. Undeterred, Metro Vancouver has approved proposals to raise development cost charges by up to 256% between now and 2027.⁴ The shortsighted concept that growth alone should pay for growth means that much-needed infrastructure upgrades have become the burden of new homebuyers or new renters, as opposed to being understood as the shared responsibility of all property owners in our communities who will benefit from these improvements as we grow our cities. After all, the benefits of the growth of our cities will be shared by all.⁵

Recent changes to the CMHC’s funding criteria and ongoing building code changes are compounding the challenges of investing in real estate. While these changes are well intended, nobody is considering the layering effects of all these policies and their cumulative impacts on project economics. As they are often rapid and unpredictable, there is not sufficient time for the development industry to respond. Once these changes are introduced, it is homebuyers and renters that must bear the cost yet again, and who are left questioning soaring prices.

UNBALANCED MARKETS

Right now, policies favour rental housing over homeownership. Incentives are mainly for purpose-built rentals, leaving those who want to buy homes out in the cold. This focus undermines the traditional Canadian dream of homeownership and pushes more people into an already crowded rental market with a historically low vacancy rate of 1.5% nationwide.⁶ With a housing shortage on our hands, is it any wonder costs are subsequently going up for both renters and buyers?

MOVING FORWARD

To tackle this crisis, we need a comprehensive approach. First, cutting and simplifying fees at all government levels can give immediate relief. Next, we need consistent and predictable housing policies to attract long-term investment. This means stopping frequent changes to building codes and other regulations that create uncertainty. Lastly, we need to make Canada a more attractive place for investment by addressing the concerns of pension funds and other investors who are currently hesitant to invest here. This includes creating a stable tax environment and ensuring predictable policies. This alone would inject much-needed capital into the housing market.

Canada’s housing crisis is complex and requires a team effort from all levels of government and stakeholders. By providing stability, reducing financial barriers, and promoting both rental and homeownership opportunities, we can create a market where housing supply meets demand and affordability is restored over time. But before we can get there, we need to treat this crisis with the urgency it deserves. This urgency will require a long-term outlook, as there is no quick or easy solution. Bold actions grounded in economics are needed to incentivize investment in real estate and ensure a sustainable future for Canadian housing.

Evan Allegretto is the President, Intracorp Homes BC.