Advancing a Team Canada approach to housing

The national housing accord – a plan developed by non-profit and for-profit housing providers, developers and investors – suggests that restoring housing affordability will require tripling home-building over the next nine years. That would require an unprecedented herculean effort.  (File photo: Tierra Mallorca/Unsplash)

Canada is struggling through a dramatically worsening housing crisis. Millions of Canadians, particularly those with lower incomes, have been experiencing rapidly rising housing costs, driven in large part by an extreme supply shortfall. This problem isn’t isolated to specific communities, regions or provinces. 

Prime Minister Justin Trudeau said recently that housing is not a primary federal responsibility. But the crisis requires national leadership. Ottawa urgently needs to enact policies that reflect the needs of the population by leading a multi-partner “Team Canada” approach, introducing new measures and revamping current ones to create the types of homes people need, where they need them, in sufficient quantity. 

In a September report, the Canada Mortgage and Housing Corp. estimated that Canada needs to build 5.8 million housing units by the end of 2030 to restore affordability. That’s 3.5 million units more than the current pace of new home construction.  

The national housing accord – a plan developed by non-profit and for-profit housing providers, developers and investors – suggests that restoring housing affordability will require tripling home-building over the next nine years. That would require an unprecedented herculean effort. 

Hitting the reset button on the national housing strategy 

Why green construction is needed to affordably increase housing supply 

It’s important to be cognizant of how unaffordable housing has become. The Canadian rental housing index says 1.6 million renter households pay more than 30 per cent of their before-tax income for a roof over their heads, which places them in core housing need. That translates to about one-third of renters needing community housing offered at a more affordable cost than the market provides. 

Scotiabank’s January 2023 report, Canadian Housing Affordability Hurts, recommends doubling Canada’s supply of community housing. Achieving this objective can happen only if the federal government pulls out all the stops with measures that reflect the country’s current economic environment.  

Current housing measures won’t cut it 

Canada’s economic picture has shifted dramatically since the creation of its National Housing Strategy in 2017. Inflation, the rapid rise of interest rates and higher building costs have made it more expensive to create housing. At the same time, federal funding has dwindled significantly. Yet federal housing policies and programs have not adapted to the current economic context. 

Higher borrowing costs mean affordable-housing providers can’t secure as much financing as they could a couple of years ago. That has led to a serious funding gap that cannot be filled without increased grants or other measures with a similar impact. 

A recent example of a program derailed by the volatile shift in Canada’s economic picture is the National Housing Co-Investment Fund, the flagship program of the federal government’s national housing plan. The fund provides funding and financing for non-profit projects.  

As interest rates spiked in the latter half of 2022, CMHC was forced to allocate more funding to save projects already underway. As a result, the housing co-investment grant budget has been severely diminished. Maximum grants dropped from up to 40 per cent of total project costs to a maximum of $75,000 per unit. Depending on the project, that could be a reduction of more than $125,000 per affordable housing unit.  

In other words, the cost of creating housing has increased significantly over the last two years, while federal funding has dramatically decreased, making it nearly impossible to build affordable homes using existing policies and programs. 

The housing we need to restore affordability simply cannot be created fast enough – or at all – to meet demand with current federal support.  

The Team Canada approach 

A problem as significant and widespread as Canada’s housing crisis can’t be fixed by the federal government alone. We need a plan that involves all levels of government, the affordable housing sector and private organizations.  

To be successful, the federal government needs to recognize that the housing crunch Canada faces is a problem that won’t be solved with cheap solutions. Every policy lever that can be pulled must be pulled, with emphasis on doubling the proportion of Canada’s affordable homes to support an increasing number of Canadians who need them. 

A comprehensive Team Canada approach requires a strategy featuring integrated plans for key economic areas, including labour supply, immigration and innovations in construction. Building these strategic linkages will take time that’s hard to find during a crisis. While these plans are developed, the government must prioritize the following five actions: 

1. Achieve a truly national housing strategy through improved communication and intergovernmental co-ordination. This includes collaborating with provincial and territorial leaders to create shared initiatives and to craft housing targets for each level of government. The prime minister should consider calling a national housing summit to determine a shared path forward and to reach a commitment to double the proportion of Canada’s community housing.
2. Spur housing development through revamped tax policies. The federal government’s September announcement that sales tax would be waived on new purpose-built rental units is an important first step. That said, it’s an ill-advised half-measure because housing co-ops, as well as affordable housing projects in development, are ineligible for the tax cut. In Toronto alone, there are 15,000 affordable units that could move forward with additional federal support. The government should also explore opportunities to unlock private capital to create non-market housing through additional tax measures. 
3. Generate a stable pipeline of community housing projects by revamping existing federal housing programs. Current programs simply do not work in an economic environment of high interest rates and construction costs. The government must revitalize existing programs to ensure they support a stable pipeline of community housing development projects. Failure to act today means the pipeline will run dry in the coming years.
4. Leverage federal transfer payments to encourage the creation of housing Canadians need, where they need it, and in sufficient quantity. Infrastructure investments are an effective measure for motivating Canada’s provincial, territorial and municipal governments to make policy changes. But investments should be made conditional on policies favourable to new affordable homes and those that target an increased supply of community housing.
5. Leverage the power of federally owned land. Leasing federal land to non-profit housing providers (rather than selling it) allows the land value to stay on the government’s balance sheet and permits the non-profits leasing the land to borrow against its value. This removes one of the costliest parts of a community housing project’s development budget.  

Our housing crisis is a national problem that requires national solutions. The only way we can overcome the challenges we face is through a Team Canada housing approach. Is the federal government ready to be our captain? 

This article first appeared on Policy Options and is republished here under a Creative Commons license.