This is the moment to fix the mismatch in Canada’s housing supply

The new federal housing plan commits a suite of incentives, such as removing the GST, to stimulate the construction of purpose-built rentals that can help offset high interest rates. (Pexels Photo)

By Cherise Burda, Policy Options

(Version française disponible ici)

Solving Canada’s housing affordability crisis requires addressing the mismatch of housing supply and need.

For too long, we have focused on building “sprawl and tall” – expensive houses further afield and small, costly units in high-rise buildings while neglecting critical segments of our housing system needed to accommodate a range of household incomes and sizes.

Unsold supply amid a housing crisis

Here is one stark mismatch: This year, the average vacancy rate for rental housing across the country reached its lowest level since 1988, the year the Canada Mortgage and Housing Corp. began keeping track.

Contrast that with the largest unsold inventory of condo units in the Greater Toronto Area (GTA) in seven years and the slowest sales since the financial crisis. The unsold stock is prevalent throughout the development pipeline from pre-construction sales to completed units.

Thousands of approved condo units haven’t even made it to the showroom. Data firm Urbanation found 60 projects comprising 21,500 units in the GTA have failed to launch at all since 2022.

Data from Altus shows sales of houses are also lagging. New, completed single-family homes in the GTA fell by 62 per cent in May from the same month last year, suggesting that developers in the low-rise and high-rise markets are waiting for inventory to be absorbed before building more.

Lack of affordable housing and rising rents

Also misaligned are household incomes and rental rates. Research at the University of British Columbia found 20 per cent of Canadian households cannot afford housing costs including utilities greater than $1,050 per month, while another 20 per cent cannot pay more than $1,600 per month.

By comparison, the average market asking rent nationwide is more than $2,200, with one-bedrooms in Vancouver and Burnaby fetching $2,700 and more than $2,500 respectively.

This gap between what households can afford and what the market can charge cannot be filled by our feeble supply of social housing (a.k.a. public housing or “community housing”), which accounts for about 3.5 per cent of existing housing stock while 95 per cent is in the private market. The waitlist for subsidized housing is 12 years in Toronto and eight years in Montreal.

Meanwhile, in Ontario, proposed legislation could require municipalities to expand their urban boundaries into farmland, greenspace and wetlands (outside the protected greenbelt) for the development of large houses that few families can afford.

The good news is we have a once-in-a-generation opportunity to start fixing the mismatch.

Perhaps the most alarming mismatch is seen in housing expert Steve Pomeroy’s research into the loss of affordable homes: Canada lost 10 affordable units for every new one built over a decade. Therefore, our first step to solving the housing crisis is to preserve our existing affordable housing stock from financialization and demolition.

Build for end users rather than investors

Part of the problem is the development financing system, which requires developers to pre-sell most of their units to secure financing from lenders. When interest rates are low and real-estate prices keep ticking up, investor demand is high. Since at least 2018, the GTA has boasted more cranes in the sky than any other city in North America.

Our reliance on an investor-driven housing market has pushed up prices all over the map as end-user homebuyers have been forced to bid higher and higher to compete with those who have deeper pockets. Investors also influence the types of units constructed – predominantly one-bedrooms, studios or micro-condos in tall buildings that optimize profitability.

Not only are these smaller condos not matched to the needs of many households, but if municipalities continue to meet their intensification goals with mostly small units in very tall buildings, it can increase car-dependent sprawl and drive up greenhouse gas emissions because single-family homes in former farm fields become the only attainable three-bedroom family-friendly housing option.

Redirect resources to the right areas

Even as conventional construction slows down, governments can redirect some of their financing and incentives toward non-traditional segments of the housing system, if only to ensure we don’t lose trades people.

In recent years a shortage of skilled trades workers contributed to Canada’s housing crunch. Yet, the pullback in residential construction is leading to job losses in skilled trades – a trend that experts fear could inhibit apprenticeships to feed this critical labour pool.

The new federal housing plan commits a suite of incentives, such as removing the GST, to stimulate the construction of purpose-built rentals that can help offset high interest rates.

However, a separate analysis by Pomeroy demonstrates that the federal rental construction finance initiative is producing rental units priced at market or above-market rates.

Stack savings to scale not-for-profit housing

We can harness this moment to build more affordable and attainable rental housing not only by directly subsidizing the building of more social housing but also by financing not-for-profit developers, housing co-operatives, land trusts and community housing corporations.

This sector can reduce costs by 20 to 25 per cent by greatly reducing the profit margin normally anticipated on development projects.

The Institute for Research of Public Policy’s Affordability Action Council recommends stacking these off-the-top cost savings with other initiatives such as preferential federal financing, priority access to public land, construction grants and a range of incentives already being directed to the private sector.

For example, co-operatives could build mixed-income communities with a range of units priced for low- to middle-income households.

Target the missing middle

We can also redeploy labour and resources to build thousands of secondary suites, multiplexes, stacked townhomes and small apartment buildings throughout existing urban and suburban residential neighbourhoods, which is now possible thanks to rezoning in most municipalities.

However, a concerted effort by all orders of government is required to remove a myriad of secondary barriers to make the missing middle cost-effective and replicable, such as innovations in financing and mortgages, pre-approved designs and full-service municipal programs with help from the federal housing accelerator fund.

Although often dismissed as insignificant, the missing middle can add up. Last year, accessory dwelling units comprised up to 22 per cent of total housing permits in Guelph and 18 per cent in Waterloo. Scaling the missing middle throughout our communities offers attainable family-friendly alternatives to more car-dependent single-family houses.

Recycle single-family homes owned by older Canadians

Finally, Canada has eight million single-family dwellings, most of which are occupied by older generations who will age out of their homes at some point.

If a seniors housing strategy could be developed to build desirable housing options that aging Canadians want to live in – for instance, small congregate living or co-ownership – more seniors would likely move sooner and by choice, freeing up millions of single-family houses for younger and newcomer families.

Housing is more than a unit count. What, where and for whom we build is as important as how much. We need to target the right housing supply while creating livable communities. We have this moment to get started.

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