The discourse surrounding housing affordability consistently dominates Canadian political campaigns, media headlines, and everyday conversations. This widespread attention is a clear indicator of a deep-rooted and persistent challenge that has plagued Canadians for over two decades: the escalating cost of housing now consumes an increasingly disproportionate share of household incomes (HHI) across the nation.

The statistics paint a stark picture of this growing crisis. According to data compiled by RBC, the financial burden of home ownership has risen dramatically. In 2000, the typical Canadian household allocated approximately 36.6 percent of its median HHI towards housing costs. By 2016, this figure had climbed to 41 percent, and by the fall of 2022, it had surged to a staggering more than 60 percent. This rapid escalation in costs has made the dream of homeownership increasingly unattainable for many Canadians, particularly younger generations and first-time buyers.

Beyond the percentage of income, the raw price of housing units has also exploded. In just the last decade, the average unit price of housing in Canada more than doubled, soaring from roughly $365,700 to over $760,000. This meteoric rise in property values underscores a market that has outpaced wage growth and created significant barriers to entry. The scarcity extends beyond ownership; the Canadian Mortgage and Housing Corporation (CMHC) reported that the national rental vacancy rate stood at a mere 1.9 percent at the end of 2022 – its lowest point since 2001. This critically low vacancy rate translates into fierce competition for rental units, driving up rental prices and leaving many Canadians struggling to find suitable and affordable accommodation.

Canada’s Housing Crisis: When Population Growth Outpaces Supply

In response to these mounting challenges, various levels of government have not remained idle. Over the years, numerous laws and regulations have been introduced with the explicit aim of controlling housing prices and improving affordability. Examples include British Columbia’s 20 percent foreign buyer tax, first implemented in 2016, and the more recent nationwide foreign buyer ban enacted by the federal government in 2023. These interventions, primarily focused on cooling demand, were intended to level the playing field for domestic buyers.

However, despite years of successive governmental initiatives and policy interventions, the Canadian housing market has shown little sign of becoming more affordable or, crucially, more abundant. In fact, in many respects, the problem has only intensified, leading many experts to question the fundamental approach of these policies.

A recent analysis vividly highlighted the undeniable correlation between Canada’s relentless population growth and the continuous upward trajectory of housing prices. Canada’s population surpassed the 40 million mark in June of this year, a significant milestone that brings with it profound implications for infrastructure and housing. Current projections estimate that the country’s population will reach 50 million by 2043, placing immense and sustained pressure on an already strained housing market.

This demographic trend is not a new phenomenon. A comprehensive study conducted by Coldwell Banker Richard Ellis revealed a consistent pattern over the past six decades: Canada’s population growth has perpetually outpaced the growth in its housing stock. This long-term structural imbalance is at the heart of the current crisis. Looking forward, the CMHC projects an urgent need for approximately 22 million housing units by 2030 to meaningfully address affordability challenges. Yet, at the current rate of construction and development, the housing stock is only projected to expand to around 19 million units by that time – leaving a significant national shortfall of approximately 3.45 million units. This gap represents not just a numerical deficit but a growing societal problem with wide-ranging economic and social consequences.

“In the context of this chronic undersupply of homes, banning – or heavily taxing – foreign buyers can actually exacerbate the underlying housing shortage.”

The Unintended Consequences of Foreign Buyer Bans on Housing Supply

The quote above encapsulates a critical perspective often overlooked in the public discourse: in a market characterized by a chronic undersupply of homes, policies designed to ban or heavily tax foreign buyers, while seemingly intuitive, can paradoxically worsen the very housing shortage they aim to alleviate. At first glance, the argument that precluding foreign investment should free up more units for local buyers seems logical and appealing to a public frustrated by soaring prices. However, a deeper understanding of the dynamics of real estate development, particularly in the multi-unit “for sale” residential property sector like condos and townhomes, reveals a more complex reality.

The construction of large-scale residential projects is an incredibly capital-intensive endeavor. Developers typically rely heavily on construction financing from banks and other lenders. A crucial prerequisite for securing these substantial loans is achieving a certain volume of pre-sales. These pre-sales act as a form of equity or collateral, demonstrating market demand and reducing the risk for lenders. Without meeting these pre-sale targets, developers find it exceedingly difficult, if not impossible, to obtain the necessary funding to begin or continue construction.

Regulations such as foreign buyer bans or prohibitive taxes, by artificially shrinking the pool of potential buyers – including both domestic and international investors – directly impact the ability of developers to meet these crucial pre-sale thresholds. When a significant segment of the market is removed or disincentivized, the rate at which projects can achieve financial viability slows down considerably. This directly constrains the overall rate of housing delivery to the market, meaning fewer homes are built, and the existing supply shortage is prolonged, if not intensified.

The implications of such supply constraints extend far beyond homeownership and critically affect the rental market as well. Nationally, condos, distinct from purpose-built rental buildings, constitute a substantial 19 percent of the total rental housing stock. Many condo owners rent out their units, contributing significantly to the available rental supply. Therefore, policies that lessen the supply of new condos or slow down their construction inadvertently tighten the rental market, exacerbating the existing shortage of rental accommodations and pushing rents even higher. This intricate web of interconnected consequences perfectly aligns with the “unintended consequences” of housing policy, a concept cogently described by CIBC Economist Benjamin Tal in an earlier piece by REM this year.

Beyond Restrictions: Fostering Sustainable Housing Supply

“… the only way to meaningfully address housing affordability.”

Given the persistent and growing housing crisis, the most urgent policy priority for governments at all levels must shift from merely managing demand to strategically fostering an environment that promotes a significant increase in the volume and velocity of housing supply. This requires a fundamental alignment between the business imperatives of housing developers and a robust, supportive regulatory framework. Simply put, governments need to make it easier, faster, and more attractive to build homes in Canada.

This strategic alignment necessitates a multi-faceted approach. It involves streamlining arduous permitting processes that often lead to years of delays, fundamentally reforming outdated zoning laws that restrict density and mixed-use developments, and providing direct incentives for the construction of both ownership and purpose-built rental housing. Addressing labor shortages in the construction sector, reducing material costs through policy or innovation, and investing in critical infrastructure to support new communities are equally vital components of a comprehensive supply-side strategy. The recent removal of GST on rental buildings, for instance, is a commendable step in the right direction, demonstrating a recognition that reducing costs for developers can translate into more rental units being built and brought to market.

Such proactive, supply-focused policies stand in stark contrast to the reactive, demand-side restrictions that have characterized much of Canada’s housing policy to date. While it’s tempting to implement quick fixes like new taxes or bans, these measures often fail to address the root cause of the problem – an acute shortage of available homes. Real, meaningful, and sustainable housing affordability can only be achieved through this kind of strategic alignment, fostering an environment where housing development is encouraged, efficient, and adequately supported. It is through sustained efforts to boost supply, rather than continued reliance on restrictive measures, that Canada can ultimately overcome its housing crisis and ensure that every Canadian has access to safe, affordable, and appropriate housing.