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Canada Needs To Focus On Encouraging Home Building


Why Canada needs to focus on ways to encourage more home building


DAN REES AND JEAN-FRAN‚OIS PERRAULT

CONTRIBUTED TO THE GLOBE AND MAILPUBLISHED 


Dan Rees is group head, Canadian banking at the Bank of Nova Scotia. Jean-Franois Perraultis Scotiabank’s chief economist


The recent run-up in housing prices, and the attendant worries about affordability and accessibility, have many stakeholders scrambling to find quick solutions. While understandable, those approaches are likely to have only minimal impacts on Canada’shousing situation and its consequences for people looking for a reasonably priced place to live.

Focusing on interest rate policy or macroprudential instruments, such as stricter mortgage stress tests, draws attention away from the underlying cause of the problem: the inability of supply to meet demand. Put simply, this country doesn’t build enough housing. We should not be surprised by this. Canada has increased immigration dramatically in recent years to tremendous benefit to the economy, but we failed to pro-actively address the housing challenges the consequent population boom was sure to bring. Policy efforts must focus far more on anticipatory, collaborative, multi-stakeholder and very specific solutions to the housing situation rather than on the short-term and ultimately ineffective macroprudential Band-Aids applied in recent years.


Scotiabank Economics is publishing research this week looking at the increase in Canada’shousing stock relative to the increase in population over the past several years to get a sense of how effective we have been in creating new units.


The numbers are not encouraging.


One way to look at it is by using the ratio of new housing to population growth. By that measure, construction has been well below its historical average since mid-2017. That is perhaps not surprising, given that Canada has seen an immigration-fuelled population boom since 2015. In the three years leading up to the COVID-19 pandemic, population grew nearly twice as fast as new housing units were being built. That ratio improved some what with the COVID-related stall in immigration, but it is likely to reverse course once immigration returns to planned levels. The total number of housing units in Canada relative to population might be the most informative metric in assessing the gap between needs and availability. There were fewer homes per 1,000 Canadians in 2020 than in 2016. For the ratio to have remained stable, an additional 90,000 units should have been built in Canada over that time.


We also compared Canada’s ratio of housing units to population with those of some of our peer countries, which makes the point more starkly. The average number of housing units per 1,000 residents across the Group of Seven, including Canada, is 471. Canada’s ratio is 424 per 1,000. To resolve this shortfall, it would take 1.8 million homes, in addition to what currently exists in Canada, to achieve the required level of housing supply relative to the population.


Just catching up to the U.S. ratio would require about 100,000 additional units. To match the U.K. would require about 250,000 extra homes. We have averaged just 188,000 completions annually over the past 10 years. Why is this the case? Our bank’s developer and real estate clients across the country have told us the main impediments to supply growth are in planning and approval processes, which in many cities can be lengthy and political.  Any number of provisions can delay or derail development applications. From a rental perspective, the structure of requirements to build housing, rent controls and rising development charges are among the main obstacles. Shortages of skilled trades are also affecting builders’ ability to meet demand. We must act quickly to address the factors limiting the supply response of all forms ofhousing: owned, rentals, affordable, single-family and multifamily.


We propose that Ottawa convene a national table bringing together federal, provincial and municipal authorities along with builders, developers and civil society organizations to document the multiple challenges to raising supply, and to identify solutions to these obstacles. Given the urgency of the supply challenge, this table should be convened quickly and report on potential solutions within the next six months, with commitments by all parties to act immediately upon them. Additional federal funding to incentivize provinces and municipalities to overcome political obstacles will almost certainly be required. The federal government could tie future transit funding to population density and speed-of-approval objectives, for instance. Or it could offer incentives for cities that responsibly raise density to a certain threshold.


Solving our country’s housing challenge should be a national priority. The steep increase in prices will have severe consequences across our cities and towns and impact all income levels. Affordable rent will be less attainable for our essential workers. Home buyers will continue to flee cities to suburbs and small towns, affecting affordability and forcing more people to commute. First-time buyers and young Canadians will be kept out of the housing market altogether. And existing middle-class families will be incapable of upsizing to accommodate growing and multi generational families.

The sustainable solution is not rooted in the interest rate or macroprudential space, but in a determined effort to remove obstacles that limit the supply response of housing. A comprehensive national approach should be pursued to identify changes that could increase the responsiveness of supply to demand, and those changes should be implemented aggressively.


Canadians want to own a home. Developers want to build them. Let’s help make that happen.

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