Canada’s new Minister of Housing and Infrastructure Gregor Robertson has the unenviable task of improving housing affordability. He has attracted criticism for stating that falling housing prices are not necessary to accomplish this goal.
For prospective buyers, lower home prices may appear to be the obvious solution, but do we really want a collapse in home values? History has shown the consequences that can follow. During the 1980s, Alberta saw a wave of borrowers walking away from underwater mortgages amid high debt levels and widespread job losses. At the time, mortgage rates hovered around 20 per cent, and a steep decline in the oil industry forced roughly half a million people to leave the province in search of work. A similar scenario unfolded during the US housing crash.
These situations left homeowners facing long-lasting challenges and stalled housing construction for years as markets slowly recovered. Today, a major price decline is unlikely given the ongoing supply-demand imbalance. Immigration is expected to be stable, and while regional differences will exist, housing demand should remain steady. As much as the government wants to see more housing construction, the likelihood of overbuilding is low.
Barring a major recession, a fall in house prices is unlikely. Given that most homeowners have a significant share of their wealth tied up in their homes, do we really want to see that wealth wiped out? Even if prices were to decline, it doesn’t necessarily mean that buyers will rush into the market. The current condo markets in Toronto – and to a lesser extent, Vancouver – illustrate the problem. When home prices start falling, buyers tend to hold off, waiting for further drops, while lenders become more cautious. Despite growing supply, we haven’t seen a buying frenzy. Generally, we’ve seen uncertainty amplified in higher-priced markets.
Some commentators point to price-to-income ratios as a key indicator of the extent of the affordability challenge. Certainly, in some markets, those ratios highlight how out of reach home ownership has become for the average buyer. Even if home prices remain flat, it would take years – if not decades – for incomes to grow enough to bring these ratios back to levels that would bring affordability back to earlier norms. The challenge is whether this is achievable in all markets.
In major urban centres like Toronto or Vancouver, housing is likely to remain expensive. The question is: can we develop a range of solutions that make housing attainable for more Canadians? There’s no one-size-fits-all policy for the entire country. Solutions need to be tailored to the specific conditions of each market.
For cities like Toronto and Vancouver, that likely means more purpose-built rentals. After nearly 25 years with little-to-no purpose-built rental development, it’s no surprise we’re now scrambling to increase this part of the housing stock.
The Housing Minister has emphasized the importance of building more affordable homes. While that statement is open to interpretation, I see it as a call to build more subsidized housing. This offers the greatest opportunity for prefab construction, especially if we’re willing to build multiplex units – ideally on government-owned land.
The federal government has experience partnering with provincial governments to fund affordable housing. Reestablishing federal-provincial agreements should be a key first step. The bigger challenge is ensuring that ongoing maintenance and repairs are accounted for in the solution. Much of Toronto’s social housing stock has fallen into disrepair. Even with $1.3 billion in federal funding, many buildings remain in critical condition. We can’t afford a repeat of that mistake.
Affordability efforts should also focus on making starter homes with access to green space more available. This will require some degree of expanded growth outside smaller cities and improved transportation infrastructure to connect communities. Having commuted to Toronto for nearly two decades – often spending close to four hours a day in transit – I can say it’s not something I’d recommend. We need better rail and other transit infrastructure across our major urban centres to make this kind of growth viable.
Jenny Schuetz, a former Senior Fellow at the Brookings Institute who studied housing and land use policy, believes that while housing policy is relatively simple, the politics are much more complex. The federal government can provide funding, but the real power lies with local governments and neighborhoods. Meaningful reform is often costly and time-consuming, which is why provincial involvement is essential – municipalities ultimately answer to the provinces.
Without provincial leadership, we can’t effectively tackle the local red tape and tax regimes that hinder progress. Provinces should be setting stronger incentives. Rather than spreading federal funds thinly across multiple jurisdictions, resources should be directed toward communities and provinces that are doing more than just paying lip service to the issue. Creating a few clear early wins could create the political momentum needed to push more cities and provinces toward real, lasting housing solutions, rather than seeing this as simply a source of cash.
Another major initiative the federal government should prioritize is advancing major projects that boost national productivity – and, by extension, wages and salaries. Without addressing this fundamental issue, closing the affordability gap in any meaningful timeframe will not happen. True progress depends on coordinated investments in both economic growth and housing solutions, creating the conditions for Canadians to earn more and access homes that fit their needs.
Independent Opinion
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