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Housing Targets – Ready, Fire, Aim

25 July 2023

In an average year, Canada constructs 200,000 new housing units, including single family dwellings, condos, and other types of homes. Although the pace of construction has been increasing over the past few years, it’s not nearly enough to address affordability challenges and keep up with the demand resulting from a growing population. It is estimated that Canada will need to double the current rate of new home construction over the next decade.

In response to the housing crisis, some provinces are developing housing targets. In BC, for example, the Housing Supply Act enables the province to set housing targets and provides an enforcement mechanism if these are not met. The province has defined ten municipalities with highest projected growth where need is greatest but has yet to set targets. By contrast, twenty-nine municipalities in Southern Ontario have been assigned targets with 1.5 million homes slated to be built over the next 10 years. 

Targets have not been set federally, but Finance Canada and CMHC estimate that Canada will need to build at least 3.5 million new homes by 2031. While the federal government has been signaling that there is a supply issue and has quantified the need, so far all we have is an audacious goal with no clear plan to get there.

Progress against targets

Policy think-tank leader Mike Moffat recently analyzed CMHC data on housing completions and units under construction to gauge progress toward provincial housing targets. He found that Ontario is 17 months into the timeframe – representing 14% progress – against its 10-year target. While Toronto is at nearly 30% of its target, a large part of this construction is high rise condo activity, and as Urbanation notes, the sharp drop in presales will pull completions back down. Project delivery timelines are being stretched as “the development industry faces capacities to deliver no more than just over 20,000 units per year.”  

So, while there has been some headway into closing housing gaps, progress is largely a result of past activity. Without drastic changes to the pace of activity going forward – particularly in the 905 area north of Toronto – Ontario’s 10-year housing targets will not be met.

In BC, statistician Jens von Bergmann’s analysis of housing targets for the greater Vancouver area highlights a major issue in conducting good policy analysis: poor data. He focuses instead on method to determine the level of new housing required to remove the wedge between the cost to build and the price of new homes. 

Von Bergmann finds that while Surrey is building housing roughly in line with demand, most centrally located municipalities are underbuilding. In his view, this is due to the spatial misallocation of housing caused by regional planning. He estimates 500,000 new housing units will be needed over the next 10-years across metro Vancouver. While the province has yet to set specific targets for the 10 municipalities identified, Bergmann’s work suggests they will need to be aggressive.

Accelerating progress

To achieve targets, municipalities will need to speed up development approval cycles and reduce development costs, either through development charges or by making land available for affordable housing. Even with these steps more will need to be done.

More than 85 per cent of the rental housing stock was built prior to 1980.  These purpose-built units benefited from tax policies focused on encouraging increasing housing supply. Until 1972, depreciation rates were set at 10% for wood-frame buildings and 5% for concrete structures. This accelerated depreciation improved cash flow and rate of return for investors. Overall, the tax law was favorable to reinvesting these proceeds which encouraged further development. If tax incentives are fine for clean energy and battery plants, it may be prudent to use them to incent the supply of new housing.


Independent Opinion

The views and opinions expressed in this publication are solely and independently those of the author and do not necessarily reflect the views and opinions of any person or organization in any way affiliated with the author including, without limitation, any current or past employers of the author. While reasonable effort was taken to ensure the information and analysis in this publication is accurate, it has been prepared solely for general informational purposes. Any opinions, projections, or forward-looking statements expressed herein are solely those of the author. There are no warranties or representations being provided with respect to the accuracy and completeness of the content in this publication. Nothing in this publication should be construed as providing professional advice including investment advice on the matters discussed. The author does not assume any liability arising from any form of reliance on this publication. Readers are cautioned to always seek independent professional advice from a qualified professional before making any investment decisions.

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