CMI monitors the latest developments and offers insights on solutions to Canada’s housing affordability crisis
Housing affordability has taken center stage in policy debates.
Over the past 20 years, governments have allocated significant resources to first-time home buyers under the façade that it will make housing more affordable. The beneficiaries of these programs are no doubt grateful, but many economists have argued that demand side incentives push house prices higher. So while the current cohort of homebuyers may benefit, these programs have made it more difficult for the next generation to buy a home without relying on the “Bank of Mom and Dad.”
The numbers tell the story: Between the 2011 and 2021 census, the homeownership rate for all age groups declined, falling from 44.1% to 36.5%. For those aged 30 to 34, homeownership fell from 59.2% to 52.3% over the same period. The dream of homeownership is fading for younger Canadians.
The flip side of the affordability gap is falling house prices for Canadians who already own a home and have a mortgage. In 2021, 66.5% of Canadian households owned homes, down from a record high of 69% a decade earlier. According to the most recent data, more than one-third (35.5%) of these Canadian homeowners have a mortgage.
The challenge then is how do we make housing affordable without crashing the housing market?
Interest rates have significantly influenced affordability, but with central banks raising rates from historic lows, improving affordability through cheaper mortgages looks like history. While there might be some relief in the coming years, we should expect that the ultra-low rates observed when central banks grappled with deflationary pressures are unlikely to return. It is all but impossible to make home ownership cheaper without lowering house prices.
You don’t need to be an economist or a housing expert to agree that something needs to be done to address housing affordability. But so far, we have seen more talk than action – and much disagreement – on the best policy path to make housing affordable.
Currently, the focus has moved from supporting demand to encouraging more supply. The question has been – what kind of housing? Some analysts have focused on the “missing middle” and building more small scale multifamily housing, from duplexes to smaller apartments. Others have argued that we need to focus on social housing, whether it is supplied by the government directly, or by encouraging affordable rental units in larger rental complexes.
Still other analysts have adopted the view that zoning and planning restrictions artificially limit supply and add as much as hundreds of thousands of dollars to the cost of homes. This “zoning tax” is a subset of the broader issues around taxation and municipal finance.
One thing I learned in my years in government is while problem identification is easy, executing solutions is hard. Whether due to organizational inertia, strategies failing to consider implementation or simple politics, it is clear we have dropped the ball on this issue for far too long.
This regular blog will explore policies and structures that can ease the affordability crisis. Our analysis will include an examination of previous programs that have been used in Canada and other parts of the world. CMHC has identified a need for at least $1 trillion in new funding. This will require creating the right incentives and economics for the private sector. A major focus of our discussion will be on how to create the right incentives and build programs that work.
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