Housing starts soar, but it’s still not enough
Building more was supposed to be the solution
No issue unites Canadian voters more than the sense that housing costs in Canada have spun wildly out of control, especially for young people hoping to enter the market. They’re not wrong: in the Vancouver and Toronto markets, average home prices have soared past $1 million, and similar trajectories can be seen in less expensive cities.
Policy-makers have responded to a degree by encouraging more residential investment, and housing development has indeed surged. Despite higher interest rates and construction costs, the number of housing units under construction in Canada was at a record high of over 350,000 at the end of 2023. Building more was supposed to be the solution to this crisis — so why hasn’t it worked?
The truth is that while we’re beating our previously anemic levels of housing construction, rapid population growth, driven in part by high immigration levels, has swelled demand and put an affordable housing equilibrium out of reach. That’s not a problem that can be solved by one or even a few more build-heavy years. Our leaders at all levels, from municipal councils to federal officials, need to recognize how our planning and housing policies are still failing to deliver affordable shelter to millions of Canadians.
The great majority of the recent new crop of housing units are in multifamily buildings; primarily rental apartments and condominiums. It takes around 200 new multifamily rental projects per million people to keep a balance between apartment rental supply and demand; over the past three decades, Canada routinely underproduced this level and only began to make up for lost ground in the last three years. The tipping point seems to have been in the 1990s, when Canada’s apartment rental vacancy rate fell from about five per cent in the early 1990s and languished at an extremely tight two per cent to three per cent thereafter. At the end of last year, it was down to just above one per cent, a distressingly small window of options for renters.
Condo buyers also face additional competition from speculative investors. While most of the demand for condo units is from people hoping to occupy them themselves, these units are often being purchased by investors more interested in them as a vehicle for capital appreciation, not a place to live.
But the housing boom has mostly been confined to multifamily construction. New supply of single-family detached homes, the aspiration of millions of young Canadians, continues to be hobbled by a dearth of desperately-needed development. At the end of 2023, only around 30,000 single-family detached homes had been built — compared to over 40,000 units per year during the late 1980s, when the country’s population was nearly half the size it is today. We are simply not building anywhere close to the volume of new homes needed to make homeownership accessible to the next generation of Canadians.
The primary culprit for this lack is excessively restrictive zoning in most jurisdictions, making it difficult if not impossible to build new ground-oriented homes where they’re wanted most. We have legislated ourselves into an artificially scarce single-detached housing market; as a result, inflation-adjusted single-detached home prices since the late 1980s have more than tripled.
The good news is that there are steps policymakers can take to address these issues, restore equilibrium to the residential market, and make renting and homeownership much more affordable to Canadians. Pushing even more heavily on the gas pedal for multifamily construction to make up for previous years’ shortfalls will help, as will restrictions on speculative investment in the condo market that free up units for owner-occupiers. Pulling back on immigration levels would also bring supply more in line with demand. Most importantly, local zoning restrictions that make new homes virtually impossible to build must be loosened.
These actions will take time, and they may ruffle the feathers of those who have enjoyed the benefits of our misaligned housing policies. But they are a worthy and important pathway to ensuring true housing affordability for all Canadians.