Canada Construction Co.
The government which governs least doesn’t build homes. An analysis of the status quo and a far-fetched idea.
“HOUSING HELL”. “Housing crisis finally puts Trudeau’s feet to fire”. “Trudeau Liberals keep proving they don’t care about housing crisis”. These are the kinds of headlines covering the evolving housing affordability crisis in Canada and entitle articles which often predict certain death for the Prime Minister’s hopes in the next election. My opinions on the real electoral implications for the Liberal party could fill an article of their own. For now, I’d like to discuss the crisis itself, what role the federal government is playing, and what further action could be taken.
How bad is it…?
It can be said with reasonable confidence that it has never been harder for a Canadian to rent or purchase an affordable home since World War II. This, coupled with a general inflationary crisis, is creating a serious public opinion problem for the federal Liberals. Polling at ~27% at the time of writing, the Canadian electorate appears to be doing what it has done so many times throughout our history: punishing the government for an economic crisis. And the statistics seem to demonstrate that the anger is far from unfounded. The fact is, Canada has not built nearly enough affordable homes over the last twenty to thirty years. Yes, shockingly, this problem started well before our current Prime Minister took office. But just how far behind are we?
Canada’s housing crisis starts with a significant shortage of affordable housing. The Canadian Mortgage and Housing Corporation (Canada’s Federal housing agency) estimates that based on current projections, Canada will have a ~3.5M affordable housing unit shortage by 2030. Definitions of “affordable” vary slightly by source, but for this article’s purposes, let’s use the CMHC definition: “Housing for which the purchase price results in annual accommodation costs which do not exceed 30 percent of gross annual household income for low and moderate income households”. This shortage has had tremendous effects on housing and rental prices, disproportionately affecting youth and those in poverty. The 22 year old new graduate, or a single parent family living near the poverty line, are facing a daunting housing market with even 1 bedroom apartments averaging ~$2,200/month as an average. Housing prices are significantly more expensive than Canadians with a median income can afford. This is on top of other existing affordability concerns such as food prices, which are outpacing already significant inflationary challenges. So, to answer our original question, it is bad. Very bad.
If you watch partisan Conservative attack ads on the subject, you might come to the decision that the current Liberal government has outright ignored this issue. This narrative from Poilievre’s team is wilfully ignorant of the fact that Canada has established the National Housing Strategy (NHS), something that has never existed before in this country. The NHS, launched in 2017, is a 10 year federal funding initiative to provide grants and low cost loans to housing development projects nationwide. What began as a $40B plan has now grown to $82B six years later. The stated goals of the strategy are to build 160,000 new housing units and repair/refurbish 300,000 units. A couple of its key programs include the Apartment Construction Loan Program (ACLP, $25.75B) providing low-cost loans to rental construction projects and the National Housing Co-Investment Fund (NHCF, $13B) supplying low-cost loans to partner organizations currently working with another level of government. Another program that has popped up in the news quite frequently recently, the Housing Accelerator Fund, provides federal incentive money to municipalities who commit to meeting or exceeding ambitious housing construction targets. Toronto recently announced it’s taking advantage of said program, receiving $471M in exchange for commitments to the goal of building 12,000 new units over 3 years.
The program is well on its way to completing its originally stated goals, but what the strategy really represents is a concerted effort on the part of the federal government to ‘get back in the game’ of housing. From “changing the formula” for a developer’s cost of construction through low-cost loans and eliminating the applicable GST, to incentivizing other levels of government to pull their weight with cash payments, the Trudeau government has made it clear they are here to help.
The humble beginnings of federal housing
If a ‘Trudeau’ taking meaningful steps to make life easier for Canadians struggling to find affordable housing sounds familiar, that’s because it should. One of the most ambitious pillars of Pierre Trudeau’s long time in office was his commitment of federal money to building social and co-op housing. Under his leadership, Canada saw a significant housing construction boom in the 1970s, hitting new completed-unit numbers that we haven’t been close to since. This was done through a comprehensive approach: reforming the National Housing Act to allow the government to commit billions in financial assistance to first time home buyers, as well as offering low-interest loans to development projects of co-op and non-profit housing. In addition, the government supplemented the rent where it could for those in need by providing grants for the difference between affordable and market rates.
This was the federal government stating unequivocally that although the constitution may not have an answer for which level of government is responsible for housing, the Liberal party does. Yet this was not to last. When Prime Minister Brian Mulroney was elected in 1984, he began a process of slashing federal money for affordable housing initiatives that would become a norm for successive Canadian governments. That is, until now.
Practical ambition
Pierre Poilievre would have one believe that the affordability crisis is solved by cutting red-tape. There is seemingly no other solution offered. Of course, there is some red-tape that needs to be addressed. “NIMBYism” has taken root in many municipalities across Canada, causing city councils to occasionally act as bottlenecks for construction permits. Zoning restrictions that don’t take into account the desperate need for density and housing near important services such as public transit prevent developers from building units where we need them most. But trusting the private sector, which has had free reign over the housing market for the last 40 years resulting in today’s crisis, to have sole authority over constructing the amount of housing we need, especially affordable housing, is nonsensical. I’ll add here that although there are occasional cases of bad apple developers, for most the economics simply aren’t there to reliably construct housing in these uncertain financial times, let alone below-market units which tip the revenue vs. cost scales even further. This is an environment ripe for government to make a difference.
This brings us to the lofty solution in this piece. A solution that would take a significant amount of research to both determine its long-term cost and its affect on the broader housing market, but which I believe is something that needs to be explored (if only, at worst, to eliminate it as a viable option). What if Canada had a developer, even just an emergency one, that wasn’t affected so significantly by that razor thin cost/benefit economic analysis? As we have shown here, the country is in need of a war-like approach to building homes. We need to build homes as fast or even faster than we did during our peak in the 1970s: 1.3M homes in 10 years, above the current pace of construction. Currently government is giving some help to the buyers, and some help to the developers. But what if we embrace the fundamental social welfare tradition of our country and boldly allow government to step in and replace the middle-man? If Canada had a federal developer, operating at or below break-even, that would mean the federal government could work directly with provinces and municipalities to get housing projects kicked off on all available public lands, as well as private lots where available. The developer could use pre-approved housing designs that satisfy zoning laws, and provide the up front investment needed to get shovels in the ground. It could take risks that private interests simply aren’t willing to make, all for the national interest — not the bottom-line concerns of a private corporation.
I can already hear the concerns. ‘Government doesn’t have the experience for this’. Fair, but let’s learn, let’s co-operate with those institutions who do have the experience and start to build understanding in the bureaucracy that will help Canadian governments well into the future. ‘Sounds like a bottomless money-pit’. Sometimes, in national emergencies, short-term intelligently placed stimulus is what’s required (see Covid-19 response). ‘It won’t be enough’. No, it won’t. The Canadian government can not buy its way out of this housing hole, it simply doesn’t have enough capital. However, it can help significantly fill the gap in the market for affordable units, while continuing the Liberal strategy of helping the private sector achieve profitability in market-priced housing.
The best refutation the Liberal party has to the “solutions” provided by the Conservatives is actually a bi-partisan one. Both parties have dropped the ball on housing for the last few decades. Both parties have allowed the market to set the pace of construction, and now we find ourselves woefully behind. What is a Canadian voter’s choice in the next election? Mr. Poilievre who says it’s time to wipe our federal hands clean of this issue once and for all, or Mr. Trudeau who says it’s time for a bold change in approach. The Conservative party better be careful, for the more they trumpet this issue alongside solutions that essentially amount to the status-quo, the more Canadians may feel the problem is too big for a future absent Poilievre government.
