Housing crisis presents multifaceted challenge

Canada’s housing crisis presents a multifaceted challenge that has garnered significant attention due to its profound implications for Canadians across the socioeconomic spectrum. The crisis is characterized by a shortage of affordable homes and by rapidly rising real estate prices; this article aims to provide a comprehensive analysis of the structural causes of the crisis.

It will focus on the interplay between immigration policies geared toward economic enhancement and restrictive governmental regulations affecting the housing market. By examining these factors, one can better understand the complexities of the crisis and propose potential solutions to ensure sustainable development and affordability in the housing sector.

Key contributing factors to the housing crisis

Reliance on immigration for economic growth

Canada’s strategic reliance on immigration to drive economic growth and demographic expansion has positioned it as one of the fastest-growing G7 nations. However, this has placed immense pressure on the housing market, especially in major urban centres where demand significantly outstrips supply, resulting in soaring housing prices and making homeownership increasingly unattainable for many Canadians.

Government regulation, development charges, and taxes

The regulatory framework governing housing development in Canada significantly contributes to the housing crisis. Developers are hindered by lengthy permitting processes, high development charges, rent controls, and various taxes that escalate the costs of housing construction. These barriers not only deter new developments, but also delay the introduction of new housing to the market, tightening supply and exacerbating affordability issues.

The resulting crisis

Housing shortage

The direct consequence of high immigration rates coupled with restrictive development policies is a pronounced housing shortage, particularly acute in major urban centres. This shortage leads to overcrowding and housing insecurity, as many Canadians struggle to find suitable housing.

Homeownership affordability

The widening gap between housing prices and average incomes has led to a decline in homeownership rates, particularly among younger generations. Cities like Vancouver and Toronto have experienced exponential real estate market growth, pushing many Canadians toward renting, which further exacerbates the demand for rental housing.

The boom in multi-residential real estate

Increasing demand for rental housing

As homeownership becomes increasingly unaffordable, more Canadians are turning to the rental market, spurring a boom in multi-residential real estate. This sector offers significant investment returns due to high demand and low supply. However, the pace of new rental unit construction has not kept up with the growing demand, resulting in even lower vacancy rates and higher rental costs.

Government response and emerging solutions

Policy adjustments

In response to the escalating housing crisis, the Canadian government has implemented several measures aimed at facilitating housing development, including tax breaks for new rental construction and streamlined regulatory processes. However, these efforts, while steps in the right direction, are insufficient to address fully the systemic issues underlying the crisis.

Long-term strategies

For a durable resolution to the housing crisis, Canada must adopt a comprehensive approach that addresses both the supply and demand sides of the equation. This includes adjusting immigration levels to align more closely with housing capacity, simplifying the development approval process, and fostering investments in housing infrastructure.

The math – quantifying the rental supply deficit

With conservative assumptions and trying to assess the implications of current policy changes, Fiera Real Estate’s projections indicate a persistent shortfall in rental housing, with an estimated deficit of over 500,000 units by 2040. This stark discrepancy highlights the urgent need for accelerated development in the multi-residential sector to accommodate the growing number of renters. Without substantial investment in rental housing, the affordability crisis will only intensify, leading to greater inequality and social instability.

The need for a holistic approach

The housing crisis in Canada requires a holistic approach if it is to be addressed effectively. While shifting government policies to minimize interference with the private sector are necessary, they often fall short. More has to be done to leverage free-market forces, which can more effectively meet housing demand and adjust prices to realistic levels. By understanding the root causes of the crisis and implementing minimal but targeted interventions, Canada can work toward building a housing market that is accessible, affordable, and sustainable for all Canadians.

It is essential for policymakers, developers, and community stakeholders to collaborate closely to develop innovative solutions that prioritize the needs of vulnerable populations and promote inclusive growth. Only through such concerted efforts can Canada hope to achieve a stable housing market that supports the well-being of its citizens and the overall health of its economy. Fiera Real Estate (FRE) is committed to being part of the solution by focusing on developing new rental housing across the country in order close the supply deficit. Leveraging FRE’s real estate capabilities helps to provide Canadians with attractive and affordable rental options. FRE estimates that market equilibrium will not have been achieved by 2040, creating runway to contribute to the housing solution while driving value for investors in multi-residential real estate, an otherwise stable and steady sector.

Michael Le Coche is director, research and predictive analytics, at Fiera Real Estate Investments Limited