By Anthony De Luca-Baratta, August 22, 2025
When it comes to housing unaffordability in Canada, Prime Minister Mark Carney has correctly diagnosed the problem – but prescribed the wrong solution. The cost of new homes across the country increasingly exceeds the average family’s budget. But Carney’s proposal to establish a new federal entity, Build Canada Homes, to “get the government back in the business of homebuilding,” will make matters worse.
During the recent election campaign, the Liberal leader promised to make the federal government into an affordable housing developer by, among other proposals, offering low-cost financing to affordable-housing builders. This approach falsely implies that housing is what economists call a public good – something governments provide because the market cannot.
National defence is a perfect example of a public good: private contractors alone would be unable to withhold protection from those who failed to pay for their services, incentivizing many to welcome the security without paying a dime. In economics jargon, this is known as the “free-rider problem.” Defence contractors would quickly go bankrupt, and the nation would be left defenceless. For this reason, the government is the primary provider of national defence in all functioning states.
If housing suffered from the same market failure as national defence, the government’s approach would have some merit. But it does not, indicating that housing is not, in fact, a public good. The laws of supply and demand are thus the most efficient way of determining both the quantity and price of housing.
In a free housing market, when prices begin to rise, builders build more units to earn higher profits. Over time, competition among builders, homeowners, and landlords forces prices back down because individuals who overcharge lose customers to those who do not. Because overcharging is bad for business, the market provides an abundance of housing at prices negotiated among millions of buyers and sellers. The result is a natural supply of affordable housing – no special incentives needed.
Some in Canada might dismiss this logic as hopelessly naïve. According to these individuals, inflated prices come primarily from landlords and developers squeezing Canadians for more profit and greed is running rampant in the Canadian housing market.
The truth is that developers and landlords are responding rationally to bad economic policy, and homebuyers and renters are footing the bill. Municipalities across Canada limit building heights, set aesthetic standards, ban certain types of construction in designated areas, impose parking requirements, and legislate minimum lot sizes, among a host of other land-use regulations.
These rules make housing harder and more costly to build, constraining supply and radically inflating prices. The C.D. Howe Institute estimates that these regulations cost homebuyers an average of $230,000 in Vancouver, Abbotsford, Victoria, Kelowna, Calgary, Toronto, and Ottawa-Gatineau. In Vancouver, that figure is an eye-watering $1 million.
It is this economic reality, not an unwillingness to build affordable housing, that lies at the root of Canada’s housing crisis.
Housing Minister Gregor Robertson inadvertently admitted as much when he cautioned that there would be no quick solution to Canada’s housing crisis because “projects take years to approve and build.” The minister failed to acknowledge that these delays are due to cumbersome municipal regulations.
To solve Canada’s housing crisis, Carney must begin by recognizing that affordable housing in Canada is in short supply because local governments have made it impossible to build. The housing market could provide affordable housing on its own – no taxpayer-funded subsidies required – if only the government would reduce burdensome industry regulations. Just look at jurisdictions with virtually no land-use regulations, like Houston, Texas, where housing is abundant and affordable. Studies have consistently shown that wherever land-use regulations are low, so are home prices.
To be fair, the Liberal Party’s election platform did acknowledge the need to cut federal housing regulations. It also suggested that it wanted local governments to streamline development, though it was short on specifics. But since the election, there is no sign that the government is moving forward with any of these proposals.
The prime minister needs to tell local governments that their federal funds will dry up if they don’t start getting out of the way of housing development. He should also offer bonuses to cities that are especially quick to build new units. Canadians need shovels in the ground now. It is time for the prime minister to use the bully pulpit to put them there.
Anthony De Luca-Baratta is a contributor to the Center for North American Prosperity and Security, a project of the Macdonald-Laurier Institute, and a Young Voices Contributor based in Montreal. He holds a master’s degree in international relations from the Johns Hopkins School of Advanced International Studies in Washington, DC.
