This article originally appeared in the Globe and Mail.
By Steve Lafleur and Josef Filipowicz, April 11, 2023
Housing affordability has metastasized from a Toronto and Vancouver problem to a national crisis. Double-digit rent increases have hit traditionally more affordable communities coast to coast, and the cost of home ownership remains persistently high amid rising interest rates. One of the main reasons for the lack of affordability, according to our recent report, is the misalignment between Canada’s different levels of government.
Over all, Canada’s system of decentralized federalism has served us well. Allowing different levels of government to make decisions that suit their own contexts is usually the right approach when it comes to program delivery. A century ago, Louis Brandeis, then a justice on the U.S. Supreme Court, famously referred to states as “laboratories” for policy experimentation. This holds true for Canadian provinces, and on the whole, the structure is healthy for a medium-sized country spread out over the world’s second-largest land mass.
Many factors have contributed to eroding housing affordability, but the fundamental problem is a growing mismatch between supply and demand. While residential construction in Canada has plateaued, falling well short of historical highs, our population is growing faster than that of any other G7 nation.
Canada’s population growth averaged 422,000 additional inhabitants per year (July to July) between 2012 and 2022, compared with 335,000 annually over the previous decade. This trend is accelerating, with net growth of more than 500,000 inhabitants in three of the past five years, including a record 703,404 between 2021 and 2022.
Meanwhile, housing completions have stagnated over the past five decades. Between 2012 and 2022, an average of 195,000 homes were built annually, down from 199,000 annually the decade before – and 229,000 annually during the 1970s, Canada’s home-building highpoint.
Which brings us back to Canada’s system of governance. Population growth is controlled in large part by the federal government, and home building primarily by provincial and local governments.
Since the early 1990s, immigration has replaced net births (births minus deaths) as Canada’s primary driver of population growth. Unlike birth rates, which governments can only indirectly influence, immigration numbers are determined by government policy. For example, Canada’s most recent Immigration Levels Plan aims to add 465,000 new permanent residents in 2023, then 485,000 in 2024, and 500,000 in 2025 – the highest immigration levels ever.
Provincial and local governments, meantime, are tasked with planning for and approving enough housing to keep up with this record population growth. They do so through a series of land-use and growth plans, starting at the provincial or regional level and ending with local plans and bylaws governing how much building is permitted to happen, and where.
In short, the federal government (and, to varying extents, provinces) wield a formidable lever over housing demand, while provinces and municipalities largely control the housing supply. Unfortunately, these two sets of policy levers – immigration policy versus growth planning – are essentially set in isolation of one another.
Immigration levels plans, which are updated every year, are partly informed by a series of federal-provincial/territorial agreements. However, none of the current agreements even mention the word “housing,” focusing instead on concerns such as labour market needs and language requirements. These are important considerations, but newcomers also need places to live.
Meanwhile, provincial and local growth planning takes years to implement and update. For example, the Ontario government updated its 2006 growth plan for the region surrounding Toronto in 2019, and again in 2020, giving municipalities until 2022 to adjust their local plans accordingly. However, municipal plans can take years to translate into updated zoning bylaws, if at all, and since there is no strict enforcement of growth plans’ housing targets, they amount to a best guess as to how communities might grow.
Further, the length of time it takes to create and execute local plans means their population growth assumptions are often outdated before or during their implementation. While immigration levels plans are updated annually, major provincial directives – such as Ontario’s 2022 target of getting 1.5 million homes built over the next decade – are already a step behind.
Federal, provincial and municipal policy makers all need to get on the same page. Canada’s housing shortage won’t end until immigration policies start reflecting the reality of our housing markets, or until land-use and growth planning accurately reflects population growth. Without better co-ordination, the housing crisis will likely get worse.
Steve Lafleur and Josef Filipowicz are policy analysts who research housing and taxation. This article is part of a project they undertook with the Macdonald-Laurier Institute.