This article originally appeared in iPolitics.
By Tsur Somerville, January 8, 2026
Canada is caught in a housing affordability bind: far too many Canadians are locked out of homeownership and face staggering rental costs, but rapidly boosting affordability will come with serious financial risks in its own right. Given the crisis we’re in, it’s a trade-off Ottawa must seriously consider.
Without emergency action, it’s difficult to envision how an industry that averaged 209,000 housing starts per year since 2000 will rapidly scale to the 430,000 annual starts the Canada Mortgage and Housing Corporation (CMHC) estimates are required to meet affordability targets by 2035. With stagnant supply growth, young Canadians are left facing massive hurdles to even rent the kind of home that would support building a family, let alone purchase one.
It’s a pressing issue, but governments face serious perils in seeking a quick remedy: significant, rapid housing affordability improvements risk economic and fiscal stability. That’s because the relaxed lending standards needed to spur more construction would make the financial system more vulnerable, and government loan guarantees or subsidized loan insurance would create large obligations on the already strained federal balance sheet.
Instead, housing affordability would ideally be restored through sustained increases in the supply of market housing—achieved through structural changes that reduce regulatory delay and uncertainty, and productivity improvements that lower construction costs. But these measures, while safer, are long-run strategies.
Present circumstances demand that governments weigh riskier options. Average housing construction since 2000 is half the level needed to restore affordability. Without more aggressive measures to accelerate starts, the Canadian housing dream will skip a generation.
Higher starts are possible: if Canada built at the same per-capita rate as in 1971, 2024 starts would have surpassed 490,000—60,000 higher than the CMHC target—suggesting that constraints today are largely institutional and financial, rather than physical.
Here’s some higher-risk, higher-reward trade-offs Canadian policymakers should consider as part of a strategy to speed construction and thereby boost affordability.
Looser capital standards
Our current condominium financing system prioritizes lender protection over supply growth. It requires large project developers to pre-sell 50-70 percent of units, thereby reducing lender risk.
However, when developers face a limited pre-sales window, it means investor-buyers are essential customers. This works when prices rise quickly as investors can profit from flipping pre-sale contracts or use the contracts as a form of financial leverage to boost their return on equity.
With prices largely flat in recent years, these pre-sale requirements now represent a formidable barrier to new construction. The financial calculus for retail investors does not work when potential rapid gains from price appreciation disappear. With developers left struggling to meet pre-sale obligations, condo construction has declined sharply—from 40 per cent of all starts in 2018 to 24 per cent in 2025. Moreover, the reliance on investor-buyers rather than end-users has skewed unit mix toward smaller condos, creating a mismatch with long-term household and societal preferences.
Looser capital standards that do not rely on pre-sales would boost supply by enabling more construction during periods of low-price inflation. To balance out the risk to lenders, Ottawa could consider subsidized insurance for construction loans.
Recent rental supply improvements illustrate how such public-sector risk-taking can stimulate construction. CMHC’s Apartment Construction Loan Program has lowered borrowing costs for developers of purpose built-rentals. This has contributed to a 144 percent increase in rental housing starts for 2020-25, as compared to 2012-2019.
This relaxation of underwriting standards and lower cost of debt comes with its own risks.
Historical experience — from the savings and loan crisis in the 1980s to the global financial crisis of 2008—demonstrates that overly loose real-estate lending invites overbuilding and financial instability. It’s an explicit trade-off: greater supply at the cost of greater financial risk.
Accepting greater instability
But this risk has its silver lining: greater housing market instability offers two counterintuitive benefits.
First, lender-driven liquidation of unsold inventory is one of the few mechanisms that reliably reduces prices in the short-run. Because of “sticky-prices,” market slowdowns typically reduce sales volume rather than trigger price corrections. Forced selling by lenders breaks this pattern and pushes prices downward. The danger is that too rapid and steep a drop would push the economy into recession.
Second, increased volatility may weaken the perception of housing as a risk-free wealth-building tool. If homeownership is no longer seen as a one-way bet, some household capital may flow toward more productive sectors rather than ever-larger investments in residential property.
We know how to improve affordability through increased supply. Yet relying solely on regulatory reforms and cost reductions means it will take years to restore affordability. Rapid construction productivity growth remains aspirational across the developed world. Faster gains require higher risk tolerance. But that’s a worthy trade-off to return housing affordability to a generation of Canadian families.
Tsur Somerville is a real estate finance professor at UBC’s Sauder School of Business, and a contributor for the Macdonald-Laurier Institute.
