Canada can’t have fast population growth, housing supply constraints, and housing affordability

From the MacDonald Laurier Institute

By Steve Lafleur

No one wants to solve the housing crisis enough to make the hard choices.

It’s tempting to try to have it all and policymakers are not immune to this. There are tradeoffs in everything. Ignoring those tradeoffs might work for awhile, but eventually reality catches up to you. Try as we might, we can’t have it all.

For instance, we can’t have rapid population growth, housing supply constraints, and housing affordability all at the same time. We’ll call this the housing affordability trilemma.

The idea of a policy trilemma comes from the Mundell-Fleming model which is included in most introductory economics textbooks. The model was named after Canadian economist Robert Mundell and British economist Marcus Fleming, who developed the idea in the early 1960s. The basic premise of the model, also called the “impossible trinity” or “trilemma” is that you can have two of three policies, but not all three (namely, free capital flow, a fixed exchange rate, and a sovereign monetary policy).

The idea of an impossible trinity can and has been applied to other situations, like the euro crisis in the early 2010s, and provides a useful way of looking at seemingly intractable problems. Plotting the related problems on a Venn Diagram helps visualize the problem. Here is the Mundell-Flemming model, visualized.

(Source: Author’s creation, graphic recreated)

Now, let’s return to housing policy. Few Canadian problems are as intractable as the now nationwide housing affordability crisis. Rents are rising quickly, apartment availability is falling, and home prices are the highest relative to incomes in the G7. As we’ve shown in a recent paper for the MacDonald Laurier Institute, Canada’s population growth is outstripping housing growth. This, unsurprisingly, has undermined housing affordability. Let’s visualize this trilemma.

(Source: Author’s creation, graphic recreated)

At the root of Canada’s housing woes is a severe shortage of homes relative to the number needed. We simply don’t build enough homes to adequately house current and future Canadians.

Not only is there cross-party consensus that there’s a housing shortage, but most parties in provincial and federal elections have proposed policies aimed at addressing it. So why do we still have a shortage?

Let’s go through the elements of the Canada’s housing trilemma (or housing impossibility trinity).

The first element is a fast-growing population. Canada has the fastest growing population in the G7, and last year alone grew by more than a million people. Barring any major shifts in immigration policy, this trend is unlikely to change any time soon. Indeed, the population grew by 430,635 in the third quarter of 2023. That’s the highest quarterly growth rate since 1957.

The second element is restrictions on homebuilding. Whether intended or not, a suite of policies processes and regulations that prevent or limit the addition of more homes both in existing neighbourhoods and at the urban fringe. Barriers to density include local zoning bylaws, lengthy and uncertain consultation processes, and growth plans that exclude building or upgrading the infrastructure necessary to enable more homebuilding in existing neighbourhoods. Policies explicitly preventing the addition of homes outside of existing neighbourhoods include Ontario’s Greenbelt and British Columbia’s Agricultural Land Reserve, while softer versions include local planning targets limiting the share of development slotted to occur on city outskirts. Given these limitations, it’s no surprise that we’ve rarely surpassed 200,000 housing completions annually since the 1970s, while the rate of population growth has reached generational highs.

The third element is housing affordability. That is, the ability for individuals and families earning local incomes to comfortably meet their housing needs. This means shelter costs don’t prevent them from feeding and clothing themselves, but also allow saving and investing in an education, for instance. For example, some peg the cut-off for affordability at 30 percent of income. By that measure, a household would require an income of over $100,000 to afford a one-bedroom apartment in Vancouver, for example.

Whether we like it or not, we can’t have fast population growth, rigid housing supply constraints, and housing affordability all at the same time.

For most of our recent past, the choice we’ve collectively made is to accelerate population growth while maintaining many (if not most) restrictions on both outward and upward growth, meaning we’ve excluded the possibility of achieving broad affordability. The consequences? All the symptoms mentioned before: rising rents, falling vacancies, higher ownership costs.

Despite recent pivots by a growing number of local and provincial governments, the balance of housing and land-use policies remains firmly tilted against reaching the level of homebuilding we need to restore some semblance of affordability, which by some estimates means more than doubling homebuilding. To wit, housing construction has remained remarkably stagnant—even slightly declining—in recent decades. Even the bold changes to zoning recently passed in British Columbia, Ontario and Nova Scotia are unlikely to double the number of housing built provincewide.

But, as the housing trilemma suggests, there are alternative routes. If Canadians remain adamant about affordability, we can demand more meaningful reduction or removal of policies preventing a growth in housing supply, or we can demand a reduction in population growth, or both. These are not easy choices but ignoring them doesn’t make them go away. We need to build upwards, outwards, or both, in order to meaningfully increase housing production. We can’t say no to every solution and expect better results.

The point is, there’s broad consensus that Canada faces a housing crisis, and that major policy actions are needed to fix the problem. There’s also a tacit consensus that the policies feeding the crisis should remain in place.

To put it more bluntly, everyone wants to solve the housing crisis, but no one wants to solve the housing crisis enough to make the hard choices. Until we collectively shift our priorities, we are choosing to sacrifice housing affordability. We can’t have it all. If we insist on maintaining fast population growth and restrictions on supply, we’ll get the broken housing market we deserve.

Steve Lafleur is a public policy analyst who researches and writes for Canadian think tanks.

Related Topics:#CanadaHousingCrisis #HousingAffordability #HousingSupply #MacdonaldLaurierInstitute #PopulationGrowth #SteveLafleur

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Debunking the myth of the ‘new economy’

Published on January 22, 2025

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From Resource Works

Where the money comes from isn’t hard to see – if you look at the facts

In British Columbia, the economy is sometimes discussed through the lens of a “new economy” focused on urbanization, high-tech innovation, and creative industries. However, this perspective frequently overlooks the foundational role that the province’s natural resource industries play in generating the income that fuels public services, infrastructure, and daily life.

The Economic Reality

British Columbia’s economy is highly urbanized, with 85% of the population living in urban areas as of the 2021 Census, concentrated primarily in the Lower Mainland and the Capital Regional District.
These metropolitan regions contribute significantly to economic activity, particularly in population-serving sectors like retail, healthcare, and education. However, much of the province’s income—what we call the “first dollar”—originates in the non-metropolitan resource regions.

Natural resources remain the backbone of British Columbia’s economy. Industries such as forestry, mining, energy, and agriculture generate export revenue that flows into the provincial economy, supporting urban and rural communities alike. These sectors are not only vital for direct employment but also underpin metropolitan economic activities through the export income they generate.

They also pay taxes, fees, royalties, and more to governments, thus supporting public services and programs.

Exports: The Tap Filling the Economic Bathtub

The analogy of a bathtub aptly describes the provincial economy:

Exports are the water entering the tub, representing income from goods and services sold outside the province.
Imports are the water draining out, as money leaves the province to purchase external goods and services.
The population-serving sector circulates water within the tub, but it depends entirely on the level of water maintained by exports.

In British Columbia, international exports have historically played a critical role. In 2022, the province exported $56 billion worth of goods internationally, led by forestry products, energy, and minerals. While metropolitan areas may handle the logistics and administration of these exports, the resources themselves—and the wealth they generate—are predominantly extracted and processed in rural and resource-rich regions.

Metropolitan Contributions and Limitations

Although metropolitan regions like Vancouver and Victoria are often seen as economic powerhouses, they are not self-sustaining engines of growth. These cities rely heavily on income generated by resource exports, which enable the public services and infrastructure that support urban living. Without the wealth generated in resource regions, the urban economy would struggle to maintain its standard of living.

For instance, while tech and creative industries are growing in prominence, they remain a smaller fraction of the provincial economy compared to traditional resource industries. The resource sectors accounted for nearly 9% of provincial GDP in 2022, while the tech sector contributed approximately 7%.

Moreover, resource exports are critical for maintaining a positive trade balance, ensuring that the “economic bathtub” remains full.

A Call for Balanced Economic Policy

Policymakers and urban leaders must recognize the disproportionate contribution of British Columbia’s resource regions to the provincial economy. While urban areas drive innovation and service-based activities, these rely on the income generated by resource exports. Efforts to increase taxation or regulatory burdens on resource industries risk undermining the very foundation of provincial prosperity.

Furthermore, metropolitan regions should actively support resource-based industries through partnerships, infrastructure development, and advocacy. A balanced economic strategy—rooted in both urban and resource region contributions—is essential to ensure long-term sustainability and equitable growth across British Columbia.

At least B.C. Premier David Eby has begun to promise that “a new responsible, sustainable development of natural resources will be a core focus of our government,” and has told resource leaders that “Our government will work with you to eliminate unnecessary red tape and bureaucratic processes.” Those leaders await the results.

Conclusion

British Columbia’s prosperity is deeply interconnected, with urban centres and resource regions playing complementary roles. However, the evidence is clear: the resource sectors, particularly in the northern half of the province, remain the primary engines of economic growth. Acknowledging and supporting these industries is not only fair but also critical to sustaining the provincial economy and the public services that benefit all British Columbians.

Sources:

Statistics Canada: Census 2021 Population and Dwelling Counts.
BC Stats: Economic Accounts and Export Data (2022).
Natural Resources Canada: Forestry, Mining, and Energy Sector Reports.
Trade Data Online: Government of Canada Export and Import Statistics.

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Undemocratic tax hike will kill hundreds of thousands of Canadian jobs

Published on January 22, 2025

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From the Canadian Taxpayers Federation

By Devin Drover

The Canadian Taxpayers Federation is demanding the Canada Revenue Agency immediately halt enforcement of the proposed capital gains tax hike which is now estimated to kill over 400,000 Canadian jobs, according to the CD Howe Institute.

“Enforcing the capital gains tax hike before it’s even law is not only undemocratic overreach by the CRA, but new data reveals it could also destroy over 400,000 Canadian jobs,” said Devin Drover, CTF General Counsel and Atlantic Director. “The solution is simple: the CRA shouldn’t enforce this proposed tax hike that hasn’t been passed into law.”

A new report from the CD Howe Institute reveals that the proposed capital gains tax hike could slash 414,000 jobs and shrink Canada’s GDP by nearly $90 billion, with most of the damage occurring within five years.

This report was completed in response to the Trudeau government’s plan to raise the capital gains inclusion rate for the first time in 25 years. While a ways and means motion for the hike passed last year, the necessary legislation has yet to be introduced, debated, or passed into law.

With Parliament prorogued until March 24, 2025, and all opposition parties pledging to topple the Liberal government, there’s no reasonable probability the legislation will pass before the next federal election.

Despite this, the CRA is pushing ahead with enforcement of the tax hike.

“It’s Parliament’s job to approve tax increases before they’re implemented, not the unelected tax collectors,” said Drover. “Canadians deserve better than having their elected representatives treated like a rubberstamp by the prime minister and the CRA.

“The CRA must immediately halt its plans to enforce this unapproved tax hike, which threatens to undemocratically take billions from Canadians and cripple our economy.”