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Economy

Housing policy should focus on closing the demand-supply gap, not inducing demand or stifling supply

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From the Fraser Institute

FEDERAL REFORMS TO IMPROVE HOUSING AFFORDABILITY

BY JOSEF FILIPOWICZ AND STEVE LAFLEUR

Canada’s declining housing affordability reflects a large, worsening imbalance between housing demand and housing supply.

Few policy areas are gaining as much attention in Canada as housing. This is unsurprising, given that Canada has the largest gap between homes prices and incomes among G7 nations (OECD, 2023) and rents continue to rise in most cities (Statistics Canada, 2023a). As eroding housing affordability has expanded to more parts of Canada, demands for policy solutions have grown beyond local jurisdictions, pressuring federal decisionmakers to act.

First, this essay offers a diagnosis of the issue—a large, growing imbalance between housing demand and supply. Second, it discusses federal policies affecting housing demand, urging better coordination and restraint amid tight supply conditions. Third, it discusses the federal government’s less-direct—though still important—options to improve housing supply.

Guiding principles: do no more harm, and close the demand-supply gap

Canada’s declining housing affordability reflects a large, worsening imbalance between housing demand and housing supply. This is evident when comparing trends in population growth and housing completions. Figure 1 charts these two metrics between 1972 and 2022. In recent years, Canada’s population growth has accelerated, while the number of homes completed has declined relative to the 1970s. 1

Policy efforts should focus on closing the demand-supply gap. The federal government should first ensure that it is not exacerbating the problem, either by stoking demand or by stifling supply, and second by both reviewing all existing policies through a supply-demand lens while implementing tailored policies aimed at closing the demand-supply gap.

Demand-side considerations for federal housing policy

Though all levels of government influence both housing demand and supply, the federal government’s policy levers pertain more directly to demand. They do so in two important ways.

First, federal policy influences population growth. As Canada’s birth rate has declined, population growth has been driven primarily by immigration (including both permanent and temporary residents) (Statistics Canada, 2023c). Though provinces may influence immigration decisions, the federal government establishes annual targets (where applicable) and admission criteria (Filipowicz and Lafleur, 2023).

Second, the federal government influences households’ ability to pay for housing. Policies for home buyers including the First-Time Home Buyers’ Tax Credit and the First Home Savings Account, which, combined with the Home Buyers’ Plan, enable the accumulation of tax-free savings for a down payment. Federal policies for homeowners include the exemption from capital gains taxation on the sale of primary residences, loan insurance through the Canada Mortgage and Housing Corporation, and residential mortgage underwriting through the Office of the Superintendent of Financial Institutions. Combined, these policies influence the relative attractiveness of housing as an investment.

Without adequate supply, these policies result in higher prices, rather than greater affordability. The federal government should review all existing or proposed policies directly or indirectly impacting housing demand. Further, it should adopt the following two policy approaches:

• Stronger consideration of housing supply dynamics when determining short, medium and long-term immigration targets or visa issuance. For example, supply metrics (e.g. housing starts, completions, and rental vacancy rates) should help inform multi-year plans or criteria for permanent and non-permanent resident admissions.

• Refraining from introducing new demand-inducing subsidies, such as tax credits or subsidies to homebuyers and homeowners, while comprehensively reviewing the impact of existing subsidies.

Supply-side considerations for federal housing policy

Housing supply in Canada is influenced primarily by provincial and local governments. Decisions concerning land-use and growth planning—including for lands owned by the federal government—largely rest with these levels of government, meaning housing construction projects cannot be realized without first aligning with, and receiving approval from, local authorities. Federal policies aiming to grow the housing supply must account for this.

Federal influence on housing supply can be divided into four policy types. First are fiscal transfers. Every year the federal government transfers billions of dollars to municipalities to fund infrastructure. In some cases, funding is permanent and based on federal-provincial agreements.3 In other cases, funding is negotiated for specific projects.4

Second, the federal government also funds the development of non-market housing. Programs such as the National Co-Investment Fund and Rapid Housing Initiative offer low-interest or forgivable loans, and direct funding, respectively, to organizations building or acquiring non-market housing.

Third, federal tax policies and programs influence the financial feasibility of homebuilding. For example, federal sales and capital gains taxes apply differently to different housing types, such as condominiums, rental buildings and accessory dwelling units (e.g. basement or laneway suites).5
Further, federal programs such as the Rental Construction Financing Initiative and multi-unit mortgage loan insurance products influence project feasibility by providing rental builders with low-interest loans or reduced premiums.

Fourth, the federal government’s primary responsibility for immigration gives it significant influence over the mix of skills prioritized in application screening, affecting the construction sector’s ability to recruit workers. Indeed, the share of immigrants working in the construction sector was lower than that among Canada’s overall population in 2020 (BuildForce Canada, 2020), reflecting the longstanding selection preferences of federal immigration policy until more recent changes.6

The federal government should coordinate with local and provincial governments as it develops policies, avoiding the creation of additional barriers and duplication. Specifically, the following three approaches should inform federal efforts to improve housing supply:

• Tying all federal infrastructure funding to housing supply metrics such as housing stock growth, starts or completions, ensuring limited funds are directed to those regions facing the strongest growth pressures in a transparent fashion, while reducing administrative costs and jurisdictional overlap.

• Reviewing and reforming the tax treatment of all housing development, helping improve the feasibility of large- and small-scale projects Canada-wide.

• Further prioritizing skills related to homebuilding in immigration policies and eligibility criteria.

Conclusion

Faced with a widening gap between housing demand and supply, this essay focuses on the federal government’s influence on housing markets, offering five areas of policy action.

The most direct federal levers pertain to housing demand. Housing constraints should be weighed more heavily when setting immigration policy, including temporary immigration, and new demand-inducing policies such as homebuyer tax credits should be avoided, while existing policies should be reviewed.

Given the federal government’s less direct influence on housing supply, intergovernmental coordination is recommended. Limited transfer funding should follow local housing supply metrics, while the tax treatment of housing development could also be reformed, enabling a larger number of projects to be financially feasible.  Lastly, immigration policies should emphasize skills required to build more housing.

Notes
1 For more on the gap between population growth and housing completions, see Filipowicz (2023).
2 For a full list of incentives and rebates for homebuyers, see <https://www.cmhc-schl.gc.ca/consumers/home-buying/government-of-canada-programs-to-support-homebuyers>, as of February 5, 2023.
3 For example, the Canada Community-Building Fund (formerly the Gas Tax Fund) delivers approximately $2 billion annually to local governments.
It is governed by a series of federal-provincial agreements.
4 For example, the federal government has committed one-third of the capital funding required by the Surrey Langley SkyTrain. Similar agreements
are common for major transit infrastructure.
5 The federal government recently announced the removal of the goods and services tax on purpose-built rental housing, helping the feasibility
of this housing class. For more on the influence of federal taxation on rental housing, see Canadian Home Builders’ Association (2016).
6 Immigration, Refugees and Citizenship Canada changed screening processes in mid-2023, favouring trade occupations, among others. The full effects of these changes will become apparent with time.
Sources for Figure 1
Statistics Canada, 2023a, table: 17-10-0009-01; Statistics Canada, 2023b, table: 34-10-0126-01.
References
BuildForce Canada (2020). Immigration Trends in the Canadian Construction Sector. <https://www.buildforce.ca/system/files/documents/Immigration_trends_Canadian_construction_sector.pdf> as of September 13, 2023.
Canadian Home Builders’ Association (2016). Encouraging Construction and Retention of Purpose-Built Rental Housing in Canada: Analysis of Federal Tax Policy Options. <https://www.evergreen.ca/downloads/pdfs/HousingActionLab/HAL_EncouragingConstructionAndRetention_FINAL.pdf> as of September 13, 2023.
Filipowicz (2023). Canada’s Growing Housing Gap: Comparing Population Growth and Housing Completions in Canada, 1972–2022.
Fraser Institute. <https://www.fraserinstitute.org/sites/default/files/canadas-growing-housing-gap-1972-2022.pdf>, as of February
5, 2024.
Filipowicz, Josef and Steve Lafleur (2023a). Getting Our Houses in Order: How a Lack of Intergovernmental Policy Coordination
Undermines Housing Affordability in Canada. Macdonald-Laurier Institute. <https://macdonaldlaurier.ca/getting-our-houses-in-order-how-a-lack-of-intergovernmental-policy-coordination-undermines-housing-affordability-in-canada/>, as of February 5, 2024.
Immigration, Refugees and Citizenship Canada (2023). Express Entry Rounds of Invitations: Category-based Selection. <https://www.
canada.ca/en/immigration-refugees-citizenship/services/immigrate-canada/express-entry/submit-profile/rounds-invitations/category-based-selection.html>, as of September 15, 2023.
International Monetary Fund (2023). Report for the 2023 Article IV Consultation. [or Country Report: Canada]. <https://www.imf.
org/en/Publications/CR/Issues/2023/07/27/Canada-2023-Article-IV-Consultation-Press-Release-and-Staff-Report-537072> as of
September 13, 2023.
Organisation for Economic Cooperation and Development [OECD]. 2023. Housing Prices (indicator). DOI: 10.1787/63008438.
OECD. <https://data.oecd.org/price/housing-prices.htm>, as of February 5, 2023.
Statistics Canada (2023a). Table 34-10-0133-01. Canada Mortgage and Housing Corporation, average rents for areas with a population of 10,000 and over. <https://www150.statcan.gc.ca/t1/tbl1/en/cv.action?pid=3410013301>, as of February 5, 2023.
Statistics Canada (2023b). Table 34-10-0127-01. Canada Mortgage and Housing Corporation, vacancy rates, apartment structures of six units and over, privately initiated in census metropolitan areas. <https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=3410012701>, as of February 5, 2024.
Statistics Canada (2023c). Table 17-10-0008-01. Estimates of the components of demographic growth, annual. <https://www150.
statcan.gc.ca/t1/tbl1/en/tv.action?pid=1710000801>, as of March 2, 2023.

Alberta

Ford and Trudeau are playing checkers. Trump and Smith are playing chess

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By Dan McTeague

 

Ford’s calls for national unity – “We need to stand united as Canadians!” – in context feels like an endorsement of fellow Electric Vehicle fanatic Trudeau. And you do wonder if that issue has something to do with it. After all, the two have worked together to pump billions in taxpayer dollars into the EV industry.

There’s no doubt about it: Donald Trump’s threat of a blanket 25% tariff on Canadian goods (to be established if the Canadian government fails to take sufficient action to combat drug trafficking and illegal crossings over our southern border) would be catastrophic for our nation’s economy. More than $3 billion in goods move between the U.S. and Canada on a daily basis. If enacted, the Trump tariff would likely result in a full-blown recession.

It falls upon Canada’s leaders to prevent that from happening. That’s why Justin Trudeau flew to Florida two weeks ago to point out to the president-elect that the trade relationship between our countries is mutually beneficial.

This is true, but Trudeau isn’t the best person to make that case to Trump, since he has been trashing the once and future president, and his supporters, both in public and private, for years. He did so again at an appearance just the other day, in which he implied that American voters were sexist for once again failing to elect the nation’s first female president, and said that Trump’s election amounted to an assault on women’s rights.

Consequently, the meeting with Trump didn’t go well.

But Trudeau isn’t Canada’s only politician, and in recent days we’ve seen some contrasting approaches to this serious matter from our provincial leaders.

First up was Doug Ford, who followed up a phone call with Trudeau earlier this week by saying that Canadians have to prepare for a trade war. “Folks, this is coming, it’s not ‘if,’ it is — it’s coming… and we need to be prepared.”

Ford said that he’s working with Liberal Finance Minister Chrystia Freeland to put together a retaliatory tariff list. Spokesmen for his government floated the idea of banning the LCBO from buying American alcohol, and restricting the export of critical minerals needed for electric vehicle batteries (I’m sure Trump is terrified about that last one).

But Ford’s most dramatic threat was his announcement that Ontario is prepared to shut down energy exports to the U.S., specifically to Michigan, New York, Wisconsin, and Minnesota, if Trump follows through with his plan. “We’re sending a message to the U.S. You come and attack Ontario, you attack the livelihoods of Ontario and Canadians, we’re going to use every tool in our toolbox to defend Ontarians and Canadians across the border,” Ford said.

Now, unfortunately, all of this chest-thumping rings hollow. Ontario does almost $500 billion per year in trade with the U.S., and the province’s supply chains are highly integrated with America’s. The idea of just cutting off the power, as if you could just flip a switch, is actually impossible. It’s a bluff, and Trump has already called him on it. When told about Ford’s threat by a reporter this week, Trump replied “That’s okay if he does that. That’s fine.”

And Ford’s calls for national unity – “We need to stand united as Canadians!” – in context feels like an endorsement of fellow Electric Vehicle fanatic Trudeau. And you do wonder if that issue has something to do with it. After all, the two have worked together to pump billions in taxpayer dollars into the EV industry. Just over the past year Ford and Trudeau have been seen side by side announcing their $5 billion commitment to Honda, or their $28.2 billion in subsidies for new Stellantis and Volkswagen electric vehicle battery plants.

Their assumption was that the U.S. would be a major market for Canadian EVs. Remember that “vehicles are the second largest Canadian export by value, at $51 billion in 2023 of which 93% was exported to the U.S.,”according to the Canadian Vehicle Manufacturers Association, and “Auto is Ontario’s top export at 28.9% of all exports (2023).”

But Trump ran on abolishing the Biden administration’s de facto EV mandate. Now that he’s back in the White House, the market for those EVs that Trudeau and Ford invested in so heavily is going to be much softer. Perhaps they’d like to be able to blame Trump’s tariffs for the coming downturn rather than their own misjudgment.

In any event, Ford’s tactic stands in stark contrast to the response from Alberta, Canada’s true energy superpower. Premier Danielle Smith made it clear that her province “will not support cutting off our Alberta energy exports to the U.S., nor will we support a tariff war with our largest trading partner and closest ally.”

Smith spoke about this topic at length at an event announcing a new $29-million border patrol team charged with combatting drug trafficking, at which said that Trudeau’s criticisms of the president-elect were, “not helpful.” Her deputy premier Mike Ellis was quoted as saying, “The concerns that president-elect Trump has expressed regarding fentanyl are, quite frankly, the same concerns that I and the premier have had.” Smith and Ellis also criticized Ottawa’s progressively lenient approach to drug crimes.

(For what it’s worth, a recent Léger poll found that “Just 29 per cent of [Canadians] believe Trump’s concerns about illegal immigration and drug trafficking from Canada to the U.S. are unwarranted.” Perhaps that’s why some recent polls have found that Trudeau is currently less popular in Canada than Trump at the moment.)

Smith said that Trudeau’s criticisms of the president-elect were, “not helpful.” And on X/Twitter she said, “Now is the time to… reach out to our friends and allies in the U.S. to remind them just how much Americans and Canadians mutually benefit from our trade relationship – and what we can do to grow that partnership further,” adding, “Tariffs just hurt Americans and Canadians on both sides of the border. Let’s make sure they don’t happen.”

This is exactly the right approach. Smith knows there is a lot at stake in this fight, and is not willing to step into the ring in a fight that Canada simply can’t win, and will cause a great deal of hardship for all involved along the way.

While Trudeau indulges in virtue signaling and Ford in sabre rattling, Danielle Smith is engaging in true statesmanship. That’s something that is in short supply in our country these days.

As I’ve written before, Trump is playing chess while Justin Trudeau and Doug Ford are playing checkers. They should take note of Smith’s strategy. Honey will attract more than vinegar, and if the long history of our two countries tell us anything, it’s that diplomacy is more effective than idle threats.

Dan McTeague is President of Canadians for Affordable Energy.

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Business

Canada needs to get serious about securing its border

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From the Macdonald Laurier Institute

By Todd Hataley for Inside Policy

US President-elect Donald Trump has made clear his intention to call out Canada on weak enforcement on migration, money laundering, and the cross-border trafficking of narcotics, especially fentanyl.

Until just very recently, Canada has remained largely silent on these issues. Security agencies, such as the Royal Canadian Mounted Police (RCMP), Ontario Provincial Police (OPP), Sûreté du Québec (SQ) and the Canada Border Services Agency (CBSA), have tried to secure the border via memorandums of understanding, framework agreements, and legislated agreements that allow them to share information and even work together.

However, resources are limited for cross-border law enforcement co-operation. CBSA remains  understaffed and RCMP Integrated Border Enforcement Teams (which work with US security agencies) have limited geographic reach, leaving much of the enforcement between ports of entry left to police of jurisdiction, who already are hard pressed to provide services to the communities they serve.

The Canadian government’s apparent strategy of largely ignoring the problem is becoming more difficult to maintain. With the United States Border Patrol intercepting increasing numbers of illegal migrants crossing into that country from Canada, it’s clear the porous border is a concern. Exacerbating the situation is the recent discovery of illegal narcotic super labs in Canada – where production far outstrips the market – and Canada’s unfortunate, albeit well-deserved reputation as a haven for global money launderers.

Thanks to Trump’s 25 per cent tariff threat, the crisis is now endangering Canada’s relationship with its largest and most-important trading partner. This announcement sent all sectors of government and the private sector into a frenzy, prompting Prime Minister Justin Trudeau to fly to Florida to seek out an early audience with Trump at his Mar-a-lago resort home. Trudeau’s team spun the trip as proof that the federal government is serious about working with the US to address its border security and public safety concerns.

But with political crises piling up, it will be difficult for Trudeau to also manage the political optics of kowtowing to Trump, who is widely unpopular among Canadians. Spending extra money to appease Trump during the ongoing housing, immigration, and health care crises could make the Trudeau’s popularity nosedive even further. Adding insult to injury, Trump is essentially demanding that Canada do America’s work by stopping illicit goods and people from entering the United States: customs and border security officials generally work on the principle of stopping goods from entering their country.

Trudeau faces many practical challenges, including the need to ramp up the number of border and law enforcement agents who have the skill sets and training required to police offences such as drug production, money laundering, and the cross-border smuggling of goods and humans. Purchasing helicopters and drones to conduct surveillance will do little to aid enforcement, since most goods smuggled across the border pass through legitimate border crossings. RCMP Commissioner Mike Duheme even suggested putting RCMP cadets along the border – a challenging proposition since vast swathes of the border are either wilderness or water. Surveillance is one thing, but the act of enforcement takes skilled people with the capacity to investigate, gather evidence, and articulate that evidence into something that can be used by the courts for convictions. These concerns are not being addressed in this current frenzy to spend money on border security.

There is also good evidence that fortifying the border, or what has become known as forward deployment along the border, does nothing to stop the cross-border transit of contraband goods and people. One need only look as far as the United States-Mexico border to see the failure of forward deployment.

As authorities increase border enforcement activities, the costs of smuggling goods and people mounts for criminals. Eventually, it drives out amateurs, leaving only the professional, skilled, and well-equipped criminal groups. This, in turn, often leads to increasing levels of violence along the border, making interdiction and disruption far more difficult for law enforcement agencies.

Canada has several clear options to address Trump’s border concerns. It can increase the staffing of frontline CBSA officers, including border agents, inland enforcement units that actively investigate and remove individuals from Canada, international liaison officers, and customs processing staff. It can also create a plan for CBSA to take over enforcement between ports of entry. Currently, CBSA enforces entry into Canada at the ports of entry and the RCMP are responsible for the areas in between. Having a single agency manage the border builds capacity and expertise, avoiding inter-bureaucracy competition and confusion.

Canada can also work to better integrate law enforcement, intelligence units, and border services at all levels of government and across international boundaries. Cross-border crime operations are often planned and execute far from the border.

Some of this already takes place, as noted above, but it needs to go much deeper and be more supportive at both institutional and individual levels. This process must also include private sector stakeholders: companies such as FedEx, UPS, and Amazon, as well as freight forwarders, trucking companies, and customs brokers, are all involved in cross-border trade. Their participation as partners in reducing cross-border criminal activity is essential.

Finally, the government needs to designate laws specific to cross-border crime and include meaningful penalties as a means of deterrence.

Hyper-focusing on the border while ignoring other aspects of cross-border crime may be good political optics, but it is a bad strategy. What we really need is functional enforcement – including an integrated process extended vertically and horizontally across all sectors of border stakeholders, at and away from the border, supported by strong policy and legislation. This is the path forward to better cross-border crime enforcement.


Dr. Todd Hataley is a professor in the School of Justice and Community Development at Fleming College. A retired member of the Royal Canadian Mounted Police, he worked as an investigator in organized crime, national security, cross-border crime, and extra-territorial torture. He is a contributor to the Macdonald-Laurier Institute.

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