Housing affordability affects us all. Whether you want to buy your first home, or you own your home and it’s your biggest asset, or you’re struggling to pay rent, housing affordability affects you.
Four in five non-homeowners aged 25 to 35 have a strong intention to purchase a home in the future, however, concerns over housing affordability are prevalent across Canada with nearly half (48%) of Canadians sharing this sentiment. This concern rises significantly for younger Canadians aged 18 to 34, with 71% expressing concern.
Young Canadians are concerned for good reason. Well-qualified, well-employed individuals and families are being squeezed out of homeownership. The federal, provincial and municipal governments have regulatory and policy levers that can improve affordability now, and over the long term.
The Role of Government
All levels of government have a role to play. Governments should help provide a stable market in which prospective homebuyers have reasonable access to homeownership, and in which those who rent do so because it’s truly their best option based on affordability and preference.
The federal government can play a key role by supporting policies that will improve housing affordability.
Remember that housing is a continuum, and that ensuring a healthy market for the 4 in 5 Canadian renters who want to buy a home frees up space and resources for Canadians who truly need them.
In addition to housing affordability, climate change is also top of mind for Canadians these days. Whether you are interested in affordability, climate change, or both, how political parties address climate change in housing is also key to follow. We need to ensure we help our planet while also keeping the dream of homeownership alive for Canadians. The two are not mutually exclusive, but it will take smart policy to get it right.
Policies that will improve housing affordability
So what measures can improve housing affordability? Solutions will come in the form of measures to improve housing supply so that demand doesn’t drive up prices. They’ll come from smart mortgage rules that address risks without locking too many Canadians out of homeownership. They’ll come from supporting the residential construction industry to help keep it building and renovating—from supporting the workforce through immigration and training, to keeping the supply chain healthy and safe and operating. And they’ll come from ensuring that federal infrastructure funding for provinces and municipalities is used to support actions that can incent new housing supply, especially transit-oriented development that gives people greater choice in where they live.
At the Canadian Home Builders’ Association, we study how housing in Canada works, and we strive to ensure Canadians have access to the homes that meet their needs at a price they can afford. A healthy housing market is good for this key industry that creates so many jobs, yes. But it’s also good for Canadians, and it’s why we’re passionate.
The following policies can unlock the door to homeownership and improve housing affordability:
1. INCREASE MARKET-RATE HOUSING SUPPLY – to improve affordability, stabilize prices, and take pressure off other parts of the housing continuum
CHBA has estimated that at current rates, Canada will be some 300,000 family-oriented housing units short over the next decade. Our country has the lowest number of housing units per 1,000 residents of any G7 country, and it’s not getting better: in fact, that number has been falling since 2016 as our population grows. We need more of the right kind of housing, in the right places. We saw during the pandemic what happens when there isn’t enough supply of the types of homes that people want to buy: the national average sales price increased by 32% since July 2019.
Governments at all levels need to target getting more housing supply available. This will help keep prices down for all homes, while also freeing up rental properties as people move into their first homes. We also need more rental properties.
We need more market-rate housing of all forms: low-rise, mid-rise and high-rise, both for ownership and for rental. Building more affordable housing (i.e. social housing) is important, but building more social housing is not the same as building more market-rate housing that Canadians can afford to buy or rent without government subsidy. We need both, and we need to ensure politicians don’t answer questions about housing affordability for the average Canadian with answers about social housing for those in housing need. Again, the latter is important too, but you can’t help someone afford to buy a home by building social housing. (See this post on the housing continuum and how getting more people into homeownership can free up more social housing due to the trickle-down effect).
- Make a commitment to address market-rate housing supply and affordability (not to be confused with social/affordable housing, which is also important but different).
- Take a leadership role and support actions (including those by provincial and municipal governments) that address challenges to construction of market-rate housing supply such as zoning restrictions, density limits, and NIMBYism.
- Ensure that federal government infrastructure funding for provinces and municipalities is used to support actions that incent new market-rate housing supply.
- Continue to invest in and expand market housing data and begin tracking best practices in supporting new supply
2. SUPPORT LABOUR FORCE DEVELOPMENT AND MATERIAL SUPPLY IN RESIDENTIAL CONSTRUCTION
The construction industry continues to face chronic labour and skills shortages, and BuildForce Canada’s 2021 Residential Construction labour market information report projects that the sector will need to recruit more than 148,000 new workers over the decade to keep pace with retirements and demand. A significant portion will need to come from groups traditionally underrepresented in the current construction labour force, including women, Indigenous people, and new Canadians. Support for recruitment, training and for bringing skilled workers to Canada through immigration are all part of the solution. Given the skills shortage, the sector also needs to increase productivity. The federal government should work with industry and support the development of residential construction productivity solutions that focus on improving processes and building practices, helping the sector to build faster, more affordably and more efficiently.
Strong housing demand combined with a surge in renovation and do-it-yourself activity during the pandemic drove up demand and competition for labour and input materials, particularly lumber, adding substantially to construction costs, causing delays in completions, and increasing house prices and costs of renovation projects. More needs to be done to alleviate these pressures and to avoid these challenges as much as possible in the future.
- Support industry to recruit, train and upskill workers.
- Make changes to the immigration system to respond better and more quickly to labour shortages in residential construction through permanent immigration solutions.
- Support innovation in productivity for residential construction sector.
- Support for the entire residential construction supply chain (lumber and other materials/products) to help ensure supply and affordability.
3. MAKE ACCESS TO HOMEOWERNSHIP FAIRER AND MORE AFFORDABLE NOW AND FOR FUTURE GENERATIONS
CHBA urges the government to carefully consider the full impact of any macroprudential and demand-side measures on prospective buyers, especially in the absence of sufficient action by all levels of government to support new housing supply, which is the real and more concerning driver of escalating prices across the country. Indeed, with house prices so high, first-time buyers continue to need consideration to help them enter the market. First-time buyers are inordinately affected by changes to mortgage rules, especially those to insured mortgages, yet they are the lowest-risk group of buyers. They’re also the financial future of Canada. They’re starting their careers and their salaries are just beginning to grow.
In order to have a fair and inclusive recovery, finding the right balance of housing policy, fiscal policy and mortgage rules to maintain stability while also supporting the needs and goals of Canadians is essential. The right balance encourages movement along the housing continuum by creating vacancies in rental that others can fill. A healthy continuum includes robust market rate housing options, and diverse pathways to homeownership, support by sound mortgage policies.
CHBA also recommends a return to 30-year amortization periods for first-time buyers. Such changes would go further to support well-qualified home buyers access homeownership while strengthening the economy and the Canadian financial system. If the government remains concerned with risk in re-introducing 30-year amortizations for CMHC, this could be addressed by having Finance Canada allow private-sector insurers to partake in the insurance for 30-year amortization mortgages. By the time their first 5-year term is up, most first-time buyers have a higher salary than when they applied for a mortgage. And most Canadians do not take their entire amortization period to pay off their mortgage (the average for 25-year mortgages is that they are actually paid out in much less time – about 18 years). Reintroducing 30-year insured mortgages – not for all buyers, but for well-qualified first-time buyers – will address growing inequities in mortgage access and will deliver financial benefits to younger Canadians and Canada as a whole.
CHBA also recommends an adjustment to the mortgage stress test for both insured and uninsured mortgages. The most changes to the stress test further reduce the buying power of those at the margin by approximately 4 percent. CHBA recommends that the stress test (for both insured and uninsured mortgages) be modified to reduce the test rate on a declining basis for 7- and 10-year mortgage terms, given the reduction in risk with longer mortgage terms for both Canadians and the financial system, as encouraged by the Bank of Canada.
Government taxes and fees are a major contributor to high house prices, making up as much as 25 percent of the sale price of a home in some regions. It is time to update and index the existing GST/HST New Housing Rebate to better reflect house prices. In high priced markets, the maximum threshold amount for insured mortgages should also be increased to reflet today’s realities.
- Reintroduce 30-year amortizations for insured mortgages for well-qualified first-time buyers.
- Modify the stress test for both insured and uninsured mortgages to reduce the test rate on a declining basis for 7- and 10-year mortgage terms.
- Update the Existing GST/HST New Housing Rebate and adjust the thresholds for insured mortgages in high-priced markets.
4. ACCELERATE ACHIEVEMENT OF CANADA’S OTHER HOUSING-RELATED POLICY GOALS (LIKE CLIMATE CHANGE) BY INVESTING IN TARGETED MEASURES THAT PROMOTE AFFORDABILITY
The federal government has policy levers to address climate change and improve affordability in tandem—and it will take smart policy to achieve this.
Like housing affordability, climate change is a top-of-mind issue for Canadians. While there is an important role that housing can play it is important to ensure that addressing climate change does not exacerbate housing affordability challenges along the continuum, driving homeownership further out of reach for more individuals and families, and reducing the number of social housing units that can be built.
CHBA applauds the commitment of $2.6 billion to provide grants for energy-efficient improvements, free EnerGuide energy assessments, and support to recruit and train EnerGuide energy auditors. There are (other) ways in which the federal government can help the housing sector continue to build energy efficient homes without damaging affordability.
It is important to invest in R&D to find energy efficiency measures that do not reduce affordability. The government should focus on innovation to bring down costs and scale up use first, before regulating excessively high levels of energy performance. CHBA cautions against adding excessive costs through code and/or regulation that will impact housing affordability in Canada, at a time when home is more important than ever. Better solutions can be and should be found first to improve affordability for consumers, not make it worse.
CHBA recommends having the EnerGuide Rating System (ERS) label on all houses at the time of resale to raise the energy literacy of Canadians, help home valuations truly reflect energy efficiency, and further encourage Canadians to make energy efficiency and retrofit investments on an accelerated pace in ways they can afford. Further, the ERS should be expanded and promoted as the backbone of all renovation incentives, tax credits, and other energy efficiency initiatives by governments, utilities, and other organizations. Consistency and clarity can help homeowners tackle climate change.
- Invest in R&D to find energy efficiency measures that do not reduce affordability. The government should focus on innovation to bring down costs and scale up use before regulation.
- Ensure affordability for consumers is an objective when adjusting codes and standards (including elements like energy efficiency) and avoid adding excessive cost.
- Provide financial incentives for energy retrofits of the existing housing stock.
- Promote use of EnerGuide Rating System labels on all homes at time of resale.
Housing affordability is a complex issue, but as you can see, there are tangible things the federal government can do to improve the challenges that Canadians are facing.
And while there is a lot of information out there on how affordability works, not all of it is accurate. Check out our continually expanding Myths and FAQs page to see how much you know about housing affordability in Canada.