A plan to alleviate the shortage of housing in Canada is likely to be mentioned in the political platforms of all persons seeking election federally, provincially, and in municipalities. The plans may differ depending on the understanding of the authors about the root cause of the shortage.
Commentary from the RateSpy website in 2020 underlined the importance of supply and the Law of Supply and Demand in the availability and affordability of housing in Canada.
On that note, an IMF report last October had a radical solution to Canada’s housing crisis: “ To Tackle Housing Affordability in Canada, Build More Houses.” Hey, they might be onto something.
In truth, there’s no easy cure that doesn’t disadvantage someone. Real progress takes hard fixes, like incentivizing more homes within tolerable commutes to job centres, building ultra-high-speed transit to regions with cheaper land, or other capital, time or bureaucratic-intensive solutions. Or maybe it takes more out-of-the-box thinking, like government land acquisition partnerships or near-interest free financing to developers that build strategic high-density housing in/near public transportation corridors.
The Department of Finance has said it many times; home construction is “needed to address…housing supply shortages in Canada, particularly in our largest cities.” The 2019 Federal Budget stated that increasing the supply of housing “is the most effective way to address affordability in the long run.” Righto. Because whatever the solution, supply is the problem, and it has been for 20 years. (Who Repealed the Law of Supply and Demand?, 2020)
Steve Pomeroy, Industry Professor, Department of Health Aging and Society, McMaster University, advises to solve the housing problem we need to address supercharged demand.
If policy-makers and the newly re-elected government want to improve housing affordability and the ability of young families to become homeowners, they need to turn their attention to the primary driver of price increases — super-charged demand, abetted by the sacred cow of non-taxation of capital gains on a principal residence.(Pomeroy, 2021)
Mark Morris, who has established and sold numerous businesses in the legal space and is presently the principal lawyer at LegalClosing.ca and runs and operates LegalReview.ca, shares the opinion that we need governments that can refocus economic incentives around real business value and promote programs that foster enduring products and services with economic potential beyond Airbnb. This will involve unwinding any number of perverse incentives designed to foster real estate growth at the expense of everything else.
Or consider the principal residence exemption, which is usable over and over again by individuals for any amount of money garnered from the sale of their home, as long as they lived in it. Compare that to the sale of shares of an active Canadian business, which is tax-free only on an amount of less than a million dollars and, even then, is only available for use once in a lifetime.
These perverse incentives exist throughout our system and need to be addressed if this country is to continue to remain on course.
Canada is hooked on real estate. We need to detox fast for our sake, for our children's future and, above all, for all future aspiring business creators who would seek to develop their skills in a system that encourages rather than punishes their efforts. (Morris, 2022)
Adena Ali, of the The Canadian Press, reported that, according to the CMHC, Canada needs 5.8 million new homes by 2030.
If current rates of new construction continue, CMHC said the country's housing stock is expected to increase by 2.3 million units by 2030, reaching close to 19 million units total. But in order to achieve affordability for all Canadians, the agency said an additional 3.5 million homes are needed.
Softening housing market conditions and a labour shortage in the construction sector could get in the way of bringing Canada's housing stock to more than 22 million by 2030, however.
"There are supply issues, labour shortages at the moment and the cost of financing is going up, so clearly there are short-term challenges," said CMHC deputy chief economist Aled ab Iorwerth during a conference call.
BMO economist Robert Kavcic says it will be tough to achieve what the CMHC wants to achieve.
"The jobless rate in construction is near a record low; vacancies are at a record high, we have a deep shortage of skilled trades, and the cost of building materials is already rising quickly," he said. "So, unless the economy really rolls over and is in need of stimulus, effectively doubling the rate of new construction over the next decade will be extremely difficult without significant inflationary pressure." (Ali, 2022)
Supply, speculation, demand, and the lack of taxes on the sale of principal residences are cited as contributors to the shortage of available housing in Canada. In the next election cycles, we expect the successful candidates will support policy to tackle this disastrous situation.
References
Ali, A. (2022, June 23). Canada needs 5.8 million new homes by 2030 to tackle affordability crisis, CMHC warns. CBC. Retrieved August 26, 2023, from https://www.cbc.ca/news/canada/toronto/housing-affordability-cmhc-report-2030-1.6498898
Morris, M. (2022, June 21). Canada is hooked on real estate. It needs a detox. CBC. Retrieved August 26, 2023, from https://www.cbc.ca/news/opinion/opinion-canada-real-estate-addiction-morris-1.6492967
Pomeroy, S. (2021, November 25). Want to solve the housing crisis? Address super-charged demand. The Conversation. Retrieved August 26, 2023, from https://theconversation.com/want-to-solve-the-housing-crisis-address-super-charged-demand-169809
Who Repealed the Law of Supply and Demand? (2020, September 16). Ratespy.com. Retrieved August 26, 2023, from https://www.ratespy.com/who-repealed-the-law-of-supply-and-demand-opinion-091615871
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