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

Federal Reforms to Improve Housing Affordability

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 and rents continue to rise in most cities. 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.

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.

This essay is part of the Institute’s new series on federal reforms, which provides practical solutions to many of the most pressing economic challenges facing Canada today. The series editors are Lawrence Schembri and Jock Finlayson who jointly hold the Peter A. Brown Chair in Canadian Competitiveness.