The federal government’s huge stake in new construction is unlikely to have a big effect on rising house prices, some economists and housing experts warn.
Canada’s strategy to massively increase new housing construction is at the heart of the Liberal government’s updated housing strategy, which itself was the focus of the 2022 budget.
The spending plan has set aside $ 4 billion to set up a Housing Acceleration Fund, a program still under development to help municipal authorities accelerate new housing projects.
Ottawa says the fund will contribute to the construction of 3.5 million new homes that Canada needs in the next 10 years.
“The solution to housing affordability is to offer housing,” Housing Minister Ahmed Hussein told the House of Commons earlier this week.
But some observers say the approach is based on misinterpreted data and politicians’ tendency to oversimplify complex issues.
There is no evidence that more homes means lower prices: expert
“[The government] he seems to have agreed with the suggestion that all supply is good, and flooding the supply market will lower prices, ”said Steve Pomeroy, a researcher at Canadian Housing Evidence Collaborative at McMaster University.
“I don’t think there is any evidence that it will really happen,” said Pomeroy, who described the argument about undersupply as a “myth.”
Christine Whitehead, an honorary professor at the London School of Economics, said identifying undersupply as the cause of high prices was “absolutely consistent” among governments around the world.
“An honest response to the accessibility crisis is much more about macroeconomics,” said Christine Whitehead, an honorary professor of housing economics at the London School of Economics. (United Kingdom Housing Evidence Collaboration Center)
Whitehead – who has said she has studied housing economics for “many decades” – said the narrow focus on accelerating new construction creates attractive political ground, but rarely makes a dent in prices.
“Most normal people would think that a lot more housing would make things better,” she told CBC News.
“Only the construction of 100,000 homes a year or 200,000 homes a year will not have such a big difference in housing prices.
Pierre Poilievre made housing affordability a central theme of his Conservative leadership campaign. He also identified a lack of supply as the main culprit for rising prices.
The NDP is calling for new housing, with the stipulation that newly built housing should be for low-income families.
How much housing does Canada need?
The federal government, opposition parties and many economists have argued in recent years that Canada does not have enough homes for its people.
A Document for 2021 from Scotiabank reported that Canada has at least 1,000 homes in any G-7 country, something the bank described as a “structural housing shortage”.
The 2022 budget includes a similar analysis, which shows that Canada is below the OECD average for housing per 1,000 inhabitants – behind France, Japan and Germany, but ahead of Australia and New Zealand.
Pomeroy said statistics like this did not adequately support the government’s argument for undersupply, as other important factors were overlooked – such as the fact that Canada is the second largest average household in the G7.
He said the recent pace of new housing in Canada was in line with population growth – even as house prices hit new highs.
“When you look at the data, it doesn’t support the idea that we have a shortage of supplies, certainly at a national level,” Pomeroy said.
Canada added more than 271,000 new homes in 2021, according to Data from the Canadian Mortgage and Housing Corporation.
The Minister for Housing and Diversity and Inclusion, Ahmed Hussein, has repeatedly said that the lack of supply is behind the housing affordability crisis in Canada. (Adrian Wilde / Canadian Press)
Robert Kavcic, a senior economist at the Bank of Montreal, also questioned the government’s ability to stimulate more construction.
“The challenge here is that we are already seeing a record number of units under construction, and the sector is opposed to labor and capacity constraints as they are,” he wrote in response to the budget.
Kavcic also noted that if the government manages to speed up new construction, it could backfire by increasing material costs and worsening inflation by raising house prices.
Ottawa says other factors are contributing to high prices
In an email to CBC News, a Hussen spokesman added nuance to the government’s argument that insufficient supply had raised prices.
“There are a number of factors that make housing more expensive, but the biggest problem is supply,” wrote Daniele Medley.
“However, we recognize that there are other elements to the game, which is why we are introducing a number of measures to curb unfair practices in the housing market, including banning foreign home buyers, introducing a rollover tax and banning blind bidding.”
Whitehead said the government’s efforts to tighten new supply and change regulations have been hampered by macroeconomic forces, such as income levels and interest rates.
In addition to introducing politically toxic measures such as capital gains or inheritance taxes, she said, the Canadian government will have little direct control over prices.
“I wish I could be happier about it,” Whitehead said. “What I’m saying is that there is no harm in building houses. You still have to keep building houses and try to distribute them to people in need.”
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