Housing in Canada: A key piece in a complex puzzle

The economic situation of the past 2 years hasn’t been easy on Canadians, who put great hopes in governmental housing interventions to bring relief to their strained budgets. I’ve worked on many social and economic policies as a consultant and as a senior policy strategist with the federal government. I learned that when it comes to the country’s socio-economic  challenges, housing affordability is just one of several key pieces in a multi-dimensional puzzle. Sometimes it’s the target to fix, and sometimes it’s only a symptom of deeper-rooted issues.

I aim to propose a systemic view of where housing fits in Canada’s broader socio-economic context. Housing interventions can alleviate financial strains, but more as a short-term rather than durable solution. I hope this will serve as a catalyst to a broader dialogue on how the pieces of Canada’s socio-economic challenges fit together and, on the coalition, needed to solve them.

Where housing’s the challenge, and where it’s a symptom

Housing affordability for households has decreased markedly in recent years and especially in recent months in an uncertain economic environment characterized by:

• economic growth near 0% over most of 2023
• inflation hovering around the upper threshold of the Bank of Canada’s target range of 1% to 3% (2.9% in January 2024, down from 3.4% in December 2023)
• increasing mortgage rates, and
• increases in population fueled by immigration targets hovering around 500,000 per year

Many Canadians who used to be able to afford a home that meets their needs have had to renew their mortgages at a significantly higher cost. Renters who had to move had to contend with a sharp increase in rents since they last shopped for a rental unit. In some cases, these increased costs may be high enough to push households to spend more than 30% of their income on shelter costs. This means such households fall below the affordability threshold for core housing need.

Canadians in this situation are mostly facing a housing challenge. While inflation is weighing on their finances, housing is truly at the centre of their financial struggle. Remove the financial pressure from housing and other financial issues become more bearable, even if they remain difficult.

Highlighting short-term housing vulnerability and the need for lasting solutions

We estimate that 64.1% of Canadians who were in core housing need between 2011 and 2019 remained in this situation for 2 years or less (we could call this “transitional core housing need”). By applying this reasoning, we estimate that more than 1.7 million Canadians were in transitional core housing need in 2021.

We know that many Canadians were in core housing need before the pandemic, and in the financial crunch that followed. Odds are many will remain in core housing need once the housing affordability crisis is resolved for the average Canadian.

While steps to reduce financial pressure from housing may alleviate some of the financial burden for these households in the short term, they may not resolve the situation in the long term. In this case, housing-based solutions treat the symptom without fixing the deeper-rooted socio-economic issues.

Put candidly, Canadians experiencing persistent housing-cost pressures are facing an income challenge.

Examining long-term housing vulnerability in Canada and proposing multifaceted interventions

CMHC research shows that 23.5% of Canadians who were in core housing need between 2011 and 2019 stayed in this situation for more than 4 years (we could call this “structural core housing need”). By this calculation, close to 635,000 Canadians were in structural core housing need in 2021. This phenomenon may require interventions beyond the field of housing. CMHC expects to release a report on annual and long-term flows into and out of core housing need in the upcoming months.

Having worked with people experiencing housing vulnerability, I acknowledge there are many factors beyond economic ones that affect income. These include intergenerational trauma, mental or physical health issues, addictions and systemic biases against vulnerable populations. Such biases encompass addiction, racism and homophobia. It’s also well documented that Canada faces a long-lasting and persistent productivity lag compared to its key economic partners.

This productivity lag can stem from our level of investment in physical capital, infrastructure and education. It also relates to our industrial mix and ability to turn innovation from research and development and the investments listed above into profitable enterprises. All these factors require a broad toolkit of socio-economic solutions.

Timely responses along a continuous timeline

Identifying the root causes of various socio-economic outcomes, such as housing or income challenges, is crucial. It's essential to recognize that addressing these challenges is influenced by their complexity and the nature of the proposed solutions.

While most housing- and income-related challenges Canadians face are solvable, the solutions will take time and resources in the billions of dollars to have a sustainable impact. Meanwhile, Canadians are suffering mentally, physically and financially.

Balancing immediate relief with long-term solutions for Canadian income and housing challenges

This raises the question of how to address these challenges while also ensuring Canadians can deal with the situation they are facing. Addressing only short-term pain may alleviate some of the immediate pressure, but often fails to address the root causes of the problem.

At the opposite end of the spectrum, fixing only long-term challenges would mean Canadians keep facing exceptionally harsh financial conditions in the short-term without help. Solutions that fix only long-term challenges are therefore unlikely to gain social acceptance.

As a result, solutions must respond to both short- and long-term needs. Unfortunately, very few check both boxes at the same time. This means 2 sets of solutions may be needed for both income and housing challenges. And ideally, those sets of solutions would reinforce each other. For example, short-term solutions would be coordinated and designed to support and reinforce long-term solutions.

Bringing challenges and timelines together

The figure below shows some key determinants and solutions that impact housing and income challenges over the short and long term. Bringing together the nature of the challenge and timeline views offers insights into housing's place within Canada's broader economic challenges. It also sheds light on the interconnectedness between income and housing challenges and their determinants.

One could conclude that short-term solutions come mostly down to supporting income through transfers, programs or tax measures. Long-term solutions are more structural in nature and more interconnected.

In Canada, housing affordability is measured by looking at the share of gross income dedicated to shelter costs. As such, lowering the cost of housing or increasing income will improve housing affordability. Additionally, if the cost of housing decreases, income is freed up to cater to other essential needs which in turn can contribute to greater economic growth and more discretionary income for Canadians to save for other needs.

Income is influenced by labor productivity, which is a function of education, innovation and knowledge generation (measured through patents and trademarks) and corporate investment. The relationship between productivity and income is beyond the scope of this article; and as previously mentioned, Canada’s productivity is lagging behind that of other industrialized countries. In fact, Canada is next-to-last among G7 countries.

Productivity also has an interconnection with housing challenges, especially when it comes to housing supply. Education plays a role in ensuring sufficient labour is available to build the homes needed and provide the associated financial and professional services.

Education and corporate investments also play a role in the development and adoption of new building materials and techniques likely to accelerate the pace of housing supply creation. Finally, other levers, such as fiscal policy, also exist to encourage desired choices and behaviours across the economy.

The bottom line: More is better to fix the country’s housing affordability crisis

Overall, increasing housing affordability plays a key role in bettering Canadians’ quality of life in the current economic environment. This role is magnified if housing-based solutions are implemented alongside other solutions aimed at the broader socio-economic issues Canada is facing.

Achieving clarity on whether housing affordability is the goal or a support to broader socio-economic objectives is crucial. This understanding is central to garnering social acceptance for the implemented solutions and determining the necessary implementation timeline. Getting this clarity will require increasing coordination and engagement of a wide array of stakeholders.

Some stakeholders call for the mobilization of all active housing forces in society to collaboratively support Canadian households in finding affordable and suitable homes. This effort is aimed at ensuring individuals can secure a home that meets their needs within their financial means. I agree with this position, and I believe such mobilization and coordination is key to achieving meaningful outcomes on the housing front.

As such, the Government of Canada’s decision to take a whole-of-government approach on housing, notably by creating the position of Minister of Housing, Infrastructure and Communities, announcing the creation of a Department of Housing, Infrastructure and Communities in the Fall 2023 Economic Statement and involving the Canada Infrastructure Bank in housing financing, is a significant positive step towards developing a systemic response to the country’s housing crisis. However, more stakeholders will need to be “brought into the tent” to significantly move the needle on our housing challenges.

The private sector, for one, will be an important source of funding, expertise and labour for increasing the supply of housing. The not-for-profit sector also must play a significant role in supplying housing, especially affordable units, as well as in raising awareness of the realities faced by people with lived experience of core housing need. Ultimately, collaboration and coordination between governments, the private and not-for-profit sectors, and academics will play an important role in solving the Canadian housing crisis.

CMHC is a leader in contributing to the stability of the housing and housing finance systems. As Canada’s housing authority, we continuously seek to improve the information we provide to the public, private and not-for-profit sectors and to Canadians to help them make informed and fact-based housing decisions.

We are also keen to play a key role in convening knowledge from private-sector and not-for-profit organizations, associations, Indigenous partners, academia and people with lived experience to help inform governments and Canadians on the state of the Canadian housing markets.