How Ottawa can tackle the housing shortage

After years of the federal government tinkering with housing demand (the mortgage stress-test, the First-Time Home Buyer Incentive and other stick-and-carrot approaches to how people can purchase homes), it’s clear that housing affordability remains a top issue in many Canadian cities from Victoria to Charlottetown.

Of course, this is because housing demand is only half the equation. To really get at the root of this issue, it’s painfully clear we must also talk about supply.

The thing is, the most important policy levers influencing the supply of housing are local and provincial—not federal. So what, if anything, can Canada’s next federal government do to help tackle housing shortage by boosting supply?

Again, the feds may not control the thicket of local land-use regulations that hamstring homebuilding, but they do control billions of dollars transferred every year to municipalities all across Canada, aimed either at everyday operating costs or infrastructure projects.

For example, the federal government recently committed $1.37 billion to two major rapid transit projects in Metro Vancouver, and another $1.3 billion to extend Montreal’s metro system. In fact, more than two-thirds of direct federal-municipal grants relate to infrastructure, representing hundreds of millions of dollars every year, and this doesn’t include the billions transferred annually from the federal gas tax or federal funding funnelled through provinces and advocacy groups such as the Federation of Canadian Municipalities.

In short, the feds don’t control how long or complicated it may be for homebuilders to obtain a building permit, but they hold the purse strings for billions in transfer funding. By attaching expedited homebuilding as a condition for funds, Ottawa can encourage a growing housing supply.

Conditionality for federal funding is nothing new, and after all, if Ottawa is going to disburse billions of tax dollars to fund major transit or roadway projects, it only makes sense that those projects benefit the greatest number of Canadians possible. There’s no point extending a subway line to serve a low-density neighbourhood, only for that neighbourhood to remain low-density and the new line under-utilized. Otherwise why undertake the project in the first place?

Ultimately, restoring broad affordability to Canada’s most expensive cities and towns requires addressing both sides of the home-price equation—demand and supply. So far, most governments in Canada have either ignored the supply side or only started to consider it after years of lackluster results following demand-side interventions.

If the next federal government is serious about tackling the chronic shortage of homes in the country’s least-affordable regions (Toronto, Vancouver, etc.), it should attach supply-friendly conditions to the billions it sends to junior levels of government every year.