Jake Fuss and Austin Thompson are analysts at the Fraser Institute.
A trade war, U.S. President Donald Trump’s threats to Canada’s sovereignty, and global economic volatility loomed large in the recent federal election. Yet many voters remained focused on an issue much closer to home: housing affordability.
In 2023, under then prime minister Justin Trudeau, Canada added a record high 1.2 million new residents – more than double the previous record set in 2019 – and another 951,000 new residents last year. All told, Canada’s population has grown by about three million people since 2022, roughly matching the total population increase during the entire decade of the 1990s.
Not surprisingly, home building has failed to keep pace. In fact, housing construction rates have barely exceeded 1970s levels, even though the population has more than tripled since then. The result has been a historic surge in housing costs.
On the campaign trail for the recent election, the Liberals set an immigration target of about 400,000 per year, which is lower than the recent record highs but still high by historical standards, and tabled a plan that they claim will double Canada’s residential construction rate to 500,000 new homes per year within a decade. But is it a good plan? And can the Liberals deliver it?
First, the good news. To help boost private home building, the Carney government promised to introduce tax incentives, including a rental building allowance, which would help reduce the tax bill on new multiunit rental buildings, and a GST exemption for some first-time homebuyers, which may reduce the cost of newly built homes and spur more home building.
The government also plans to expand the “Housing Accelerator Fund,” which offers federal dollars to municipalities in exchange for more flexible municipal building rules, and to modernize the federal building code, which could shorten construction timelines.
While much will depend on execution, these policies rightly aim to make it faster, cheaper and more attractive for the private sector to build homes.
Now, the bad news. The Carney government plans to create a new federal entity called Build Canada Homes (BCH) to “get the government back in the business of building.” According to Mr. Carney’s vision, the BCH will act “as a developer to build affordable housing” and provide more than $25-billion in financing to home builders and $10-billion in low-cost financing and capital for home builders to build “affordable” homes.
We’ve seen a similar movie before. In 2017, the Trudeau government created the Canada Infrastructure Bank (CIB) to invest in the “next generation of infrastructure Canadians need.” Since then, the CIB has approved approximately $13.2-billion in investments across 76 projects, but as of July, 2024, only two CIB-funded projects had been completed, prompting the authors of a multiparty House of Commons committee report to recommend abolishing the CIB.
The bureaucrats who will run the BCH won’t have the private sector’s expertise in housing development, nor the same incentives to keep costs down. BCH’s mandate is already muddled by competing goals – it must deliver “affordable” homes while simultaneously prioritizing certain building materials (e.g. Canadian softwood lumber), which could increase building costs.
The plan for BCH’s multibillion-dollar loan portfolio includes significant “low cost” (that is, taxpayer subsidized) financing, a huge bet on prefabricated home building, and no certainty about who will be on the hook for any failed projects. Combined, this represents a major increase in costs and risks for taxpayers at a time when they already shoulder rising federal deficits and debt.
There’s also a real risk that BCH will simply divert limited investment dollars and construction resources away from private home building – where projects respond to the needs of Canadian homebuyers and renters – and toward government-backed housing projects shaped by political goals. Instead of boosting overall home building, BCH may simply reshuffle limited resources. And, as noted by the government, there’s a severe shortage of skilled construction labour in Canada.
It’s hard to see how Mr. Carney’s housing plan would double the pace of home building in Canada – a very ambitious target that would require not only prudent housing policies but greater domestic savings, an implausibly large expansion in the construction work force (which grew by only 18.4 per cent over the last decade), and the political fortitude to endure vocal opposition to housing development in certain neighbourhoods and on public lands.
Canada’s housing crisis will benefit from federal leadership – but not federal overreach. Rather than overpromising what it can’t deliver, the Carney government should refocus on what it’s best positioned to do: reform incentives, streamline regulations and nudge municipalities and provinces to remove constraints on home building. Trying to also act as a housing developer and lender is a far riskier approach.
