The Great Canadian Epidemic: Structural Issues Fueling the Canadian Housing Crisis

By: Gurnoor Gujral

From: University of Toronto

Unaffordability has become synonymous with the Canadian housing market over the past decade. Housing costs have ballooned tremendously in major Canadian metropolitans and surrounding suburbs for both homeowners and renters, with average home prices climbing to $1.14 million in Toronto in 2022, marking a 29 percent increase from 2019 (Toronto Housing Data Book [THDB], 2023). The widening discrepancy in real wage growth relative to housing costs has placed nearly one in ten Canadians in Core Housing Need––a term coined by the Canada Mortgage and Housing Corporation (CMCH) to describe households living in homes that are “unsuitable, inadequate, or unaffordable” (THDB, 2023). For Torontonians, the statistic is doubled, at one in five households (THDB, 2023).

Criticisms of loose monetary policy during the COVID-19 pandemic and rising rates of immigration run rampant among national dialogue as the drivers for the epidemic. Many point to the Government of Canada’s commitment to welcoming 485,000 permanent residents in 2024 and 500,000 in 2025 and 2026 as a central cause for declines in affordability (Immigration, 2023)—however, such critiques only scratch the surface of the social issue. Demand-side shocks in the imbalance between housing supply and demand often conceal the persisting symptoms of past fiscal policy and supply-side weaknesses. In truth, the persevering trend of rising house prices is explicitly traceable to measures enacted during the 2008 Global Financial Crisis to maintain credit and, implicitly, through a nearly fifty-year history of cutbacks to social housing.

Extension of Credit Through a Credit Crisis

Following the 2008 Global Financial Crisis, the mainstream viewpoint lauded the prudence and resilience of Canada’s banking regulatory structure and financial markets in contrast to the dire state of their southern neighbour (Walks, 2014). However, the mechanisms critical to supporting Canadian financial institutions against the threat of conspicuous bailouts contributed to the rapid growth in the value of real estate by generating unprecedented amounts of mortgage credit (Walks, 2014). In the face of a crashing global securities market tied to real estate, the Canadian government implemented the Insured Mortgage Purchase Program (IMPP), which empowered the CMCH to offload domestic financial institutions’ troubled debt onto the state through purchases of qualifying mortgage-backed securities up to $125 billion by February 2009 (Walks, 2014). The IMPP operated in conjunction with the existing Canada Mortgage Bond (CMB) program, implemented in 2001, which used proceeds from the sale of non-amortized CMBs to investors to purchase mortgage-backed securities from lenders (Walks, 2014). Taken together, the two measures aimed to serve as a source of long-term funding for Canadian financial institutions and maintain a stable supply of financing for residential mortgage credit (Hume, 2011).

Although the IMPP and CMB succeeded in shielding Canadian homeowners from a screeching halt in the availability of loans and reduced the exposure of banks to the depreciation in the asset value of residential mortgage loans, the programs enabled the former to continue borrowing from the latter amid the credit crisis, upholding inflated house prices (Hume, 2011). The swift recovery of national residential housing prices in Canada––from an 11 percent drop during the first part of the recession to a nearly 17 percent climb by late 2009––offers insight into contributing factors other than increasing demand for houses for the persisting high prices (Walks, 2014). In fact, analysts at the International Monetary Fund, the Bank of Canada, and the Economist began observing the unalignment of Canadian real estate values with fundamentals as early as 2011, pointing to the existence of a “bubble” in stark contrast to the slumping prices observed in Canada’s international counterparts (Walks, 2014).

Nearly 50 Years of Austere Social Housing Policy

Whereas the Global Financial Crisis may have catalyzed the housing bubble, a foundational cause of the shortfall in the supply of housing lies in nearly fifty years of governmental neglect of social housing investment. In a House of Commons speech in 1973, then federal Minister of Urban Affairs Honourable Ron Basford stated that the government “adopted the basic principle that [housing] is the fundamental right of Canadians, regardless of their economic circumstances, to enjoy adequate shelter at a reasonable cost” (Canadian Centre for Housing Rights [CCHR], 2022). The speech encapsulated the efforts of the contemporary government, which aimed to use housing policy as a driver of income redistribution by ensuring the basic right of adequate housing for all Canadians (Heffernan, 2015). From 1970 to 1990, the government acted as an active participant in the housing market, funding more than 600,000 affordable homes across the nation (Heffernan, 2015). Other government actions included subsidized housing for low-income households, support for renters, and strengthening rent control policies (CCHR, 2022).

However, the adoption of austere social housing policies framed through a budget-balancing perspective eroded access to affordable housing (Heffernan, 2015). In 1992, the federal government ended the cooperative housing program (CCHR, 2022). In 1995, it halted funding for the construction of affordable housing after nearly fifty years of the program (CCHR, 2022). In 1998, the Ontarian government slashed rent control on vacant units by introducing the province’s Tenant Protection Act (CCHR, 2022). The policies represent only three examples of an extended list of actions taken by federal and provincial governments that compromised access to affordable housing (Heffernan, 2015). Critical in the deepening of the supply-side crisis was the shifting responsibility of investment in social housing from the federal to provincial governments at the turn of the century (CCHR, 2022).

Through the ensuing two decades, affordable housing units declined while luxury developments skyrocketed (CCHR, 2022). According to the Advocacy Centre for Tenants Ontario, between 2006 and 2019, the number of units renting for less than $1,000 for a one-bedroom fell by 26 percent, while luxury rental prices above $1,500 per month increased by 36 percent (Advocacy Centre for Tenants Ontario, 2019). In recent years, commitments by the federal government, such as the 2019 National Housing Strategy Act and Community Housing Renewal Strategy, have sought to reverse a trend of eroding access to affordable housing (CCHR, 2022). However, more intensive and immediate investment is needed.

Looking Ahead: A Shortage of Supply

The CMHC projects that the housing stock available will be close to 19 million housing units by 2030 based on prevailing construction trends (CMHC, 2022). However, the number falls nearly 3.5 million units short of the crown corporation’s 22-million-unit target to achieve affordability for all Canadian residents (CMHC, 2022). Restoring affordability is necessary for the nation, specifically Ontario, for which the fraction of disposable income necessary for an average household to buy an average house has increased from 40 to 60 percent from 2003 to 2021 (CMHC, 2022). With many blaming immigration, Housing Minister Sean Fraser has proposed to limit the number of international students allowed in the country to address inflating housing costs and appease popular sentiment (Yousif, 2023). Nonetheless, such measures have placed a mere band-aid on structural issues affecting Canadians since the mid-1990s and more acutely since the 2008 recession.

References

Advocacy Centre for Tenants Ontario. (2019). We Can’t Wait: Preserving Our Affordable Rental Housing in Ontario. https://www.acto.ca/production/wp-content/uploads/2019/11/FINAL_Report_WeCantWait_Nov2019.pdf

Canadian Centre for Housing Rights. (2022, September 2). Fifty years in the making of Ontario’s housing crisis – A timeline. Canadian Centre for Housing Rights. https://housingrightscanada.com/fifty-years-in-the-making-of-ontarios-housing-crisis-a-timeline/

CMHC.ca. (2022). Canada Mortgage and Housing Corporation. https://assets.cmhc-schl.gc.ca/sites/cmhc/professional/housing-markets-data-and-research/housing-research/research-reports/2022/housing-shortages-canada-solving-affordability-crisis-en.pdf?rev=88308aef-f14a-4dbb-b692-6ebbddcd79a0&_gl=1

Heffernan, T., Faraday, F., & Rosenthal, P. (2015). Fighting for the right to housing in Canada. Osgoode Digital Commons. https://digitalcommons.osgoode.yorku.ca/jlsp/vol24/iss1/2/

Hume, N. (2011). Canada’s Very Own Mortgage Mess: The Laws and Programs Behind A National Dilemma. Canadian Bar Review, 89(1), 1–.

Immigration, R. and C. C. (2023, November 1). Stabilizing Canada’s immigration targets to support sustainable growth. Www.canada.ca. https://www.canada.ca/en/immigration-refugees-citizenship/news/2023/11/stabilizing-canadas-immigration-targets-to-support-sustainable-growth.html

Toronto Housing Data Book. (2023, March 28). City of Toronto; City of Toronto. https://www.toronto.ca/city-government/data-research-maps/toronto-housing-data-hub/toronto-housing-data-book/#:~:text=Housing%20costs%20have%20increased%20significantly

Walks, A. (2014). Canada’s Housing Bubble Story: Mortgage Securitization, the State, and the Global Financial Crisis. International Journal of Urban and Regional Research, 38(1), 256–284. https://doi.org/10.1111/j.1468-2427.2012.01184.xYousif, N. (2023, August 25). Canada considers foreign student cap over housing crisis. BBC News. https://www.bbc.com/news/world-us-canada-66600600