October 1, 2024

By Mike Moffat

Governments have set ambitious but necessary housing supply targets, yet housing starts are falling. The federal government needs to take bold action, but limited funds constrain its options. Fortunately, there are a series of reforms they can take, at little to no cost, that would enable the construction of new homes.

The context Canada finds itself in is bleak. The federal government has set a target of unlocking 3.87 million new homes by 2031 to help house a growing population. To achieve that target, housing starts would need to be roughly 500,000 per year.[1] Despite this ambitious target, home starts are falling in most of the country. The latest forecast from TD Economics shows housing starts falling to 234,000 units in 2024, as compared to 242,000 units the previous year, and to remain under 260,000 a year through 2029. Particularly worrying is new condo sales falling to near zero, as this indicates that new condo starts will be very low for the next two years.

The reasons for the fall in housing starts are straightforward. Stable, and in some cases, falling prices and rents, rising regulatory costs and taxes, particularly development charges, interest rate volatility, and elevated levels of uncertainty have made many projects unviable despite a greater-than-ever need for housing.

Policy reforms are needed to enable the construction of more homes. But governments must do so under tight budgets and ensure that our housing plans are compatible with the realities of a changing climate. We have seen governments institute some of the recommendations in the National Housing Accord and Blueprint for More and Better Housing.

Below is a series of recommendations, broken out into five themes that governments could implement that would have little or no fiscal cost but can enable higher levels of home construction, some of which are unimplemented recommendations from the Blueprint and the Accord. The federal government could implement these recommendations, either directly or indirectly by making them requirements of the Housing Accelerator or other infrastructure programs.

 

  1. Reduce Financing Costs

Financing costs make up a significant proportion of the cost of building new housing. Governments can lower these costs but facilitating access to lower-rate forms of capital, but also through changing the timing of when development-related taxes and fees must be paid. The federal government can reduce financing costs, either directly, or indirectly through municipal funding requirements by:

  1. Having Development Charges and other large municipal development-related charges payable upon occupancy or sale instead of at the time of obtaining permits, to lower interest costs during construction.
  2. Having Development Charges as a separate line item on the purchase of a new home, and exempting that line item from GST, PST, and land transfer taxes, to eliminate the tax-on-tax nature of development charges.
  3. Extending the Development Charge freeze in the Canada Housing Infrastructure Fund to all municipalities, not just those with populations of over 300,000.
  4. Require the use of a municipal services corporation utility model for water and wastewater under which the municipal corporation would borrow and amortize costs among customers instead of using development charges, which would dramatically reduce both the cost of building new infrastructure and lower development charges on homes. (Adapted from Recommendation 44 of Report of the Ontario Housing Affordability Task Force)
  5. Implementing the recommended reforms of the Canadian Mortgage and Housing Corporation (CMHC) the MLI Select program, the Affordable Housing Fund (AHF) and the Apartment Construction Loan Program (ACLP) detailed in the Blueprint for More and Better Housing (Recommendations VI.1 and VI.2)
  6. Implementing Recommendation VIII.4 of the Blueprint for More and Better Housing to provide more attractive financing to scale the not-for-profit housing sector.

 

  1. Remove Barriers to Much-Needed Capital

If the federal government is to hit its housing target, Canada needs to build an additional two million homes over the business-as-usual case. This level of construction will require an estimated $1 trillion in capital. Attracting capital, both foreign and domestic, will be vital in achieving this goal. Governments can facilitate investment through:

  1. Removing any rules that prohibit foreign investment in new building construction.
  2. Extending the EIFEL exemption for purpose-built rental housing, announced in Budget 2024, to all forms of buildings, not just purpose-built rental housing, as many projects and complexes involve multiple uses (for example, residential buildings with ground-floor retail).
  3. Creating an equivalent to the US Section 892 provisions, to encourage foreign sovereign wealth funds and pension plans to invest in new housing construction in Canada. 

 

  1. Streamline and Harmonize Approvals Processes

Lengthy and uncertain approval processes increase costs and risks for new housing development. Governments can streamline these processes, enable more and faster construction of homes, while still ensuring rule compliance through the following initiatives:

  1. Implementing automated approvals processes for development permits, as is being done in the City of Edmonton.
  2. Designing, adopting and publishing a national standard for Building Information Modeling, from which provinces will be able to mandate BIM-friendly zoning bylaws and publish fully digital building codes for automated rule checking.
  3. Creating a more permissive land use, planning, and approvals system, including:
    1. Repealing municipal policies, zoning, or plans that prioritize the preservation of the physical character of the neighbourhood.
    2. Exempting from site plan approval and public consultation all projects that conform to the Official Plan and require only minor variances.
    3. Ensuring that approvals for an Official Community Plan application take less than four months, approvals for a Development Plan application take less than three months, and approvals for a rezoning take less than three months, and allowing for applications to be made concurrently.
  4. Enhancing data collection, develop consistent definitions of terms such as “affordability” and “affordable housing”, write zoning bylaws in BIM-readable matrices and tables, and ensure that zoning bylaws are up to date with official plans.

 

  1. Legalize Child-Friendly and Seniors-Friendly Housing Options

The Blueprint for More and Better Housing provides a guide for eliminating the regulatory barriers that prevent the construction of, or increase the construction cost of, great child-friendly and seniors-friendly housing options. Here we loosely define child-friendly housing as homes with three or more bedrooms, and seniors-friendly housing as communities that meet the standard set out in the CMHC’s Developing a Housing Strategy for an Age-Friendly Community.

To enable the creation of child-friendly and senior-friendly neighbourhoods, governments should:

  1. Create clear definitions of child-friendly and seniors-friendly housing.
  2. Implement Recommendation I in the provincial section of the Blueprint, which is as follows:

    Legalize Walkable, Accessible, Inclusive, Transit-Rich Climate-Friendly Neighbourhoods: In many cases, existing zoning regulations and rules such as parking minimums make it illegal, or economically unviable, to create great climate-friendly neighbourhoods accessible to all. Governments should ensure that rules allow for the building of great neighbourhoods while also ensuring that those neighbourhoods have the necessary infrastructure to support their population, from sewers to green infrastructure such as parks and trees. As part of this recommendation, provincial governments should:

    1. Abolish parking minimums, unit maximums, and limit exclusionary zoning in municipalities through binding provincial action to allow “as of right” residential housing.
    2. Permit “as of right” secondary suites, garden suites, laneway houses, multi-tenant housing (renting rooms within a dwelling) and conversions of underutilized or redundant commercial properties to residential or mixed residential and commercial use.
    3. Adopt ambitious as-of-right density permissions adjacent to transit stations and consider adopting British Columbia’s transit density rules targeting larger communities in every community with high-frequency transit, subject to context-specific considerations and supportive infrastructure.
    4. Create higher density zones, including a potential minimum allowable height of 8 storeys, and a minimum allowable density (FAR) of 3.0, for sites less than 800m from a university or college campus, to facilitate the construction of student housing for students.
  3. Exempt from site plan approval and public consultation all projects where 100% of the units are 3+ bedrooms or all units are intended for use by those aged 55+ that conform to the Official Plan and require only minor variances.
  4. Develop a federal strategy for seniors housing for aging seniors to remain in their communities and unlock housing supply for the next generation of families with children.
  5. Follow the lead of London, Ontario and allow, as-of-right, four-storey stacked townhouses on neighbourhood connector streets, to create attainable housing options for families with children.
  6. Revise building codes to support repeatable design and floorplates and adopt Sweden’s single egress rules, which allow for “one exit for class 3 (residential) buildings up to 16 storeys with a maximum occupant load of 50 people per storey and a maximum travel distance of 30m. Different requirements for the fire-protection rating/smoke-tightness standard of closures apply for buildings of not more than 8 storeys and buildings of more than 8 but not more than 16 storeys.” This would allow for better designed and safer buildings that can better accommodate the construction of 3 bedroom units.
  7. Allow for wood-frame construction of up to 12 storeys.
  8. Harmonize building codes across provinces and municipalities to allow for economies of scale in housing construction.
  9. Waive office space requirements in all downtown building conversions and re-developments.
  10. Support the repurposing of surplus municipal lands and school lands (if applicable) to housing and ensure there is enough flexibility and supports for municipal governments to look at underused and strategically located employment lands for mixed-uses, including housing.

 

  1. Ensure Predictable Population Growth

Fluctuating and unpredictable population growth rates have directly led to instability in home prices and rents, as the housing stock and infrastructure do not have time to respond to increases in population growth rates. Conversely, uncertainty about the size of future reductions in population growth rates creates risks for developers. Longer-term and predictable population growth rates can reduce this risk and facilitate planning across the housing supply chain. The federal government has already enacted reforms in this area, however, further reforms are needed. The facilitate better population planning, the federal government should:

  1. Have permanent residency, non-permanent residency, and population growth targets in each annual release of the Immigration Levels Plan. The targets in the plan should be made for a period of ten years, up from the current three.
  2. Develop a plan to return non-permanent resident populations down from 7% to 2% of Canada’s population. This would be a further reduction of the current 5% target, which would see non-permanent resident populations fall to approximately 850,000 persons, levels last seen in 2017. This would reverse the temporary foreign worker and international student bubbles, and ensure that all newcomers have the housing and social supports they need to thrive.
  3. Provide detailed annual population forecasts at the municipal level, incorporating policy developments such as changes to immigration targets, using these population forecasts as the basis for housing targets for each order of government.

If the federal government is willing to expend additional financial resources, it could undertake a number of initiatives to enable additional housing construction, such as fulfilling the unimplemented 1989 commitment to inflation index the GST rebate for new housing, which currently only applies to homes valued at less than $450,000. However, tight budgets should not prevent the federal government from enacting pro-supply housing reforms, as there are a multitude of solutions that governments can implement at little to no cost.

 

[1] This assumes the target is from the start of 2024 to the end of 2031 - the federal government has yet to indicate what period the 3.87 million target covers.

Mike Moffatt

Senior Director, Policy and Innovation