On June 13, 2024, ICBA Chief Economist Jock Finlayson presented on housing policies to the House of Commons Standing Committee on Human Resources, Skills and Social Development and the Status of Persons With Disabilities. For the video, click HERE (Jock speaks at about 9:29).
These were his introductory remarks:
Thank you for the opportunity to provide input to the Committee on behalf of the Independent Contractors and Businesses Association (ICBA). ICBA is the largest construction association in Canada, with 4,000 members and client organizations and as a sizable and steadily growing health and employee benefits business that currently provides extended health, insurance and retirement services to over 170,000 Canadians.
Construction has a vital role in moving Canada forward in a fast-changing, increasingly competitive world. It is the country’s fifth largest industry and accounts for 8% of employment – almost 1.6 million jobs. In 2023, total construction investment spending amounted to more than a tenth of Canadian GDP. The construction industry’s contributions to economic prosperity and community wellbeing became more apparent in the last few years as citizens, policymakers and business leaders were forced to grapple with the consequences of supply chain bottlenecks, infrastructure “deficits,” a nation-wide housing shortage, and escalating building and development costs.
The foundation for Canada’s prosperity traditionally has rested on hard work, resilience, entrepreneurship, fairness, and sensible public policy. In the decades following the Second World War, Canada leveraged these assets to build one of the world’s most successful countries. However, stresses in our economy are raising concerns about Canada’s ability to compete and generate long-term prosperity. As documented by the C.D. Howe Institute, the Fraser Institute, and the OECD, among others, Canada is losing ground to peer jurisdictions on many metrics of economic well-being – including GDP per person, productivity growth, business start-ups, business investment per worker, and overall competitiveness. Our country is also suffering from a serious housing supply and affordability crunch that has developed over time and has reached crisis proportions in some regions. That is the topic which your Committee is currently exploring.
Housing Supply and Affordability
Canada is grappling with a “housing affordability crisis.”[1] The Canada Housing and Mortgage Commission has noted that the last time housing was “affordable” in Canada was two decades ago. The lack of affordable housing – rooted in insufficient supply relative to population growth and rates of household formation — has become a severe barrier to improving (and even maintaining) living standards in much of the country. The problem has been aggravated by the federal government’s ill-considered and haphazardly-implemented policy to turbo-charge population growth: in percentage terms, Canada now has by far the fastest-growing population among all major advanced economies. Last year saw a 3.2% increase in the number of Canadian residents.[2]
Record levels of immigration have been driving population growth. The permanent immigration stream is generally well-managed. The unprecedented surge in non-permanent immigrants (NPRs) is another matter. In 2023, the number of international study permits issued soared by 77% from the year before, with the stock of foreign students in Canada exceeding one million by the end of the year. This has put enormous strain on rental housing markets in some communities.
Scaling back the intake of new immigrants – especially international students – is warranted, as the federal government itself has belatedly acknowledged. That said, data for the first quarter of 2024 indicates that Canada’s population growth rate is little changed from the pace set last year. This suggests there will be no material easing in housing market pressures in the next several months at least.
In terms of the impact of immigration on housing demand, it is worth noting that in 2022-23 Canada welcomed more than four additional immigrants (permanent plus temporary newcomers) for every additional dwelling unit that came to market. Almost all NPRs and a majority of new permanent immigrants rent upon arriving in Canada.[3] In these circumstances, the extreme tightness of rental markets in many communities is not a surprise. A slower pace of in-migration should assist in dampening price pressures in the housing market, notably for rental. That said, ICBA believes long-term solutions to Canada’s housing crisis will be found primarily on the supply side of the market.
We support many of the measures announced by the federal government over the last 12-18 months to encourage the construction of rental housing, to use federally owned lands to build additional housing, and to incent local governments to densify urban communities and streamline permitting and approval processes for new residential development projects. While these are welcome steps, more efforts along these lines will be necessary to make a meaningful dent in the widening gap between housing supply and demand.
Based on analyses published by CMHC and various private sector economists, it is clear the pace of homebuilding needs to increase markedly and in a sustained way in the coming years. Unfortunately, housing starts have been trending lower since 2022, amid higher borrowing and construction costs and still-slow municipal permitting and approval processes.
ICBA believes a realistic goal for nation-wide housing starts is 400,000 units per year, to be met by the late 2020s.
We recognize that 400,000 starts is well below the number implicit in the federal government’s 2024 Housing Plan as well as the 800,000-figure cited by the CMHC if Canada is to return to a situation of truly “affordable” housing. But the hard reality is that Canada has struggled to hit 240,000 housing starts, and we don’t believe it is realistic to think the country can build 3-4 times more dwelling units annually within the span of a few years.
In this regard, it is sobering to recall that in 1972, with a population of roughly 22 million, Canada managed to build 230,000 new homes. Fifty years later, housing starts were hovering near 220,000 — even as the population approached 40 million. Stated bluntly, Canada has become a much harder and more costly place to build houses (or anything else) than it was three or four decades ago. If the housing crisis is to be solved, or even significantly lessened, that will have to change.
As recognized in the 2024 federal budget, improved coordination of policies and initiatives within and across the three levels of government would help to boost housing supply and address concerns around escalating development, permitting and building costs. In 2023, the federal Minister of Housing announced the removal of the GST on new purpose-built rental housing projects – a measure that ICBA endorsed. However, in March 2022 the Federal Minister of the Environment and Climate Change unveiled a new Emissions Reduction Plan as part of the government’s evolving climate strategy, calling for homes built in 2025 and later to be 61% more energy-efficient than those constructed in 2019. Leaving aside the potential benefits of this proposal, it will increase the cost of constructing new housing at a time when affordability has reached an all-time low. The Canadian Homebuilders Association estimates the promised energy efficiency measure will add approximately 8% to the cost of new homes (including rental units), more than offsetting the tax reduction from eliminating the GST on new rental housing.
While the federal government does not control the cost or market prices of housing, it should nonetheless review its policy and regulatory priorities through a “housing affordability and supply lens,” with a view to expediting the construction of new housing and reducing construction and development costs wherever possible. Other levels of government should follow suit.
Returning to the impact of strong population growth on housing demand, it is clear that the most acute shortfalls in housing supply are found in the rental segment of the market. Canada is especially short of purpose-built rental units offering long-term security of tenure. Indeed, the country literally needs millions more such rental homes if policymakers hope to make significant progress on the housing affordability file.
ICBA supports the measures announced in Budget 2024 aimed at building more rental units, faster, to help meet the housing needs of Canada’s fast-growing population of renter households. This includes the adoption of accelerated capital cost allowances for new apartment units; extension of the earlier removal of the GST from rental housing to include student housing built by public universities and schools; increasing the annual limit for Canada Mortgage Bonds; and increasing the funds available under the Apartment Construction Loan Program.
Together with other steps taken by the federal government and the provinces, these initiatives should make a positive difference over time. They will not, however, have much impact on near-term pressures in rental markets, particularly given Canada’s high levels of immigration.
Other Suggestions
The government’s 2024 Housing Plan contains several other elements that should also help to narrow the gap between housing demand and supply in Canada. Fostering densification in cities and towns, earmarking public lands and unused/underutilized government buildings for new housing, working with local governments to streamline approval and permitting processes – ICBA views these as sound ideas. It must be recognized, however, that the national government does not control the policies or actions of local and provincial governments with respect to matters such as zoning, land use, or the rules shaping community development. Housing is not primarily a field of federal jurisdiction.
ICBA also supports the Housing Plan’s focus on spurring innovation in the homebuilding sector and promoting stronger productivity growth in the industry as means to lower overall construction costs and speed the delivering of new housing to market.
A final comment concerns labour supply. Like other industries, construction is feeling the effects of population aging, with CIBC Economics noting that the average retirement age in the industry at 60 and one-fifth of the current construction workforce aged 55 or older. Immigration is the predominant source of labour force growth in Canada. Unfortunately, CIBC Economics estimates that only 2% of recent new immigrants appear to pursue careers in the construction trades.
With 1.5 million new permanent immigrants expected to arrive in Canada over 2023-25, ICBA believes immigration can make a greater contribution to meeting the construction sector’s labour requirements. The task is urgent given that job vacancy rates, while down somewhat from a year ago, remain quite elevated in the construction industry. ICBA recommends that selection criteria for new immigrants should be modified to put a greater emphasis on skills, experience and credentials relevant to construction. Construction accounts for about 8% of employment in Canada. Given this, it would seem appropriate to adopt a goal to raise the share of permanent immigrants admitted to Canada who have construction-related qualifications to at least 5% by the end of the decade.
[1] Alberta Central Economics, “What does it mean to restore housing affordability? Significant sacrifices and adjustments,” 2024.
[2] Statistics Canada.
[3] Most permanent immigrants typically transition to home ownership within a few years of arriving.
