The Canadian Housing Crisis

Canada has one of the highest rates of vacant homes in the world, yet millions of people can’t find affordable housing. How is that possible? Part of the answer lies in how urbanization and population growth drive demand in certain areas while supply fails to keep up.

In this deep dive, we will also examine why CIBC Deputy Chief Economist Benjamin Tal asserted that "the housing crisis is a planning crisis" (2024).

Let us examine the period of immigration between 2000 and the present. From 2001 to 2014, an average of around 249,500 landed immigrants settled in Canada every year. In 2015, more than 271,800 migrants were admitted while this number increased to over 296,300 in 2016. Between 2016 and 2021, Canada welcomed a bit over 1.3 million immigrants (Troper, 2014; Lambert and Ma, 2024).

Most recently, Canada’s growth has almost entirely been the result of international migration (97.6 %) as the rate of natural increase (births minus deaths) has continued to decline steadily. Hence, the pace at which Canada’s population grows, in a predictable manner, can be seen as a function of Canada’s immigration policy (Kerr, 2024).

Where do these immigrants settle? According to the 2021 census, immigrants have settled in three key cities: Toronto, Montréal, and Vancouver and now urban areas outside them such as Atlantic Canada, where the immigrants settling there has tripled from 1.2% to 3.5% between 2006 to 2021 (Immigration, Refugees and Citizenship Canada, 2024).

The demand for housing supply responded differently in the Toronto, Ottawa, Montréal, and Vancouver Census Metropolitan Areas (CMAs) to strong population growth driven by high international migration. This led to varying housing market conditions in each region. Consistent with the Canadian Mortgage and Housing Corporation's (CMHC) prior research on the supply elasticity of housing starts, Toronto and Vancouver’s housing supply was rather unresponsive to the increased housing demand, resulting in price surges in both markets (CMHC, 2021).

Estimates from Coldwell Banker and Horizon Realty (2024) suggest that these are the factors at play with supply constraints:

Zoning Regulations: Restrictive zoning laws and lengthy approval processes can increase the cost of new housing by 5–15% in major cities. These regulations limit the supply of housing by restricting density, building types, and land use, driving up prices.

Material and Labour Costs: Rising construction costs, driven by volatile material prices and labour shortages, contribute to a 5–10% increase in overall housing prices. While these costs are significant, they represent only a portion of the total cost of a home.

NIMBYism: Opposition to new housing developments, often referred to as "Not In My Backyard" (NIMBYism), can reduce the number of new housing units by 5–10%. This resistance delays or cancels projects, limiting supply and indirectly increasing prices.

Government Policies: Tax policies, such as capital gains exemptions and incentives for real estate investment, can increase housing demand by 5–10%. These policies often favour investors and homeowners, further driving up prices in competitive markets.

Financialization (housing being treated as a commodity): The growing role of institutional investors, such as real estate investment trusts (REITs) and private equity firms, has contributed to a 5–10% increase in housing prices in certain markets. These investors prioritize profits, often at the expense of affordability.

Speculative Buying: Investor activity, including speculative buying, can drive up housing prices and increase market volatility. In some markets, speculative purchases contribute to a 10–20% rise in price fluctuations.

Speculative real estate investments are a high-risk, high-reward approach to property buying. In Canada, where housing markets in cities like Toronto, Vancouver, and Montréal have experienced rapid price growth, speculative investing has become increasingly common. This strategy relies on market timing, with the goal of buying properties at lower prices and selling them for a quick profit as values rise. While the potential gains can be substantial, the risks are equally significant, and investors need to navigate volatile market conditions carefully (Basra, 2024). Some of these can also be pied-à-terres, or second residences that are often rarely occupied. These are often located in financial hubs such as New York City, London, Paris, or Dubai. In fact, New York City is well-known for this, as there is an area chock full of super-slender skyscrapers next to Central Park known as Billionaire's Row.

Architect and University of British Columbia professor, Matthew Soules, states that "the kind of system that produces those towers in Billionaires’ Row is the very same system that produces slums, homelessness and affordability crises.”

Speculative real estate investing can be both through foreign investment as well as domestic. Economist Mike Moffatt (from the University of Ottawa's Smart Prosperity Institute) says that speculation by Canadians investing in the real estate market is “absolutely” one of the factors contributing to sky-high home prices.

The federal Liberals made housing unaffordability a central plank in their 2021 campaign platform and in the months since, have touted the promises made in the campaign and the recent budget that they say will help to ease the crunch.

Those measures include banning most foreign buyers for two years and imposing higher taxes on people who flip properties within 12 months of buying them — part of growing efforts to target the financialization of the Canadian housing market (Connolly, 2022).

Early in the COVID-19 pandemic, there was an uptick in people buying second properties. 

Robert Hogue, assistant chief economist at RBC, says a combination of low interest rates at the time and many people sitting on large savings "encouraged speculative activity" (Mayer, 2024).

House-flippers and foreign buyers are often singled out as major drivers of real estate speculation, and various jurisdictions in Canada have introduced legislation to neutralize those kinds of investments.

But President of Realosophy Realty, John Pasalis, said those types of buyers aren't having a major influence on prices. Domestic investors in the low-rise housing market are having a much greater impact. He said they generally fall into two categories: those who buy directly from developers and those who are moving but decide to hold on to their first residence.

"If they're upsizing or moving out of the province or country, the first question we get is: 'Can we keep our current home as a rental?' said Pasalis (Mayer, 2024)." 

"They're not like active investors. They're just looking at the market, they're looking at how quickly home prices are going up. Everyone sees housing as a decent investment, so everyone's mindset is: Why should I sell it?" (Mayer, 2024).

As capitalization rates (the return on investment properties) compress, the value of real estate properties tends to rise. Lower interest rates reduce the cost of financing, enabling investors to pay more for properties while maintaining desired returns. This increase in property values should be a key driver for investors to re-enter the market now, while rates decrease and value increases. With interest rates expected to continue their downward trajectory, the potential for real estate value appreciation is anticipated (Punn, 2024).

Inflation and Cost of Living: The Consumer Price Index (CPI) increased by 2.0% year-over-year, reflecting broader inflationary pressures. According to Coldwell Banker and Horizon Realty, inflation being used as an excuse to justify rising housing costs (2024). However, economists in Canada state that shelter costs (including mortgage interest and rent) will be "the single biggest driver of inflation for the foreseeable future" (Heaven, 2024). The Bank of Canada acknowledged this in a Q1 2024 monetary report, indicating that, "shelter price inflation is high and is expected to put upward pressure on inflation for some time" (Heaven, 2024). Desjardins economist Randall Bartlett stated the shelter price inflation was to add 1.8 percentage points to overall inflation in 2024, four times the average in the five year prior to the pandemic, with rising mortgage interest costs being the biggest driver (Heaven, 2024). Monetary Policy: While rate cuts generally support the housing market by reducing the cost of borrowing, they also risk inflating housing prices in the long term, as increased demand for homes could push prices higher. In a 2024 economic outlook panel at Wilfrid Laurier University, Deputy Governor of the Bank of Canada, Rhys Mendes, stated that while housing affordability impacted the cost of living, monetary policy could not solve the issue. As expected, Mendes argued that there was a chronic shortage of supply compared to the demand, saying, "for years now, Canada has not built enough homes to keep up with population growth" (Forrest, 2024). Wage Stagnation: Wage stagnation is "the phenomenon that occurs when wages lag behind inflation as a result of the two not moving in lockstep" (Wilson, 2025). Real wages increased by only 0.8% in 2023, far below the rise in housing costs. Critics argue that this wage stagnation is a deliberate policy choice, designed to keep labour costs low while enriching the wealthy (Coldwell Banker and Horizon Realty, 2024).

In 2016, Canada’s unstoppable bull market in housing entered its eighth consecutive year since recovering from a brief downturn amid the global financial crisis. Even that contraction looks like a mere blip when viewed against the long-term trend. The country’s real estate market has been on a tear for nearly two decades, enriching homeowners, burdening new home-buyers with debt and alarming policymakers. On a few key metrics, Canada has far surpassed the U.S. at its peak. Chief Economist at Gluskin Sheff, David Rosenberg, stated in an interview with BNN Bloomberg, “This bubble is on par with what we had in the States back in ’05, ’06, ’07. We have to actually take a look at the situation. The housing market here is in a classic price bubble. If you don’t acknowledge that, you have your head in the sand.” (Castaldo, 2017). Canada prevented the housing market from bursting by doing several things, the first of which was fiscal stimulus. By injecting over $63 billion in timely fiscal stimulus, Canada’s Economic Action Plan provided strong and immediate support to the Canadian economy during the 2008-09 global financial and economic crisis to encourage growth, protect jobs, and restore household and business confidence (House of Commons, 2012). Nationally, new housing starts dropped to 118,000 from an average of 175,000. Sales of existing homes fell by 40% from their peak. The national resale price for a house dropped by 9.5% and new home prices fell by 3.5%. However, Canada's housing market did not plunge in the same way that the American market did. Analysts attribute this to a range of factors, including:

• A more regulated banking system which prevented lenders from giving mortgages to those who could not afford to pay them. Mortgages are not awarded in Canada without employment and income checks. At the height of the U.S. boom, borrowers were often receiving loans with no verification of income or employment (MacDonald, 2010).
• A much higher proportion of Canadian mortgages are insured by the government through CMHC, leaving the big Canadian banks and investors better protected in the event of foreclosures.
• Bankruptcy laws are more punitive in Canada and lending criteria is not as lenient. Depending on the U.S. state, lenders do not have recourse to a mortgage borrower’s other assets in the case of default. Although, a defaulting borrower would have his or her credit rating seriously affected, the bank could not gain possession of other assets such as savings. In Canada, the banks do have recourse to a borrower’s savings and other assets in the case of foreclosure, making strategic defaults here much less likely (MacDonald, 2010).
• Less securitization of mortgages, in which mortgage debts are packaged up and sold as securities.
• Compulsory (government-mandated) mortgage insurance for many borrowers.
• A smaller run-up in prices prior to the Recession compared to the American market.

In response to the recession, the Bank of Canada lowered interest rates and home prices in Canada soon began to rise again. (The Peak, 2022). As a result there was: Increased Household Debt: Canadians took on record-high levels of debt, making households more vulnerable to economic shocks. “Household debt in Canada has been rising inexorably. At the time of the recession in 2008, it stood at about 80% of the size of the economy, in 2010 it rose to 95%, and by 2021 debt exceeded its size” (ab Iorwerth, 2023). Normalization of High Prices: Government intervention prevented a major price correction, effectively "locking in" inflated values as the new baseline.

These policies inadvertently set the stage for the affordability crisis we see today, as they encouraged demand without addressing structural issues in supply.

Failure to Address Supply: Subsequent governments focused on stimulating demand (e.g., first-time homebuyer incentives) rather than significantly increasing housing supply.

Finally in 2017, following prolonged national advocacy supported by international pressure through the Universal Periodic Review (UPR) process, Canada introduced a 10-year National Housing Strategy (NHS), and later passed the National Housing Strategy Act (NHSA) in 2019. At the time, advocates celebrated the NHSA’s recognition of housing as a fundamental human right. However, the NHS committed to ensuring that only 540,000 households in need have affordable, adequate housing. 

This target pales in comparison to the depth of need across the country: 1.5 million households are currently living in unaffordable, overcrowded, and/or dilapidated housing, and 235,000 people experience homelessness each year. The government has failed to meet even its own strategy’s insufficient goals.

The federal government – alongside the provinces, territories, and municipalities – continues to prioritize building new housing supply with inadequate or outright absent affordability requirements. This approach relies on the theory that building new unaffordable housing frees up affordable housing for those in need. Studies have shown that this approach does not improve housing affordability (especially in the short-term) and may actually raise the cost of existing homes (Canadian Centre for Housing Rights, 2024)

The federal government also launched the First-Time Home Buyer Incentive (FTHBI) in 2019, which was supposed to help homebuyers with their purchase. “The government offered a loan up to 10 percent of the purchase price that would go toward a larger down payment and thereby reduce monthly payments” (The Canadian Press, 2024).

The CMHC also discontinued the First-Time Home Buyer Incentive (FTHBI) after the federal government decided that the First Home Savings Account (FHSA) is a better tool to help first time homebuyers buy a home (Johnson, 2024).

Prolonged Low Interest Rates: Until recently, monetary policy kept borrowing costs low, fueling even greater price appreciation.

Inadequate Rental Policy: Little attention was given to rental housing development, leaving renters with few affordable options.

There is indeed a problem with supply of rental housing, specifically. In the 1940s the Canada CMHC created mortgage insurance to promote home-ownership. In the 1970s and ‘80s, provinces legalized condominiums, which caused rental apartment construction to fall off a cliff because developers could make more money faster building and selling condos. By 1993, the federal budget effectively ended the construction of social housing in Canada.

As Dr. David Wachsmuth, the Canada Research Chair in Urban Governance at McGill University explains, the “roots of the housing affordability crisis are in the rental sector, where we have a forty year history of not building any rentals, and where there’s no social housing” (neal-rockwell, 2023).

These ongoing policies amplified the affordability gap, especially in urban centers where demand outpaced supply.

Housing Bubble Risks: The market’s over-reliance on credit and high prices makes it vulnerable to corrections, especially with rising interest rates.

Fixed five-year interest rates have risen over 3% since the pandemic's lows, and higher rates lead to higher homeownership costs (Mortgage Sandbox, 2024).

Widening Inequality: Homeownership became out of reach for many Canadians, particularly younger generations and lower-income families, perpetuating inequality.

“The result is a pervasive sense of what I’ve come to think of as housing nihilism, especially among those under 40—millennials and Gen Z—who are most affected. In conversations with thwarted would-be homeowners across the country while writing this story, I heard the same feelings reiterated time after time. There was anger at the ever-growing unattainability of homeownership, at the loss of the stability it represents and of an inheritance for the next generation. There was resentment at being relegated to indefinite renting in a cutthroat market controlled by an increasingly exclusive cohort of the housing haves. And there was despair at their straitjacketed circumstances—because the rental market has gone just as haywire, and many can’t afford to move. If they do, they’ll be forced to leave their cities altogether, and their careers, friends and families” (Cyca, 2023).

Policy Trade-offs: Efforts to cool the market now, such as interest rate hikes or foreign buyer bans, risk unintended consequences like slowing construction or displacing demand.

Last year, investment in housing dropped by 10 per cent with higher interest rates discouraging developers from building new homes or taking on major renovation projects (Chevrier, 2024).

Municipal and provincial revenues are tied to property taxes, and as housing values decline, property-related tax revenues decline as well. The costs of delivering municipal services, however, continue to increase, often at a rate higher than the rate of inflation (Haider and Moranis, 2018).

According to a new report by the Mortgage Professionals of Canada (MPC), new stricter mortgage rules are leaving 18% of home buyers out of the market. The MPC report found that while many Canadian homebuyers could afford to make monthly payments at the bank’s contract rate, the higher bar set for qualification meant they would have to settle for a smaller mortgage (Ahmed-Haq, 2018).

The same government interventions that saved the housing market in 2008 have contributed to the challenges we face today, revealing a critical need for balanced, long-term solutions.

In provinces where no rent regulations exist, renters can be subject to exorbitant increases.

In Calgary, 68-year-old Mary Clark told CTV News that she received a $400 per month increase. She told reporter Timm Bruch that her and her husband live on a fixed income and are skipping meals to save money.  “We end up with about $35 each. What do you get for $10 in the grocery store?”  Another Calgary resident, Courtney Townsend, told CBC News that she finally secured a provincial rental subsidy to help keep her and her kids in their home, but then she received a rent increase of $800. “I don’t understand why there’s no rent control…$800 all in one shot is just outrageous,” she told reporter Karina Zapata (Canadian Centre for Housing Rights, 2024).

A significant 65% of renters acknowledge that over the past few years, the accessibility of affordable housing options has worsened. This signals a (perceived) widespread shortage of such housing options throughout the nation, thereby limiting renters’ choices. This can pose intricate challenges for renters, especially those with lower incomes, as their housing alternatives become significantly more restricted compared to their counterparts (Sheppard and Coletto, 2023).

Half of Canadians (48%) aged 18-24 worry about getting evicted because they can’t afford their rent or mortgage, and half (50%) are worried about getting “renovicted” (Habitat for Humanity, 2023).

Renters face daunting barriers in their attempts to build wealth as they're forced to devote an increasing share of their income to keeping a roof over their head, said an RBC report out Thursday.

The report by economist Carrie Freestone adds to a growing body of research painting a stark picture of the wealth divide between renters and homeowners.

Renters hoping to make the jump to ownership, and the benefits it brings, face rising hurdles, said Freestone in the report.

"Canadian renters are getting squeezed more than homeowners, making home ownership an even more distant dream," she said.

"This threatens renters’ path to accumulating wealth — which could exacerbate inequality over the longer term” (The Canadian Press, 2024).

Canada’s Housing Plan lays out  three main steps  (with detailed criteria within each category) to solve the crisis: 

Bringing down construction costs, getting cities to allow more homes to be built, transforming how we build them, and growing the workforce to get the job done.

Making it easier to rent or own a home and ensuring every renter or homeowner can retain their home.

Working to end chronic homelessness in Canada, and building more affordable housing for students and seniors.

Skepticism remains, and it will take time to see what happens from the Canada Housing Plan. Former Prime Minister Justin Trudeau said, “It's a plan to build housing, including for renters, on a scale not seen in generations. We're talking about almost 3.9 million homes by 2031" (Cabrera, 2024). An example of this not only comes from the above Reddit post, but also CIBC economist Benjamin Tal, who wrote in a banking report that "assuming a 2% average annual population growth through 2030, and using actual population as a base, the 'business as usual construction level' gap would be at least one million housing units higher than the CMHC high growth scenario of four million (2024)." That would mean a business as usual construction gap of about 5 million homes through 2030—a planning crisis indeed.