Katja Schmidt
OECD Economic Surveys: Canada 2025
Abstract
Significant increases in house prices and rents in Canada in recent years have reduced housing affordability, which is one of the most pressing and important topics for many Canadian households. These challenges are no longer confined to housing in and around city centres and to the lowest income groups but have become a nationwide issue. Canada has implemented numerous policies to address these challenges, rightly focusing on increasing the overall supply of housing, including the availability of rental housing, and supporting vulnerable populations who often face the most pressing housing needs. This chapter further explores policies to increase housing supply, including reducing regulatory barriers and increasing housing density. It also examines options to expand the stock of affordable and social housing through financial initiatives and housing programmes and to enhance the efficiency of housing taxation. Strong cooperation across levels of government is required. Finally, since housing intersects with many policy areas, improving housing affordability will require policy action on labour shortages, infrastructure, and energy efficiency.
Housing affordability has become a pressing issue in Canada, characterised by rising housing prices since supply has not kept pace with demand. Real house prices have grown rapidly over the last two decades, stronger than in the United States or the Euro area (Figure 2.1, Panel A). The increase was particularly strong over the pandemic and until 2022. The slowdown of the housing market in the wake of the interest rate hikes led to a slight downward adjustment of real house prices in 2022 and in the first half of 2023. This correction was, however, relatively short-lived, and prices have been moving broadly sideways since mid-2023. Real house prices have outpaced the growth of real disposable incomes by about 60% since the Global Financial Crisis. In the United States and the OECD, the prices have risen broadly in unison with incomes (Figure 2.1, Panel B). The deterioration of price-to-income ratios accelerated during the pandemic.
Increasing house prices have also exacerbated rental market pressures. Rent prices have risen strongly in recent years (Figure 2.2, Panel A). Nominal rents grew on average by 6.3% in 2023 and 7.9% in 2024, exceeding earnings growth in both years (respectively 2.2% and 4.6%). The vacancy rate in the private rental market declined to a historically low level of 1.5% in 2023, before rising slightly to 2.3% in 2024 (Figure 2.2, Panel B). Turnover rates of rental apartments decreased, as renters were less inclined to move in view of strong rental price increases (Canada Mortgage and Housing Corporation, 2024[1]). High levels of net immigration (see Chapter 1), especially of international students and other non-permanent residents, has increase the demand for rental accommodation in recent years, especially in metropolitan areas. Some delayed catch-up effects from expired temporary COVID-19 rent controls and restrictions could also be at play.
Note: The CPI is used as deflator for house prices and the private consumption deflator for disposable income.
Source: OECD Economic Outlook database; OECD Household Indicators dashboard; and OECD calculations.
The significant rise in house prices and rents has also pushed up inflation. Shelter accounts for nearly one-third (29%) of total consumption expenditures in the Canadian consumer price index (CPI). The shelter index includes both rents for new and existing rental leases and costs for owner occupied housing (these include mortgage interest costs, property taxes, homeowners’ insurance premiums, maintenance and repairs, and other owned accommodation expenses, as well as a measure of replacement costs), as well as service costs for both. Due to its significant impact, shelter has been contributing between around 1.5 and 2 percentage points to inflation since mid-2021 (Figure 2.3).
Source: OECD Economic Outlook database; Canada Mortgage and Housing Corporation, Rental Market Reports.
Source: Statistics Canada; and OECD calculations.
A significant proportion of income is spent on housing-related costs in Canada. While housing affordability is a particular concern for low-income households, the issue is broader, affecting middle-income households, too. Direct housing-related spending (mortgage and rent payments) absorbed 19.3% of median disposable income in 2022 (OECD, 2024[2]). This is slightly more than in the OECD average of 18.5%. For low-income households, the housing cost burden is markedly higher, and significantly above the OECD average. Low-income households spent respectively 31% and 36% of disposable income on mortgage- and rent-related expenses (against 27% and 33% on OECD average). About 35% of low-income households are cost over-burdened (defined as when households spend more than 40% of disposable income on mortgage or rent), see Figure 2.4. This compares to a cost overburden rate of only 8% for the total population. Hence, housing affordability challenges disproportionately affect specific population segments such as low-income households. Analysis shows that addressing affordability challenges for low-income households yields the greatest economic returns (Canadian Centre for Economic Analysis, 2023[3]).
Largely echoing the link with low incomes, affordability challenges are more pressing for other vulnerable parts of the population, notably immigrants, elderly people, and single parent households. In 2021, Toronto metropolitan area census information shows that landed immigrants are more likely than the Canadian-born to live in housing that costs more than 30% of their (gross) income, and this gap widens for immigrants who have been in the country for less than 5 years (Ray and Preston, 2024[4]). Housing affordability is also a concern for non-permanent residents, with just over half residing in affordable housing within the Toronto metropolitan area (Ray and Preston, 2024[4]). This is exacerbated by the fact that more than 90 percent of landed immigrants live in Canada’s metropolitan areas, where housing markets are less affordable, compared to just over two-thirds of those born in Canada (Statistics Canada, 2022[5]). Other vulnerable populations, such as lone parent households, senior households or persons with disabilities also face higher housing affordability challenges (Thurston, 2023[6]; Statistics Canada, 2022[7]).
Share of population in the bottom quintile of the income distribution spending more than 40% of disposable income on mortgage and rent, by tenure, in percent, 2022 or latest available
Note: Renters and owners refer to the aggregate share across both renters and owners.
Source: OECD Affordable Housing database.
Other indicators also point to a declining housing affordability and an increase in housing stress in recent years. The share of rental units in payment arrears increased from 6.5% in 2022 to 7.8% in 2023 (Canada Mortgage and Housing Corporation, 2024[1]). The share of rent in arrears is particularly high and increasing in some metropolitan areas: in Toronto metropolitan area it has reached 19.6%. For low-income households, the share of affordable rental units, defined as housing units with shelter costs that are less than 30% of before-tax income, is low across Canada and decreasing. The stock of such units was close to/practically zero in Vancouver, Ottawa and Toronto, and below 20% elsewhere in 2023 (Canada Mortgage and Housing Corporation, 2024[1]). Homelessness has increased by 38% according to point-in-time counts conducted in late 2022 compared to 2018 (Government of Canada, 2023[8]). A sizeable minority of households face core housing need, as defined by Statistics Canada (see Box 2.1).
Statistics Canada has developed an indicator of core housing need, which is widely used for assessing housing related problems. The indicator is based on three thresholds: affordability (a household that spends less than 30% of before-tax income on shelter costs), suitability (a household that has enough bedrooms according to the National Occupancy Standard) and adequacy (a household that does not live in a dwelling in need of major repair). Core housing need refers to whether 1) a household's accommodation falls below at least one of the indicator’s thresholds and 2) the household would have to spend 30% or more of its before-tax income to pay the median rent of alternative local housing of acceptable standard. Only private, non-farm, off-reserve Indigenous, and owner- or renter-households with incomes greater than zero and shelter-cost-to-income ratios less than 100% are assessed for core housing need. According to this indicator, about 1.7 million Canadian households (11.1%) were in core housing need in 2022, with affordability being the most important challenge (77.1% of households in core housing need) (Statistics Canada, 2024[9]). While the indicator was on a declining trend between 2016 to 2021, it recently picked up again from 9.5% in 2021 to 11.1% in 2022 (Statistics Canada, 2024[9]). The share of households in core housing needs was the highest in Peterborough CMA (18.5%), followed by Vancouver CMA (17.4%) and Toronto CMA (17.1%) in 2022 (Canada Mortgage and Housing Corporation, 2024[10]).
The erosion of housing affordability since the second half of the 2010s has been mainly driven by an insufficient response of supply to an increase in the demand for housing. In addition, policy focused too much on expanding homeownership through demand-side support, which ultimately contributed to rising house prices, and cut back on affordable housing programmes. In more recent years, since the pandemic, temporary factors, such as strong net immigration, especially of international students and other non-permanent residents have exacerbated more structural, long-term pressures on the housing market. This has strained some segments of the housing market, notably rental markets in metropolitan areas.
Overall demand for housing has broadly outstripped supply since the second half of the 2010s. The demand for housing grew with income and population growth, and the long period of low interest rates. The construction of new housing units did not keep pace with increased demand. Household formation, that is the growth in the (net) number of households, reached about 215 000 per year in Canada over the period 2017-2022 (Parliamentary Budget Office (PBO), 2024[11]; Parliamentary Budget Office (PBO), 2024[12]) (Figure 2.5). It increased recently to a record high of 452 000 new (net) households in 2023, driven by very strong population growth. Household formation would be higher if attainable housing options existed (Parliamentary Budget Office (PBO), 2024[11]). The net housing stock increased by a slightly lower rate (206 000 units over the period of 2017-2021). While accelerating lately to about 242 000 new housing units in 2023, the gap with the number of new households entering the housing market has widened, putting upward pressure on house and rental prices.
Household formation and (net) housing completions
Source: Parliamentary Budget Office (PBO) (2024[12]; 2024[11]).
Without further policy action, housing demand will likely continue to outpace supply in future years. Although recently announced targeted reductions in immigration will reduce the pressure on the housing market somewhat, the demand for housing is expected to remain high in the coming years. The Parliamentary Budget Office estimates that about 390 000 units annually (or 2.3 million new units in total) would be needed between 2025 to 2030 to close the existing housing gap and satisfy future demand from new household formation, assuming that the population evolves in line with updated government’s plans (Parliamentary Budget Office (PBO), 2024[12]). However, there are significant risks to achieving the targeted quick reduction in non-permanent residents, and the need for additional housing is likely to be larger in the short term. While precise estimates of housing needs are challenging to determine and ultimately hinge on economic and social developments, a significant increase in supply will be necessary to prevent a further deterioration in affordability.
The question arises as to why housing supply in Canada has not responded more strongly to increased demand. There has been a strong emphasis on single-detached housing and homeownership in Canada, like in other North American housing markets. This was supported by regulatory frameworks and – until recently – policies to promote homeownership. Single-detached dwellings make up 53% of the residential dwelling stock, compared to only 40% on OECD average, against 33% for flats and apartment buildings (Figure 2.6). The supply of single-detached dwellings is more constrained by the availability of buildable land in urban areas and the development of infrastructure in non-urban areas, which limits overall housing supply (Pârvulescu, Chen and Kavaslar, 2024[13]; Gray, 2018[14]). Empirical estimates by the OECD indicate that the long-run supply elasticity in Canada is not significantly different from 1 (Cavalleri, Cournède and Özsöğüt, 2019[15]). However, regional disparities exist, with a lower elasticity in populous provinces like British Columbia and Québec (Bétin and Ziemann, 2019[16]), potentially leading to stronger upward price pressure in these provinces.
Occupied residential dwelling types, % of the total residential dwelling stock, 2022 or latest available year
Note: The classification and terminology on types of dwelling may differ slightly from country to country. In general, detached houses refer to dwellings having no common walls with another unit. Semi-detached houses refer to dwellings sharing at least one wall or a row of (more than two) joined-up dwellings. Flats/apartments refer to dwelling units in a building sharing some internal space or maintenance and other services with other units in the building. Other refers to accommodations that are situated in buildings that are for use other than housing (schools, etc.) and mobile homes (caravans, houseboats, etc.). Housing starts in all centres 10 000 and over, Canada, monthly seasonally adjusted values at annual rates, 6‑month moving averages.
Source: OECD Affordable Housing database.
Rules regarding land development and usage are crucial factors that influence the types of housing units constructed. Such rules include zoning restrictions (so called zoning bylaws) and land use regulations, but also factors such as government charges and environmental standards. In Canada, provinces establish the overarching framework and guidelines for land use, while municipalities set zoning bylaws within this framework. Residential zoning was until recently strongly tilted towards single-detached housing, even in metropolitan areas (apart from the hyper centres). In 2022, the share of residential land zoned exclusively for single-detached units stood at 64% in the metropolitan area of Vancouver, 62% in Calgary, 21% in Edmonton and 54% in Toronto (Allen, 2022[17]). High government charges can also weigh on residential development and limit supply responsiveness. Government charges are usually levied by municipal governments on land development, and include permit fees, municipal fees and development charges. High and rapidly increasing government charges in some municipalities might have constrained demand responsiveness. They can also lead to a higher concentration among developers in housing markets, as some charges present an upfront payment for developers, which might favour larger developers, and an incentive to build more expensive (often high-rise) units, since charges are mostly levied by unit. Long approval times and burdensome permitting processes are additional factors that explain why construction has not been more responsive to demand in Canada.
There is also a mismatch between the types of housing units available and the needs of potential residents, culminating in a shortage of rental housing. Purpose-built rental housing, which covers units intended for long-term rent in the private rental market, comprised only a small share of new construction in Canada for a long time. Over the decade from 2010 to 2019, only about 18% of new housing units were for long-term rental occupation, compared to 46% for owner occupation and 36% for condominiums (which can be either renter- or owner-occupied) (Figure 2.7). Only 33 000 renter-occupied units per year were added to the market over this period. Consequently, the stock of available purpose-built rental units is also relatively old, over two-thirds of purpose-built rentals have been built before 1980 (Jean, Bartlett and Norman, 2023[18]).
Until the policy shift in 2017 with the launch of the National Housing Strategy, policy efforts to increase the supply of rental units have been minimal, while homeownership has been actively supported through various policy tools, such as loan programmes, mortgage insurance support, first-time buyer savings plans, and other incentives and tax credits. However, rising house prices, which have made homeownership less affordable, along with a shift in the composition of households entering the housing market – characterised by smaller households in recent years – and high immigration have driven up the demand for rental housing. Construction has been responding in part and the number of new rental units has increased over the last three years. However, this has not yet been sufficient to meet the accumulated demand in this segment. This demand could also not be filled by condominium rentals which primarily cater to the high-end rental market.
Number of started housings per year, by main market type, in all centres of ten thousand inhabitants and over
Note: Other cover co-op and other market types.
Source: Statistics Canada.
Canada also has a small supply of social housing. The social housing stock represents only about 3.5% of total dwellings in 2022, compared to 7.1% in the OECD average (Figure 2.8). Affordable and social rental housing units are declining in number (National Housing Council, 2024[19]). In 2021, about 3.8% of all households lived in social and affordable housing (subsidised housing) in Canada (Statistics Canada, 2022[7]). Certainly, social housing models differ widely across OECD countries (OECD, 2021[20]). Some countries maintain significant social housing stocks, while others rely more on direct financial support or transfers to households to cover a share of housing costs. However, in Canada, the private rental market is small, reducing the availability of rental options. Canada has only recently introduced a Canada-wide housing benefit, the Canada Housing Benefit (CHB), which started to provide financial assistance to eligible households in 2020. The benefit is a joint initiative between the federal and provincial governments, aimed at providing financial assistance to low-income households in the private rental market. While benefits help alleviate the strain on household budgets, they remain targeted demand-side measures that do not address the broader lack of rental housing supply.
Share of social rental dwellings to total number of dwellings, 2022 or latest year available
Note: The social rental housing stock covers a range of type of social housing for different countries. For Canada, data exclude units managed by the Société d’habitation du Québec (SHQ) for the province of Québec. For details of other countries, refer to the OECD affordable housing database.
Source: OECD Affordable Housing database.
Like many other OECD countries, Canada has also seen significant increases in construction costs, which have driven up house prices on the supply side (OECD, 2022[21]). Between 2017 and 2023, construction costs for residential housing in 11 metropolitan areas increased by over 75%, with particularly sharp rises of nearly 20% per year in 2021 and 2022 (Figure 2.9). In addition to the rising cost of construction materials, Canada is also experiencing skilled labour shortages in the construction sector, which may contribute to driving up prices and wages in the sector. Vacancies in skilled trades related to housing construction reached record highs in 2022 (Statistics Canada, 2024[22]; Statistics Canada, 2022[23]). They decreased since then, thanks in part to an increase in new registrations in these professions, but they remain historically high.
Residential building construction price index in fifteen metropolitan areas
Note: The fifteen metropolitan areas cover St. John's, Halifax, Moncton, Quebec, Montréal, Ottawa, Toronto, London, Winnipeg, Regina, Saskatoon, Calgary, Edmonton, Vancouver, and Victoria.
Source: Statistics Canada.
2.3.1. Several policy campaigns aimed at increasing housing supply have been implemented in recent years, or are underway
The Canadian authorities have recognised the housing challenges and have introduced several policies aimed at addressing housing affordability. The National Housing Strategy (NHS), launched in 2017, is a 10-year national plan of CAD 115 billion (including cost-matched funding by provinces and territories) aimed to boost housing supply and support vulnerable populations. The programme comprises direct spending support and loans. In 2019, the federal parliament passed the National Housing Strategy Act (NHSA). The NSHA recognises the right to adequate housing as a fundamental human right and defines an obligation to have a national housing strategy. It also established a National Housing Council as an advisory body on housing policies. Since 2023, there have been several new housing initiatives and numerous measures proposed to complement the NHS and address persistent affordability challenges. Notably, the Housing Accelerator Fund was launched in 2023 to encourage municipalities to reform zoning laws to allow for higher-density housing. The Fall Economic Statement 2023 proposed the exemption from Goods and Services Tax (GST) for new purpose-built rental projects from 2023 to 2030 to support rental construction (Government of Canada, 2023[24]). It also established the Department of Housing, Infrastructure, and Communities Canada to enhance policy coordination in these areas.
These policies were further reinforced in 2024 by the Canada’s Housing Plan 2024 (Government of Canada, 2024[25]). Coupled with Budget 2024, the plan strengthens some existing housing policy measures and contains several new supply-side but also demand-side policies. Important new supply-side measures are additional efforts to unlock public land for construction, a new Canada Housing Infrastructure Fund to support infrastructure needs and further policies to spur the construction of rental housing (Government of Canada, 2024[26]). The Budget 2024 housing measures amount to CAD 8.5 billion over 6 years (0.3% of 2023 GDP). As part of the Budget plan, there is a target for 3.9 million new homes by 2031. This ambitious goal implies 2 million additional homes on top of the 1.9 million homes that are already expected to be built by 2031. Box 2.2 gives a more detailed overview of the main federal housing programmes launched since 2017.
The policy initiatives also encompass a number of demand-side measures, particularly aimed at supporting first-time homebuyers. In 2022, the federal government doubled the first-time home buyer’s tax credit (HBTC) from CAD 5 000 to CAD 10 000, providing first-time home buyers with up to CAD 1 500 in tax savings. Further measures include a tax-free First Home Savings Account and the increase of the maximum amortisation period for first-time homebuyers for newly constructed homes to 30 years. A previous measure, which provided shared equity loans to supplement the down payment for first-time homebuyers, was discontinued in 2024. Such demand-side measures generally fuel higher prices and further exacerbate housing market pressures (Andrews, Caldera Sánchez and Johansson, 2011[27]). They should be avoided (see also section 2.3.6). The government has also introduced a nationwide levy on vacant homes, known as the Underused Housing Tax (UHT), which applies to properties owned by foreign nationals. Additionally, there is a federal prohibition on the purchase of residential properties by non-Canadians in place until 2027. However, both measures are largely symbolic, as foreign investors play a limited role in Canada’s housing market. The vacancy tax for foreigners is expected to generate only minimal revenues (Parliamentary Budget Office (PBO), 2024[28]).
The federal government is also targeting industrial solutions to address the housing crisis. In August 2024, consultations for an industrial strategy for homebuilding were launched to enhance productivity and innovation in the residential construction sector. This initiative aims to promote the adoption of innovative technologies such as 3D printing, advanced building methods and materials, and an increased reliance on prefabrication and modular built homes. Budget 2024 includes CAD 0.1 billion in dedicated funds for this purpose.
The National Housing Strategy (NHS), launched in 2017, includes a comprehensive range of measures aimed at increasing housing supply and construction activity, supporting vulnerable populations, and fostering innovative housing solutions. Canada’s Housing Plan, released in April 2024, builds on and reinforces the NHS with a more integrated approach to addressing housing challenges. This box gives an overview of some of the main measures of the NHS, Canada’s Housing Plan and other subsequent initiatives.
Increase of housing supply:
Housing Accelerator Fund (CAD 4.4 billion, until 2027/28): Provides financial rewards to municipalities that move to higher-density zoning and improve permitting processes. The funds are allocated based on proposals from municipalities. As of December 2024, 177 agreements with municipalities had been signed, as well as an agreement with the province of Quebec worth CAD 0.9 billion.
Apartment Construction Loan Program (CAD 55 billion, until 2031/32): Offers favourable loans (lower interest rates, insurance premiums covered by the programme, longer terms and amortisation periods) for builders and developers to construct rental housing units. The Budget 2024 increased available funds by CAD 15 billion and widened access to the programme.
Affordable Housing Fund (CAD 14.6 billion, until 2028/29): Provides financial assistance through grants, loans and contributions for the construction and renovation of affordable housing to projects proposed by housing providers, municipalities and the private sector.
Rapid Housing Initiative (CAD 4 billion, until 2023/24): Provides funding for new affordable housing for vulnerable populations in urgent need. Focuses on rapid construction methods and the conversion of existing buildings into affordable housing units.
Canada Housing Infrastructure Fund (CAD 6 billion, until 2033/34): An initiative in the Budget 2024 that provides funding to municipalities for urgent infrastructure needs. It also includes agreement-based funding with provinces and territories for long-term infrastructure priorities.
Federal Lands Initiative (CAD 0.3 billion, until 2027/28): Supports the sale of federal lands and buildings for affordable housing development.
Public Lands for Home Plan (CAD 0.2 billion): An initiative in the Budget 2024 that proposes additional measures to use public lands for housing development, especially affordable housing.
Exemption of the Goods and Services Tax (GST) for the construction of new purpose-built rental housing and for student residences from 2023 to 2030 (CAD 4.6 billion). Eligibility requires that new buildings have four or more private apartment units or 10 or more primate rooms (e.g., 10-unit residence for seniors), and 90% must be dedicated to long-term rentals.
Reduced taxation for rental property developers via an increase in the capital cost allowance rate from 4% to 10% for new purpose-built rental housing projects that begin construction after April 15, 2024 and before 2031 (CAD 1.1 billion until 2028/29).
Canada Secondary Suite Loan Program (CAD 1.6 billion, until 2028/29): Provides low-interest rate loans to households to add secondary suites to their houses.
Affordable Housing Innovation Fund (CAD 0.6 billion, until 2027/28): Provides funding for innovative housing solutions proposed by housing providers, municipalities and the private sector.
Regional Homebuilding Innovation Initiative (CAD 0.05 billion, until 2025/26): A measure in the Budget 2024 that provides funds for the development of innovative housing technologies, such as designing and upscaling of modular homes, the use of 3D printing, mass timber construction, and panelised construction.
Support for homebuyers and renters:
First Home Savings Account: A savings account that allows contribution up to CAD 8 000, with a lifetime limit CAD 40 000 for the savings of a first down payment for the purchase of a home. Contributions and withdrawals are tax deductible.
First-Time Home Buyer Incentive (CAD 1.3 billion, until 2023/24): Provided a shared-equity mortgage with the Government of Canada, which offered 5 or 10% of the home’s purchase price to put toward a down payment. The programme is now closed.
30-Year Amortisations for First-Time Buyers: Increases the maximum amortisation period for first-time purchasing newly constructed homes.
Tenant protection Fund: Programme in the 2024 Budget to better protect tenants against unfairly rising rent payments.
Direct support for vulnerable populations:
Canada Housing Benefit (CAD 4.6 billion, until 2027/28): Provides direct financial assistance to low-income households. The benefit programmes are managed by the provinces. A one-time top-up of CAD 500 was provided to about 800 000 individuals in 2023/24.
Reaching home (CAD 5 billion, until 2027/28): Homelessness strategy that provides financial support to initiatives that provide stable housing and support for homeless people.
Urban, Rural, and Northern Indigenous Housing strategy (CAD 4.3 billion, until 2030/31): Addresses the specific housing needs of Indigenous people living in these communities through dedicated funding and programmes.
Other
Data collection and dissemination: Supports data collection to inform policy decisions and improve the understanding of housing markets in Canada.
Source: Government of Canada (2024[26]; 2024[25]; 2023[24]; 2023[8]).
At the provincial and territorial levels, initiatives are also in place to increase housing supply and support vulnerable populations. Ontario has passed two housing supply action plans – More Homes, More Choice in 2019 and More Homes Built Faster in 2022 – to encourage municipalities to increase residential density, review and adjust development fees, and reduce permitting and approval timelines for new constructions (Government of Ontario, 2023[29]; Government of Ontario, 2019[30]). British Columbia introduced a 30-Point-Housing-Plan in 2018 to support the construction of affordable and rental housing and tackle speculation and vacancies, complemented in 2023 by a new action plan Homes for People (Government of British Columbia, 2023[31]). Alberta launched a ten-year strategy Stronger Foundations in 2021 to increase the supply of affordable housing and support those in need (Government of Alberta, 2021[32]). Quebec’s housing strategy concentrates on building new social and affordable housing units. Certain provinces and municipalities, including the municipalities of Toronto and Vancouver, have implemented vacant home taxes for unoccupied properties. The initiatives above are just some examples of provincial and municipal strategies and programmes, alongside other initiatives in other provinces, territories and municipalities.
Many of these programmes, at various levels of government, are sizeable and it may take several years to see their full effect on supply. In the meantime, even stronger efforts could be made to ensure efficient collaboration across levels of government to minimise duplications and maximise the impact of the multiple initiatives underway. For instance, certain NHS initiatives are shared and co-financed by federal and provincial governments, facilitating the pursuit of common housing goals. Other programmes, such as the Affordable Housing Fund, receive support only at the federal level, without provincial involvement, although provinces can also apply directly for these funds. This limits its potential impact, as provinces, along with municipalities, wield significant influence over housing supply through mechanisms like zoning, land use planning, and permitting systems, making their involvement crucial. While seeking buy-in from provinces for federal programs may be more time-consuming, it could ultimately enhance the efficiency of initiatives. A good example of a successful coordination between federal and provincial levels is the National Housing Accord in 2022 in Australia, which set clear commitments and targets for federal and provincial authorities.
2.3.2. Zoning changes to increase density in urban areas should continue
Government programmes have initiated recent changes in planning regulation and zoning. Municipalities have started to adapt their zoning laws to accommodate denser housing in urban areas, encouraged by initiatives like the Housing Accelerator Fund. For instance, the city of Toronto amended its zoning bylaw in May 2023, allowing four-unit multiplexes in all central residential areas. Edmonton adopted a new zoning bylaw in October 2023 (effective as of January 2024), which limits single-detached housing in central areas and permits diverse housing types, including detached, attached, and multi-unit housing up to approximately three floors (subject to rules such as site coverage, minimum site area, maximum dwelling units, etc.) (City of Edmonton, 2024[33]). Vancouver also approved zoning bylaw changes in September 2023, consolidating different low-density residential zones into a single zone and allowing multi-units on a single lot within this zone. Ottawa is currently in the process of developing a new zoning bylaw, which is set to be approved in 2025. Smaller municipalities have likewise implemented zoning changes. While it is too early to assess the success of these latest zoning changes on housing supply in Canada, upzoning in municipalities in other jurisdictions, such as Auckland, New Zealand or Portland, US, have demonstrated the success of such policies (Greenaway-McGrevy and Phillips, 2023[34]). Municipalities should continue and be further encouraged and incentivised to reform zoning laws, eliminating single-unit zoning, and enabling medium-density housing in urban areas. Such policies could be bundled with measures to reduce the minimum lot size and eliminate parking requirements, which have been shown to enhance the effectiveness of zoning changes (Hanley, 2023[35]; Gray, 2018[14]).
When implementing such policies, it is important to consider measures that enhance public acceptance of densification. Opposition from existing communities often present a big challenge to higher densification. The advantages and disadvantages of densification have been extensively discussed in the literature (Ahlfeldt et al., 2018[36]; Berghauser Pont et al., 2021[37]). Positive effects on productivity and innovation, access to jobs, lower traffic-generated pollution, improved services access, lower energy consumption, and more efficient provision of public services stand against negative effects such as subjective well-being, congestion, and open space preservation (Ahlfeldt et al., 2018[36]). Costs of higher density can be partly mitigated through policies such as preserving parks and green spaces, boosting investment in essential public infrastructure like water, sewage, schools and healthcare and providing urban transport (Lehmann, 2016[38]). Another strategy to foster acceptance is a gradual increase in density, by promoting initiatives such as building laneway homes, permitting the construction of secondary units on existing lots and adding additional floors on existing buildings. Vancouver has adopted this more gradual approach to densification. Education and outreach programmes could also help to highlight the advantages of higher density for cities in terms of housing affordability, public services, and shorter commuting times.
2.3.3. Greater efforts should be made to expedite the permitting process
Approval processes vary widely across municipalities in Canada according to the type of project, the specific requirements of the area and backlogs in the local planning department. The average approval time in Canada for new housing projects is about 14 months, with significant variations ranging from 3 to 32 months, depending on the municipality (Altus Group, 2022[39]). Unfortunately, internationally comparable indicators are not easily available. Lengthy approvals impose additional costs on residential development – costs which are often passed on to the end buyer – putting upward pressure on housing prices. A new survey conducted by the Canadian authorities, the Municipal Land Use and Regulation Survey, shows that municipalities with long approval times and higher backlogs in approvals (such as Toronto or Vancouver) face generally higher affordability challenges (Canada Mortgage and Housing Corporation, 2023[40]).
Further policy efforts should hence aim at streamlining the permitting and approval process, reducing delays, and lowering costs, thereby facilitating new housing developments. This could be achieved through simplifications of approvals, the introduction of more electronic processing, and a stronger reliance on pre-approved building plans. For example, some communities in British Columbia have used the Housing Accelerator Fund to introduce an AI E-permitting system that has reduced permitting delays significantly. Implementing systems to track the progress of applications can help identify and address delays. For example, New York City’s Department of Buildings has a self-service online system (DOB NOW: Build) that allows housing developers and other professionals to track the status of their permits. Also, municipalities should ensure that local planning departments have adequate staffing to ensure quick permitting processes. A key issue to improving approval timelines include staffing resources (Altus Group, 2022[39]). A faster permitting process should, however, not come at the costs of lower building and environmental standards. This could, for example, be achieved through a tiered system: Projects are categorized based on their complexity and potential environmental impact. Simple projects with minimal impact can be fast-tracked, while more complex projects undergo a more thorough review. The city of Burbank, California has such a tiered permitting system in place. Initiatives at the municipal level could be complemented at the federal or provincial level by providing better information on approval times and processes, showing best practices, and offering financial support to enhance approval processes.
Government charges also vary substantially across Canadian municipalities, according to available data. Comprehensive data on development charges are hard to come by since they are not made readily available by municipalities. In a survey conducted in 2019-2020, the Canada Mortgage and Housing Corporation (2022[41]) found that average government charges per square foot in the three examined large metropolitan areas are the highest in Toronto (CAD 86), closely followed by Vancouver (CAD 70), far ahead of Montreal (CAD 24). In Toronto, they account for between 10% (for single-detached homes) and 24% (for row homes) of the total construction costs of a dwelling unit. Montreal’s favourable position is due to public services being primarily financed by general property and provincial taxes in Quebec, which will also be factored into property development decisions. However, the distributional incidence is not the same. While property taxes and other provincial taxes are paid by all residents, government charges are only paid by new buyers or renters. Government charges per dwelling unit (as well as per square foot) in Toronto, Vancouver and Montreal are also substantially lower for single-detached dwellings than for denser dwelling types such as rowhouses or low-rise rentals, representing a fiscal advantage for less dense dwelling types (Canada Mortgage and Housing Corporation, 2022[41]).
Government fees on development could be better aligned with other housing policy goals. Government fees could be reduced for the development of rental housing units and more compact construction, reflecting their lower public infrastructure and service costs. Conversely, fees could be increased for the development of single-detached housing. For example, Vancouver’s Rental 100 Program waives the development cost levy for purpose-built rental construction (Jean, Bartlett and Norman, 2023[18]). Generally, fees should be better reflecting the size of the unit and associated public costs, rather than being charged per unit. Special discounts could be offered for social and affordable housing, making it financially more viable for developers to include these units in their projects. However, as changes to the fee structure entail potential implementation costs and higher administrative burdens, their implementation should be carefully assessed and gradually put into place. Additionally, reporting of data on government charges in municipalities could be improved.
2.3.4. More affordable and social housing will be needed
Increasing overall housing supply is not a sufficient condition for improving housing affordability. In Canada, low housing affordability affects particularly low-income households, who often face difficulties to access the private rental market (see discussion above). Therefore, providing social housing is necessary. This need has been recently emphasised by the National Housing Council, which also offers several policy proposals (National Housing Council, 2024[19]). A first important step could be to establish a comprehensive social and affordable housing strategy, as a joint federal-provincial initiative, to assess needs and help to better manage and allocate existing federal and provincial funds and loans to social and community housing providers. Providing federal, provincial, or urban underused land for affordable social housing construction, as done through the Federal Lands Initiative and envisioned with the Public Lands for Homes Plan, also is a useful policy measure. In addition, more funds are likely to be needed at both the federal and provincial level to address this issue.
Some OECD countries, regions or municipalities mandate minimum shares of social or affordable housing in buildings or municipalities (OECD, 2022[21]). The experience with such inclusionary zoning is, however, at best mixed. While inclusionary zoning can provide benefits for a small number of low-income households, it can also drive-up prices for other households and reduce total housing development (Hamilton, 2018[42]; Gray, 2018[14]). Housing developers often opt to pay a penalty fine to bypass such regulations. In Canada, Montreal implemented inclusionary zoning in January 2021, requiring that each new residential project exceeding 450 sqm must include 20% social housing, 20% affordable housing, and 20% family housing, known as the 20-20-20 bylaw (City of Montréal, 2024[43]; City of Montréal, 2023[44]). Despite these commendable efforts by the City of Montreal to provide more affordable and social housing, the results have been relatively disappointing so far, as they have not significantly increased the construction of social housing (Polèse, 2023[45]). Most developers preferred to pay the penalty fee, which has consequently been increased. This highlights the importance of carefully implementing minimum requirements and tailoring them to local housing conditions. One option could be to exempt moderately priced or medium-density housing from minimum requirements to maintain affordability and housing supply for medium-income households. Also, offering direct financial incentives to private housing developers, such as reduced or waived development fees, affordability bonuses, or tax abatements, might be more effective in encouraging the inclusion of affordable housing units in new housing construction projects.
Other potential avenues to increase the supply of affordable housing include maintaining the affordability of existing units and the provision of more attractive financing for the not-for-profit sector. To preserve and protect affordable rental supply, acquisition strategies and dedicated acquisition funds could put affordable older rental housing in the hands of developers that guarantee to keep rents affordable (Task Force for Housing & Climate, 2024[46]; Ellen et al., 2020[47]). For example, British Columbia put in place CAD 500 million in rental protection funds to allow co-operatives and other not-for-profit organisations to buy older rental buildings to preserve them as low-cost rental housing. The federal government also announced a CAD 1.5 billion Canada Rental Protection Fund to support community housing providers in acquiring units and preserving rents, with specific characteristics yet to be finalised. Tax incentives or access to capital could be offered to developers that renovate and improve existing affordable rental units. Enhanced assistance and more attractive financing options, along with reduced development fees or expedited permitting processes, should be offered to not-for-profit housing providers to help the construction of affordable housing. For instance, the city of Vancouver implemented a streamlined permitting process for non-profit housing projects, significantly reducing the time and cost associated with development. The federal government introduced in June 2024 a new co-operative housing development programme worth CAD 1.5 billion until 2028. This programme offers access to forgivable and low-interest repayable loans to build and converse affordable rental co-operative housing. All these are welcome initiatives, which could be further expanded.
2.3.5. Some adjustments in housing taxation should be considered
As regards tax policies to foster housing supply, the federal government put in place a temporary 100% GST/federal portion of HST rebate for new purpose-built rental housing (PBRH) and student residences. This measure augments an existing 36% rebate of federal GST/federal portion of HST for residential units with a fair-market-value of below CAD 450 000 (the rebate is gradually phased-out for units with a fair-market-value of between CAD 350 000 and 450 000). Ontario, Nova Scotia, Prince Edward Island and Newfoundland and Labrador, as well as more recently New Brunswick, have announced that they will mirror the federal PBRH rebate and provide a 100% rebate of the provincial portion of HST (Government of Canada, 2024[48]). Eligibility criteria only require that properties have a minimum of four private apartment units or ten private rooms or suits, with 90% of them being held for long-term rental. Tax rebates for housing construction can be effective, if they are carefully designed and monitored, including clear eligibility criteria (OECD, 2022[21]). In this specific case, they could cover some of the up-front costs for rental developments, which would otherwise only be recoverable over the rental period. The rebate is, however, relatively generous, covering all new purpose-built rental construction, regardless of the unit price or value. It should be complemented by an affordability condition that mandates a certain percentage of units to be affordable for low- and middle-income households. Additionally, it is not guaranteed that providers will pass the lower GST/HST on to rental prices, and the tax break might simply result in windfall gains for developers. The programme’s effectiveness, especially in terms of stimulating additional housing supply and lowering rental prices, should be better monitored. Another tax measure to promote rental housing that could be considered is offering tax breaks to homeowners who commit to renting out dwellings at below-market prices. Examples of such policies include France’s dispositif Pinel (for newly acquired dwellings) and capital gains tax discounts in Australia (OECD, 2022[21]).
Other elements of the Canadian tax system indicate some marginal reform potential to improve housing affordability. Canada’s provincial and municipal governments make substantial use of recurrent taxes on immovable property (see Chapter 1). However, there is evidence that some municipalities levy higher property taxes (per unit and square foot) on multi-purpose rental properties than on single-detached units (Dachis, 2024[49]). Property tax rates should, at a minimum, be harmonised across different dwelling types and should not disadvantage multi-purpose rental units (Task Force for Housing & Climate, 2024[46]). To promote rental and higher density housing, property taxes on these housing type could even be set lower than for less dense dwelling types (such as single-detached homes). The federal government could enhance its guidance in property taxation, for example, by negotiating some minimum federal standards with desirable features, while leaving the decision on the tax rate in the hand of municipalities. Canada’s provincial and municipal governments also levy property transaction taxes, which depend on property assessment values. Such taxes have been found to limit property transactions, but such likely negative effects are countered by positive effects, such as lower speculative activities (OECD, 2022[21]).
Like most other OECD countries, Canada excludes owner-occupied housing from capital gains taxation, thereby supporting homeownership. The Canadian authorities might consider taxing capital gains on main residences above a high threshold, to diminish distortions and allow equal treatment across different savings instruments (OECD, 2022[21]). Regarding the taxation of mortgage-financed, owner-occupied housing, Canada has the highest marginal effective tax rate (METR) in the OECD, mostly because mortgage interest is not tax deductible compared to most other OECD countries (Figure 2.10). This is good practice because imputed rents are not taxed. Allowing interest payments to be tax-deductible for housing investments would unduly favour homeownership investments.
Marginal effective tax rate for debt-financed, owner-occupied housing
Note: METR stands for “marginal effective tax rate” for owner-occupied, debt-financed housing investments.
Source: OECD (2021[50]).
The federal government has also adopted an annual 1% tax on vacant or underused housing, on top of the vacancy taxes already in use in various provinces and municipalities (British Columbia, Toronto, Ottawa). The impact of the federal levy is expected to be minimal, as it applies only to foreign-owned residential property (as well as to Canadians who own homes through certain trusts, corporations or partnerships). Some provincial and municipal vacant home taxes are more efficiently designed, as they apply to all unoccupied properties, which is better practice. Regarding the housing market’s response, a recent analysis examining the vacancy tax implemented in Vancouver in 2017 reveals that although the tax decreased the number of unoccupied residences, it had no significant impact on rental prices or the construction of new housing units (Caracciolo and Miglino, 2024[51]).
2.3.6. Mortgage support for homebuyers should be avoided
Demand-side measures in the housing market, such as tax reliefs, subsidies and mortgage support for homebuyers, positively impact the purchasing power of potential buyers. However, these measures have been shown to drive-up house prices (Andrews, Caldera Sánchez and Johansson, 2011[27]). They also often support middle-income households, advantage homeowners over renters, impede mobility and can crowd out other types of housing support (OECD, 2020[52]). Even though the recent Canadian support measures for homebuyers target only first-time buyers to address intergenerational equity, demand-side measures should be ideally avoided. Similarly, measures that increase mortgage lending, such as extending the amortisation period of mortgage loans and raising financing limits, should be carefully evaluated under financial stability considerations (see Chapter 1).
2.3.7. Housing policies should be better aligned with other policy areas
Addressing labour shortages in the construction sector is essential for boosting housing supply and limiting residential construction price increases. According to a 2024 report by the construction sector body, the residential construction industry could face a shortage of up to 41 000 workers by 2033 (BuildForce Canada, 2024[53]). This is due to the retirement of approximately 22% of the 2023 labour force by 2033, which will not be offset by an adequate number of new entrants. Expanding the workforce in skilled trades in the construction sector through training programmes and apprenticeships should be encouraged. Further efforts could also be undertaken to recognise foreign credentials of immigrants for skilled trades in the construction sector. To increase the number of immigrants with respective skills and meet the targets of the Federal Skilled Trades Program (Government of Canada, 2024[54]), the requirements for having a job offer in Canada or a Canadian trade qualification could be relaxed and approval processes under the programme expedited.
Housing supply should keep pace with immigration targets. This includes securing sufficient student residences for international students, who typically seek budget housing and thus add strain to affordable housing options. Currently, student accommodation houses only about 12% of the total student population in Canada, compared to 30% in the US and the UK (Jean, Bartlett and Norman, 2023[18]). Post-secondary institutions should be encouraged to provide more on-campus student housing facilities to reduce the strain on off-campus housing. The federal government should also ensure that their engagement in housing policies and the allocation of available funds reflects immigration objectives.
Housing challenges are inherently linked to infrastructure challenges. Increasing housing supply necessitates substantial investment in public infrastructure. The federal government has made advances in this area by initiating the National Infrastructure Assessment (NIA). This assessment aims to identify infrastructure gaps and future needs, improve coordination among infrastructure owners and funders, and determine optimal financing methods (Government of Canada, 2021[55]). The work on the NIA should continue and include a dedicated chapter on infrastructure requirements for housing development. Infrastructure planning can also address environmental sustainability and climate resilience of housing related infrastructure (see Chapter 3). Budget 2024 includes CAD 6 billion for urgent and longtime infrastructure needs through a new Canada Housing Infrastructure Fund. The Canada Community-Building Fund of CAD 2.4 billion per year provides more general infrastructure funding for communities. Ontario also announced a new CAD 1 billion Municipal Housing Infrastructure Fund, which comes on top of several other available funds (Government of Ontario, 2024[56]). Partnering with the private sector through public-private partnerships (PPPs) and other innovative financing approaches, such as infrastructure funds or green bonds, can also ensure more funding. These collaborations leverage private capital and expertise to complement public investment in critical infrastructure.
Housing and environmental policies should be closely tied. Increased housing activity should not come at the expense of environmental goals. The residential sector accounts for a significant share of CO2 emissions, and per capita emission levels in Canada are relatively high compared to other countries with similarly cold climates (Figure 2.11). This is due to the high share of natural gas used for heating, as well as the overall low energy efficiency of buildings and high unit sizes (OECD, 2023[57]). The removal of the federal fuel charge, the consumer-facing carbon price (see Chapter 1), could slow down progress towards emission reductions in the residential sector where heating and energy use are significant contributors to CO2 emissions. Canada should reapply the fuel charge or replace it with an alternative mechanism to curb high emissions in the residential sector. Also, the reliance on energy efficiency certification and standards could be strengthened. Energy performance certification, which has been voluntary so far, should be made mandatory for both new buildings and existing buildings, at least at the time of resale or new rental. Federal building codes, which set increasingly stringent energy-efficiency requirements, should also be adopted more quickly into provincial regulations (OECD, 2023[57]). There is also space to improve the reliance on cleaner and recovered (cheaper) building materials, which could also have positive side-effects on construction prices (OECD, 2023[57]). The federal government should also continue its efforts to enhance innovation in the residential construction sector by developing an industrial strategy for homebuilding.
Total CO2 emissions and energy use of the residential sector, 2020
Note: The breakdown between direct and indirect emissions is based on the proportion of final residential energy used from electricity and district heating. Indirect emissions are calculated in the following way: Energy_use *(p_e+p_dh)*EF, where p_e=proportion of energy generated by electricity, p_dh=proportion of energy generated by district heating, and EF is the emission factor for electricity and district heating.
Source: OECD (2023), Brick by Brick (Volume 2): Better Housing Policies in the Post-COVID-19 Era, https://doi.org/10.1787/e91cb19d-en.
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