Canada's bold plan to make housing more affordable is showing signs of working — and could be a model for the US

The Canadian federal government is finding new ways to pressure local governments to legalize denser housing to solve the country's home shortage.

• Canada faces a severe housing affordability crisis with home values doubling since 2011.
• Last year, the federal government launched the Housing Accelerator Fund to boost home construction.
• The program has helped incentivize looser land-use policies and other measures to increase home supply.

mebbe we do a trudeau thumbnail? kinda hard to tell that house is indeed canadian. i'm surprised they don't have a bilingual for sale sign and i'm pretty sure that's illegal.

Canada is facing a housing affordability crisis even more severe than the US's housing woes. But the federal government is starting to aggressively throw its weight behind fixing the home shortage.

Like the American federal government, Canada's national government doesn't have a lot of control over housing policy. Instead, provincial and municipal governments create land-use policies and control building and demand-side subsidies that shape the housing landscape.

Despite the federal government's limited control over housing policy, it's gotten a lot of the blame for skyrocketing costs, said Mike Moffatt, a senior director at the Smart Prosperity Institute at the University of Ottawa. That public sentiment pushed officials in Ottawa to warm to a more hands-on approach. "Canadians just want to be able to afford a home — they don't really care about the intricacies of constitutional law," Moffat said.

So last year, the federal government launched an initiative — called the Housing Accelerator Fund — that incentivizes local governments to legalize denser housing construction, including by mass transit, and otherwise stimulate more home building. In exchange, Prime Minister Justin Trudeau and his Liberal party have opened up billions of dollars in infrastructure funding — from water to transit — to support that new housing.

The program pushes provinces and cities to create more pro-housing policies, including ending single-family zoning, loosening restrictions on how tall and close together residential buildings can be, opening up government land for housing, and eliminating parking mandates. The federal government first made deals directly with all of the country's major cities, which the government estimates will allow 750,000 more homes to be permitted than otherwise would have been.

In April, Trudeau announced an additional $5 billion in infrastructure grants for provinces and territories that implement pro-housing policies, including legalizing "missing middle" homes, which includes medium-density housing like duplexes, triplexes, and small apartment buildings. The most recent push is part of Trudeau's larger housing plan, which aims to get 3.9 million new homes built by 2031.

Overall, the federal push has already been quite successful in changing the housing policy landscape across the country, Moffat said. For example, as a result of their deals with the government, all of the major cities now allow at least four units to be built on single-family lots. Certain provinces, like British Columbia, have been much more willing to push pro-housing policies. Local governments in places like Ontario and Alberta have put up more of a fight. However, the approach creates some political cover for policymakers facing anti-housing constituencies.

"Uptake hasn't been universal, but overall it's been quite strong," Moffat said. "We have seen some municipal changes that, even 20 months ago, I would have said were highly, highly unlikely."

But just because denser housing is legal doesn't mean it will get built. Building missing middle housing and other more affordable homes needs to be attractive to developers. And with home construction costs way up, that's a steeper ask, said Matti Siemiatycki, who heads the Infrastructure Institute at the University of Toronto's School of Cities. "With the rising interest rates with rising construction costs, a lot of the product that used to be finance is now becoming much harder," he said.

City governments have long been "biased towards homeowners and not towards renters," Mosche Lander, a Concordia University economist, told BI late last year, and support policies that limit homebuilding and keep home values elevated.

Like in the US, the housing affordability crisis in Canada is driven by a lack of housing and rising demand. Over the last several years, an influx of new immigrants, rampant investor speculation, and rapidly rising construction costs have also sent prices up. The average home value in Canada has more than doubled since 2011. Rents are up more than 20% over the last two years. And a ballooning number of Canadians are spending more than they can afford on housing.

At this point, most of Canada's housing landscape looks like California's supply-starved and deeply unaffordable market.

"The difference is that California makes up about 12 or 13% of the United States, whereas Ontario and BC combined are over half," Moffat said. "Half to two-thirds of the country is unaffordable."

Siemiatycki said there's been a "subtle but noticeable change" in how Canadians view residential density. Many homeowners who previously opposed densification are starting to realize, "even if it's not them that rising prices and skyrocketing impact, it might be their children, or their colleagues, or their elders," he said.

Pro-housing policies are increasingly popular across Canada's ideological spectrum. The federal opposition leader, Pierre Poilievre of the Conservative Party, argues Trudeau's government hasn't gone far enough and has proposed his own plan that would require cities to increase the number of new homes built by 15% each year or lose out on federal grant money. It would also impose a fine on cities that tolerate "NIMBY" — the anti-development "Not in My Backyard" philosophy — opposition to housing construction.

Under President Joe Biden's 2021 Infrastructure Investment and Jobs Act, the US federal government is providing states and cities across the country with hundreds of billions of dollars in funding for transportation and other infrastructure projects. Some American fans of Canada's Housing Accelerator Fund suggest it could be a model for US efforts to incentivize denser and more abundant housing construction.