Canada's bold plan to make housing more affordable is showing signs of working — and could be a model for the US (2024)

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," Moffatt said.

So last year, the federal government launched an initiative — 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 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. Those include 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, Moffatt 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, such as 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 antihousing constituencies.

"Uptake hasn't been universal, but overall it's been quite strong," Moffatt 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 financed is now becoming much harder," he said.

City governments have long been "biased towards homeowners and not towards renters," Moshe Lander, a Concordia University economist, told Business Insider late last year, and support policies that limit home building 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 past several years, an influx of 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 past 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," Moffatt said. "Half to two-thirds of the country is unaffordable."

Siemiatycki said there had been a "subtle but noticeable change" in how Canadians view residential density. Many homeowners who previously opposed densification are starting to realize that "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, says Trudeau's government hasn't gone far enough and has proposed his own plan, which 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 antidevelopment "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.

Correction — July 3, 2024: An earlier version of this story misspelled the names of Moshe Lander and Mike Moffatt.