Living Better: Canada's housing market crisis is challenging our economic prosperity

Anne McLellan and Lisa Raitt

Any way you look at it, Canada is facing a housing crisis that has become one of the biggest constraints to our economic prosperity.

Improving living standards for all Canadians is one of three key pillars of prosperity we talk about at the Coalition, and housing is obviously central to how people perceive quality of life.

A home is not only a basic need and fundamental right but is also a major component of wealth for homeowners and a big chunk of their expenses, whether they are paying rent or paying down a mortgage. Housing is also a source of a lot of economic activity – from construction to banking to real estate transactions.

So, the increasingly sickly nature of Canada’s housing market is a major worry.

Years of runaway price gains have crowded young people out of the market or forced others to take on massive mortgages that will burden many for a lifetime.

The country’s over-reliance on household debt will act as a deadweight on growth for years, while creating significant risks to our economic resilience and financial stability in a world of higher-for-longer interest rates.

While new supply will help fix many of these problems, the pace of home building won’t accelerate enough to close the affordability gap any time soon. We may even see construction slow because of the rising cost of financing new buildings.

In sum, Canada’s inflated housing market has become a vulnerability for the financial system, a drag on demand as households try to pay down massive loans and a constraint on our ability to grow our labour force.

Meanwhile, the political incentives could continue to favour keeping the housing market inflated given that real estate has become such a major part of our wealth – representing more than half of all assets held by most households.

It's a recipe for stagnation and, fundamentally, a cautionary tale of a country that failed to pay attention to underlying economic fundamentals and chased quick and short-term solutions with easy money.

The federal government is taking some steps, but actions have been slow. As we anticipate a more comprehensive housing plan to be presented in the fall economic statement, the government faces some difficult choices, starting with whether to curtail international migration to quell demand.

All this comes at a time when other economic drivers are also fading – from weakening consumer spending to the deteriorating capacity of governments to spend.

Since the creation of the Coalition two years ago, we have talked about the importance of productivity in generating higher wages and incomes in the long run for Canadian workers.

It's not the end all, of course.

At the Coalition, when we talk about living standards, we believe inclusivity and equity are also critical, which is why we monitor eight indicators to gauge progress on this front - from how quickly incomes are growing to the share of women in senior management positions and racial divides in income.

We've seen, for example, generous support from the federal government help lower-income families in recent years. Canada is seeing some gains around economic inclusivity, as well, including important labour market gains for Indigenous Peoples.

What we are finding out today, however, is that our anemic productivity record is giving us little cushion to absorb weakness in other segments of the economy that is putting all of that progress at risk. 

As we approach the release of the Scorecard report in March 2024, we're closely analyzing the data to understand how our country’s weak productivity is impacting Canada's economic prosperity.