To solve housing affordability, Canada must fix its productivity problem
For years, Canadian policymakers have been sleepwalking past a growing housing affordability crisis. Now, with homes seeming impossibly out of reach to so many and voter discontent on this issue poised to roil upcoming elections, they have been jolted awake and are looking for solutions. Any action on this issue is welcome, but the biggest fix of all has yet to be raised: giving households the buying power to keep up with rising home prices today and tomorrow by boosting Canadian productivity.
It’s hard to overstate the scale of the crisis we’re facing on housing affordability. According to the Bank of Canada’s Housing Affordability Index, which measures the percentage of household income required to own a home under typical financing requirements, affordability is at its worst point since the early ‘90s. Over the past 25 years, average household disposable income has risen three per cent annually, while home prices have jumped six per cent per year on average. These trends have only accelerated in the past decade, a period in which household incomes in Canada effectively stagnated even as peer countries, especially the United States, experienced stronger income growth.
These trends have been felt intuitively by most young couples that have sought to find a new home for themselves in recent years. Belatedly realizing the scale of the problem, officials are trying to incentivize new home construction in a long overdue recognition that decades of underbuilding has led to a supply shortage and high home prices. While this is a welcome move, it will take years of aggressive home construction to correct the imbalance — time that many Canadians cannot afford to take before purchasing. As a result, many homeowners have taken on
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