It is no secret that North America is facing a severe structural housing deficit that shows no immediate signs of improving. Governments are scrambling to create reactionary policies and promote market conditions that encourage housing development and continue coming up short. This is a true challenge, especially at a time when interest rates, material costs, land costs and availability, and demand for skilled labour are at an all-time high. Paired with tariffs and geopolitical uncertainty, market conditions are ripe for crisis.
Housing development cannot be arbitrary, as the unique needs of communities must be met, but conversely, developers need return on investment (ROI) to be encouraged to build, and as it stands, current market conditions are not ideal to achieve the lofty goals of governments and meet acute housing needs.
The stark reality
In Canada, the national housing agency Canada Mortgage and Housing Corporation (CMHC) projects between 417,000 and 469,000 new units will need to come online annually through 2036 for a total of 4.7 million new homes to restore housing affordability, but the reality is that only half of that is coming to fruition, meaning the country is on track to face a cumulative deficit of 2.4 million homes.
According to CMHC, more than 1.5 million Canadian households (which represents nearly 10 percent of the total population) live in housing that is unaffordable, overcrowded, or in major disrepair, which is in direct contradiction to their right to housing in accordance with Article 25 of the United Nations’ Universal Declaration of Human Rights.
South of the border, the reality is much the same.
In the U.S., the housing deficit is estimated to be between 4.03 million (Realtor.com) and 4.7 million units (Zillow), though when it comes to affordable housing for low- and middle-income families, the demand is greater, with a structural shortfall of between 7.1 and 7.2 million units; metropolitan areas, as well as the South, are disproportionately impacted.
Approximately 35 affordable rental homes are available for every 100 extremely low-income households in the United States, which means nearly two-thirds of those households are housing insecure. This means housing is no longer a challenge, but a crisis, one that requires immediate action from all relevant stakeholders.
Facing the problem head-on
In order to address a problem, it must be understood foundationally, and in the case of the persisting housing shortage, there are countless factors influencing the trends being experienced.
For one, the market has experienced more than a decade of chronic underbuilding, a construction slowdown that continues to worsen with high mortgage rates, high interest rates, growing material costs, and difficulty securing skilled talent. This is especially true of the multi-family segment where high borrowing costs and increased material prices render these forms of development less profitable, thus forcing developers to focus their efforts on other market segments with better return on investment.
Currently, the market is being driven by data centre construction, the first time in history that billions of dollars are being invested in infrastructure and technology that is likely to be obsoleted in the next decade or so, given the rapid rate of technological advancement. All the while, more than 70 percent of U.S. housing stock and infrastructure was built prior to 1990, which demonstrates the decades of underbuilding and the stark reality that housing and infrastructure are in dire need of updating and modernization.
Further, repeated financial crises, ongoing geopolitical challenges, restrictive zoning rules, and growing demand from the millennial and Gen Z cohorts who are reaching homebuying age are exacerbating the downward pressure on the market.
As with the laws of supply and demand, when demand outweighs supply, prices rise and that is true of new construction but also rentals. Where rent is high and thresholds to entry into the market burdensome, this is disproportionately impactful to lower- and middle-income earners.
Because of chronic the chronic undersupply, affordability has become a major issue. The National Low Income Housing Coalition has found that millions of extremely low-income families spend over half their income on rent, which is extremely burdensome, especially as only one in four eligible households have access to subsidies to offset the pressures. This is why governments are working with developers to kickstart supply to ensure the right kind of supply is being built in the right places. The government is also taking action of its own.
Stepping up and stepping in
To kickstart developments and ensure that targeted needs are being addressed, governments are working with the private sector to ensure that more housing units come online each year.
Coordination is required across the various levels of government as federal, provincial/state, and municipal governments hold different responsibilities in their respective jurisdictions. Municipal governments are tasked with zoning, creating and enforcing bylaws under the authority of provincial or state legislation, and there is a push to reduce strict land use policies that restrict high-density and affordable housing developments.
In Canada, municipal governments are also responsible for completing housing needs assessments (HNA) where a community has more than 30,000 residents to qualify for federal infrastructure and housing dollars.
Provincial governments hold primary jurisdiction over property, civil rights, and municipal institutions, therefore, the responsibilities entrusted to them include setting the legal, regulatory, and financial framework for housing including land-use and planning laws, building codes, municipal delegation, tenant and landlord regulations, and the delivery of social and affordable housing relevant to the needs of the city and region.
Overarching these jurisdictions is a federal housing policy—the National Housing Strategy—which is backed by more than $83 billion in funding targeting community housing protection, repairs, new unit creation, and dedicated building agencies to administer those programs and funds, with programs that include the removal of taxes on new rental construction, funding local zoning reforms to scale up housing completions, and supporting first-time home buyers, among others.
Of mention is the Build Canada Homes agency, which acts as a developer and project manager to leverage public lands and financing to kickstart affordable and middle-class housing.
Taking from the successful WWII-era Wartime Housing Limited, essentially a federal developer that would eventually become today’s CMHC, the strategy leverages public land and prefabricated or modular housing options procured in bulk to bring pre-approved standardized blueprints to life, enabling the rapid scalability of affordable home construction. Paired with financial and tax incentives, including low-cost capital loans, municipal development charge reforms, and revived rental-construction tax allowances, it seeks to kickstart construction for tangible results.
Alternately, the Housing Accelerator Fund is a multibillion-dollar program that supports local governments in removing red tape, updating zoning rules, and expediting building permits, as well as providing other loans and support to help meet housing goals.
South of the border, the U.S. housing strategy, the 21st Century ROAD to Housing Act, is a federal law enacted to lower housing costs by boosting supply, streamlining local permitting, and restricting large institutional investors from buying single-family rental homes. The program includes incentives for local and state governments to reform restrictive zoning and land-use rules and reduce the red tape to get more projects permitted, approved, and built. There is also a focus on alternative housing provision including manufactured and modular housing options through the updating of codes and financing frameworks. The Federal Program Alignment seeks to reform Housing Choice Vouchers, block grants, and rural housing initiatives to bring together federal funding that is tied directly to local production metrics.
Certainly, the approaches are varied, but they demonstrate a multifaceted, concerted effort to simultaneously mitigate challenges. Now, if only there was something governments could do about high interest rates, rising material costs, skilled labour shortages, persistent geopolitical challenges, and the economic woes these conditions create, which reinforce the housing challenges in the first place related to supply, demand, and rising costs.
Collaboration in action
There are many paths forward when it comes to addressing North America’s housing shortage, which is dire. A crisis in every sense of the word, governments and the private sector continue to work together to ensure that housing developments are kickstarted and that the housing needs of communities are being met.
As always, the greatest challenge remains balancing the needs of the community with the profitability of the sector, but given that housing is a human right, efforts need to continue to focus on bringing more units online, particularly those that are affordable where they are needed most. Housing is a right, not a commodity, which makes it very difficult to navigate the social responsibility of providing affordable and adequate housing with the market dynamics of supply and demand economics.
As market dynamics related to labour, land, and material costs exacerbate affordability issues and worsen the crisis, only time will tell if the measures enacted by government to encourage activity in the private sector will produce the desired results, creating supply to ensure that the right to housing is upheld and affordability is restored.
