Zoning rules and urban concentration slowed Canada's housing response for nearly two decades
Canada's housing supply could have been significantly larger and more affordable had the residential construction industry been as agile as its American counterpart.
The Canada Mortgage and Housing Corporation (CMHC) analysis points to structural inefficiencies holding back Canadian homebuilding.
New CMHC modelling shows that if Canada's housing industry had matched American responsiveness between 2006 and 2024, housing starts could have been 30 percent higher and prices close to 10 percent lower.
CMHC chief economist Mathieu Laberge laid out the findings in a May 28 Housing Observer article, drawing on OECD research.
The scenarios were developed using CMHC's Integrated Housing Model, with housing supply responsiveness increased to match elasticity levels observed in the US.
Laberge noted the finding is notable because the American residential construction industry has seen long-term labour productivity declines similar to Canada's, with the exception of the pandemic period.
The divergence raises the question of what Canada can learn from the adaptability of US housing supply.
CMHC points to three primary structural factors that limit Canada's construction industry from responding quickly to demand shifts.
The first factor is geography.
MIT research found that cities with geographical constraints such as mountains, coasts, and major waterways tend to have less responsive residential construction industries than those built on open plains with fewer regulatory constraints.
Most major Canadian cities face such constraints, as with the waterways and mountains around Vancouver or Montréal, which is built on an island.
CMHC notes this may help explain why Prairie cities such as Edmonton, with their open landscapes, post higher housing starts per capita than other major Canadian centres.
The second factor is demographic concentration.
Canada's housing demand is concentrated in a smaller number of large urban centres, limiting the affordable alternatives available to households that might otherwise relocate.
As Laberge's analysis illustrates, a worker in the finance, healthcare, tech or media industries in New York who can no longer afford housing in the city has comparable options in Chicago, Philadelphia, Dallas, Pittsburgh or Charlotte.
In Canada, someone working in Toronto might consider Montréal or possibly Calgary, but Vancouver is often not an option given its already high housing costs.
That lack of alternatives, CMHC argues, makes households captive to a few cities — a dynamic that also slows the construction industry's response to demand changes.
The third factor is regulation.
CMHC found that more restrictive land use rules increase prices and reduce new home construction, with challenges most acute in high-demand markets where low rezoning approval rates limit new supply.
Similar patterns have been observed in the US, where zoning regulations significantly affect the industry's ability to respond to demand shifts.
Unlike geography and demographic structure, regulation is within governments' control. CMHC points to several reforms already under way, including the Housing Accelerator Fund, announced in 2023, which provides funding to reduce red tape in Canadian municipalities.
The federal government's Build Canada Strong agenda targets infrastructure, housing development, and economic integration.
It also addresses structural challenges identified in the analysis, including low population density and limited urban industry diversification.
CMHC cautioned that the benefits of a more responsive housing supply from broader regulatory and economic reforms are not instantaneous — they take time to materialise.
But the organisation said these initiatives have the potential to compound over time to enable a more agile homebuilding industry.
