Fraser Institute
Federal government’s ‘affordable housing’ strategy doomed without strong income growth
From the Fraser Institute
By Jake Fuss and Austin Thompson
Economist Mike Moffatt estimated that, if Canadian wages grow at the average rate seen over the past two decades—and if home prices remain stable—it would still take 20 years for Canada to achieve housing affordability levels of 2005… In other words, reality remains at odds with the Carney government’s ambitious rhetoric about delivering so-called “affordable homes.”
In a recent media scrum, the Carney government’s new federal housing minister Gregor Robertson—former mayor of Vancouver—was asked: “Should home prices go down?” His response: “No, I think that we need to deliver more supply, make sure the market is stable. We need to be delivering more affordable housing.”
Robertson’s response raises a follow-up question: what does the Carney government mean when it promises “affordable housing”?
Rising house prices are nothing new. The sticker price for the average Canadian home has increased in most years, barring periods such as the 2008–09 Global Financial Crisis. And house prices aren’t expected to fall anytime soon; forecasts point to continued house price growth. But for homebuyers, the key issue isn’t that prices are increasing; it’s whether they’re rising faster than incomes. By that measure, housing in Canada has become much less affordable in recent years.
Consider Minister Robertson’s tenure as Vancouver mayor from 2008 to 2018. During that time, the price of a typical single- or semi-detached Vancouver home grew from $690,000 to $1,980,000—a 187 per cent increase. Meanwhile, the after-tax income of a typical Vancouver family rose by just 15 per cent. Today, the typical single- or semi-detached home in Vancouver costs $2,380,000. Vancouver’s housing market is somewhat unique, but strong price increases reflect a broader national trend: home prices have risen dramatically even as income growth has stagnated, largely because housing demand—driven by immigration-fuelled population growth—continues to far exceed new housing construction.
Which takes us back to the question of “affordability.” Housing can become more “affordable” even as home prices rise, so long as the after-tax incomes of Canadians grow even faster. This has happened before—after-tax wage growth exceeded house price increases in the late 1980s, for example. Unfortunately, this seems unlikely to happen in the 2020s.
In fact, while house prices have soared, wage growth in Canada has stagnated. Consequently, in 2022 (the latest year of available comparable data), the typical worker in Alberta—Canada’s highest-wage province—earned less than the typical worker in low-wage U.S. states such as Mississippi and West Virginia. And from 2014 to 2024, Canada’s GDP per-person, an indicator of incomes and living standards, grew by a mere 2.0 per cent compared to 19.6 per cent in the United States.
In a recent analysis, economist Mike Moffatt estimated that, if Canadian wages grow at the average rate seen over the past two decades—and if home prices remain stable—it would still take 20 years for Canada to achieve housing affordability levels of 2005. And of course, much could go wrong—if wage-growth estimates fall short, mortgage rates rise or house prices rise, then that slow march towards housing affordability may never end for many Canadians including young people looking to start a family.
In other words, reality remains at odds with the Carney government’s ambitious rhetoric about delivering so-called “affordable homes.”
Again, the government wants to double the rate of homebuilding in Canada in a decade. Is that possible? Currently, Canada lacks the required savings and investment to fund that level of building. And due to tepid growth of our construction workforce, we currently do not have the manpower to build twice as many homes. And as always, local opposition to rapid housing development in certain neighbourhoods and public lands may also prove hard to overcome.
But even if somehow Canada was able to marshal the resources and political capital required for such a feat, according to Minister Robertson, the end result would only be to “make sure the market is stable.” Stable, based on today’s prices, means unaffordable for many Canadians unless incomes rise. Clearly, housing supply is only half the battle. To achieve housing affordability on any reasonable timeline, the government must not only help facilitate a major expansion in homebuilding but also substantial growth in Canadian incomes—something the Trudeau government failed to do.
The key is investment, which is required to expand the housing supply, grow Canada’s economy and boost wages. In a capital-scarce economy such as Canada’s, these goals may compete with one another. So governments in Canada, including the Carney government, must adopt policies that attract investment, such as streamlining regulation and reforming capital gains taxes. And crucially, rising incomes will only translate into improved affordability if Canadians can keep more of what they earn, which will difficult given that anticipated increases in federal spending will ultimately result in a higher tax burden. Ottawa must also craft immigration and residency policies so population growth doesn’t continue to overwhelm housing supply and further increase prices.
Canadians should think about housing affordability not just in terms of housing supply but as part of a broader economic challenge—one that also depends on growing the economy, increasing savings and investment, and limiting how much governments take in taxes. Only a comprehensive strategy, centered on broad-based growth, will make the dream of homeownership a reality for generations of Canadians.
Jake Fuss
Director, Fiscal Studies, Fraser Institute
Austin Thompson
Senior Policy Analyst, Fraser Institute
Alberta
Moving to single 8% provincial personal income tax rate would help restore the Alberta Advantage
From the Fraser Institute
Moving to a single eight per cent personal income tax rate for all working Albertans would dramatically improve the province’s competitiveness among
energy-producing jurisdictions, according to a new study published by the Fraser Institute, an independent, non-partisan Canadian public policy think-tank.
“It’s crucial to restore Alberta’s historic tax advantage and understanding how changes to personal income tax rates affect provincial revenues is critical for informed policy decisions,” said Ergete Ferede, Fraser Institute senior fellow and author of Revenue Effects of Tax Rate Changes in Alberta.
The report examines two potential tax reform scenarios and their impact on provincial revenue: an immediate adoption of an eight per cent single tax rate starting in 2025; and a gradual move to that same rate over three years.
An immediate switch to an eight per cent single personal income tax (PIT) rate would decrease PIT revenue by about $6.1 billion (a 35.6 per cent reduction) in the first year.
A gradual transition over three years would start with a smaller loss of $264 million (a 1.5 per cent reduction) in 2025 increasing to $6.9 billion (37.0 per cent reduction) by 2027. However, these estimates may overstate provincial revenue losses as they do not account for the potential positive economic effect of personal income tax reductions on other revenue sources.
Alberta’s current combined federal and provincial personal income tax rate stands at 48 per cent—ranking 10th highest out of 61 jurisdictions in North America—and is significantly higher than other energy-producing regions such as Texas or Wyoming. Implementing a single 8 per cent tax rate would help re-establish Alberta as a low-tax jurisdiction, lowering its rank to the 16th lowest among the 61.
“The potential to strengthen Alberta’s economic position through tax cuts must be considered along with the revenue implications for the government,” Ferede said.
Ergete Ferede
From the Fraser Institute
By Jake Fuss and Austin Thompson
To state the obvious, in Ontario homebuilding is not keeping pace with population growth. This imbalance is driving sky-high home prices and rents, not only in the GTA but many other Ontario cities.
What’s to be done?
In the Ford government’s recent budget, “housing” appears not as a central theme but as one of several areas to receive “support” (read: increased spending) in light of Trump’s tariffs, mainly in the form of more money for local infrastructure.
Specifically, the government will spend an additional $400 million on the Housing-Enabling Water Systems Fund and the Municipal Housing Infrastructure program (on top of the $2 billion already committed to these two programs until 2027). The government will also spend $325 million (over seven years) on a joint project with the federal government and City of Toronto for the waterfront revitalization plan, which includes new housing development.
And as part of this “housing” spending spree, the Ford government will continue to spend millions on the Community Infrastructure Fund—which targets smaller communities—and programs to encourage skilled trades, which could support housing development.
So, will Ontarians, including those who can’t afford to buy a home or struggle to pay their rent, get good value for their taxpayer dollars?
For the answer to that question, consider this. The Ontario government has already spent billions on its housing strategy, yet has not moved the needle on housing supply. Even Ford’s new budget with its massive housing “support” includes an abysmal forecast for new home construction. According to the budget, housing starts will actually fall from 74,573 in 2024 to 71,800 in 2025, continuing the decline from the 89,297 new homes started in 2023. And the budget now forecasts that only 303,700 new homes will be built between 2024 and 2027—an 18 per cent decrease from the 370,400 projected in last year’s budget.
This low level of homebuilding puts the Ford government’s target for 1.5 million housing starts between 2022 and 2031 further out of reach. In fact, if the projected average of housing starts from 2022 to 2027 is maintained until 2031, Ontario would fall short of its target by more than 680,000 homes—severely reducing the likelihood of any meaningful improvement in housing affordability.
The Ford government blames the slowdown in housing starts on economic uncertainty and U.S. trade policy. These factors matter, but there’s plenty of blame to go around. Major Ontario municipalities (including Toronto, Hamilton and Markham) are among Canada’s worst performing cities for how long they make homebuilders wait to receive municipal approval to start construction. Ontario municipalities also impose some of the highest upfront charges on new housing development—for example, a high-rise development in Toronto faces municipal charges nearly 20 times higher than in Edmonton on a per square foot basis. More fundamentally, the federal and provincial governments have failed to create the business and investment environment needed to finance housing development. And Ottawa’s supercharged immigration targets have created many more potential homebuyers and renters, driving up costs.
So again, what should the Ford government do?
Ontario’s housing crisis is a big problem with many contributing factors. For its part, the Ford government should focus on low-cost ways to spur housing growth. To the government’s credit, the recently proposed Protect Ontario by Building Faster and Smarter Act, 2025 is one such effort. The bill would require reluctant municipalities to allow more and denser housing development, streamline regulatory hurdles, and help reduce the upfront charges tied to new construction. It holds some promise for accelerating homebuilding.
If the Ford government wants to hit its housing target and offer hope to Ontarians struggling to buy or rent, it must shift its focus from spending to structural reforms. Real progress in the housing front requires cutting red tape and lowering homebuilding costs.
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