Reducing Interprovincial Barriers: A Path to Strengthen Canada’s Housing Market

The pressing need for housing in Canada has become a focal point of discussion among economists, policymakers, and housing advocates. Recent insights from CMHC chief economist Mathieu Laberge have emphasized a crucial aspect of this discussion: the necessity of breaking down interprovincial constraints that hinder the development of west-to-east transportation infrastructure. This holistic approach could enhance the utilization of domestic materials, optimizing overall economic output in Canada.

The Need for Enhanced Transportation Infrastructure

Laberge articulates that addressing interprovincial trade barriers can significantly elevate the general economic wealth of the nation. He stresses that eliminating these obstacles would facilitate easier trade partnerships across Canada. “That would raise the economy, make it stronger overall, and that would benefit housing construction as a result,” he stated in a recent interview. This baked-in connection between transportation and economic health underscores a pivotal strategy for boosting the housing market.

Supply and Demand: The Balancing Act

One of the critical insights from Laberge’s analysis is the correlation between interprovincial trade barriers and home ownership demand. A stronger economy, characterized by lower unemployment rates and higher household incomes, typically leads to greater demand for homes. Consequently, to maintain or improve housing affordability, the housing supply must increase at least in alignment with rising demand. As stated in his report, “Since increased income is expected to increase demand for home ownership, housing supply must increase to at least match the increase in demand.” This balancing act is essential to ensure that affordability does not slip further out of reach.

Projected Housing Needs

The CMHC has outlined bold predictions regarding the future of housing in Canada. As per recent estimates, the country will need to construct approximately 4.8 million new homes over the next decade to restore affordability levels last seen in 2019. This translates into an annual production of between 430,000 and 480,000 new housing units—an ambitious target that is nearly double the current pace of home construction. Citing projected annual starts of approximately 245,000 units under existing conditions, the need for increased housing production comes into clear focus.

Legislative Efforts: Steps Forward

The conversation surrounding interprovincial trade barriers gained momentum during Prime Minister Mark Carney’s campaign, where he promised to foster “free trade by Canada Day.” The subsequent passing of Bill C-5, which aims to reduce federal restrictions on interprovincial trade while expediting large infrastructure project approvals, marked a significant legislative step. However, experts warn that this change is merely the beginning. The bill primarily addresses red tape at the federal level; provincial regulations remain a major hurdle in achieving seamless trade throughout the country.

The Economic Cost of Hurdles

The Canadian Federation of Independent Business has estimated that internal trade barriers impose an economic burden of approximately $200 billion per year. Laberge points out that several challenges exist within the residential construction industry—specifically the variances in standards for construction inputs, as well as labor and service isolation. Overcoming these hurdles is pivotal for the industry’s progress, and addressing these trade barriers could streamline operations, leading to a more efficient housing market.

The Role of Domestic Production

Interestingly, Canada is a net exporter of essential construction materials such as wood, aluminum, iron, and steel. Laberge notes that despite this abundance, the country isn’t utilizing its full production capacity in the residential construction sector. Redirecting even a portion of this domestic output to local projects could alleviate some pressure on housing supply.

Drawing on data from Statistics Canada, Laberge highlights that many construction firms attribute their reluctance to purchase goods or services from other provinces to issues like distance, transportation costs, and provincial tax laws. All these factors create a maze of challenges, complicating the path toward an efficient construction industry.

Conclusion: A Collective Effort Ahead

The journey toward alleviating housing shortages in Canada necessitates a multifaceted approach. By addressing interprovincial trade barriers, optimizing transportation infrastructure, and enhancing domestic production capabilities, Canada can significantly impact the availability and affordability of housing. The insights from Laberge underscore a crucial narrative: a strong economy is the backbone of a thriving housing market. The coming years will test the resolve of policymakers and industry stakeholders in achieving these ambitious goals. With concerted efforts across different sectors and levels of government, Canada can steer its housing market toward a more accessible and sustainable future.