Skip to Content News Archives Economy Energy Oil & Gas Renewables Electric Vehicles Mining Commodities Agriculture Real Estate Mortgages Mortgage Rates Finance Banking Insurance Fintech Cryptocurrency Work Wealth Smart Money Wealth Management Investor Personal Finance Family Finance Retirement Taxes High Net Worth FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials More Innovation Information Technology FP500 Podcasts Small Business Lives Told Tails Told Shopping Financial Post Store Obituaries Place a Notice Advertising Advertising With Us Advertising Solutions Postmedia Ad Manager Sponsorship Requests Classifieds Place a Classifieds ad Working Profile Settings My Subscriptions Saved Articles My Offers Newsletters Customer Service FAQ News Economy Energy Mining Real Estate Finance Work Wealth Investor FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials HomeEconomyReal EstateMore evidence that increasing new housing supply improves affordabilityThe real risk isn't overbuilding but underbuilding, leading to exclusion, overcrowding and declining affordabilityLast updated 1 hour ago You can save this article by registering for free here. Or sign-in if you have an account.Canada’s housing crisis won't be solved by denying the need for more supply in a country with rapid population growth and shrinking household sizes. Photo by Darren Makowichuk/PostmediaBuilding enough housing to keep pace with population growth is vital for affordability. Critics of supply-side solutions say new homes often cost more and don’t meet the needs of low- to middle-income households. But new research shows that even the supply of mid- to high-priced homes initiates a chain of vacancies that eventually lead to openings in affordable segments, proving supply helps even when housing is built in expensive markets.Subscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.Subscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountorAffordability has recently improved for both rental and ownership housing as prices and rents continue to decline in Canada’s most populous markets. Still, affordability remains a valid concern because a large segment of the population has been priced out of the market for years, while shelter costs increased much faster than incomes.Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againThe skeptics have contested the supply-driven path to affordability. Some, including Professor Emeritus Patrick Condon at the University of British Columbia (UBC), have argued that housing growth has outpaced population growth in many urban markets across Canada. Others, including Toronto’s former chief planner Jennifer Keesmaat, have implied that if demand continues to outstrip supply, ramping up supply will not help.A recent study by two leading urban economists from UBC, professors Thomas Davidoff and Tsur Somerville, and sponsored by the Canada Mortgage and Housing Corporation (CMHC), provides evidence that more supply works.The study highlights three interesting facts about affordability in rental markets. First, rents decline as buildings age. The rental fees charged in older buildings are lower than those in new ones. Second, rents in existing rental buildings decline when new rental housing is built nearby. This phenomenon was more pronounced in Calgary than in Vancouver.The third finding concerned “vacancy chains,” which are a series of vacancies that occur when a household moves into a more expensive unit than the one they left behind. The chain of moves that follow creates availability in more affordable units.The CMHC study’s statistically weak finding that rents in some buildings are unaffected by new rental construction nearby should be viewed in context. Without new housing supply, tenants who would have moved into newly built apartments instead compete for nearby existing rental units. That added competition would push up rents in older buildings as well. New construction therefore helps ease pressure across the broader rental market by giving renters more options and reducing competition for older units.The supply skeptics play an important role in highlighting the need to improve affordability for mid- to low-income households, but their prognosis needs revisiting. Consider Keesmaat’s argument that if the growth in demand for housing outstrips supply, supply alone will not help.Not building enough housing has been a challenge in Canada since the eighties. Before then, Canada’s rate of new housing construction, normalized by its population, was much higher. The other path to affordability, besides ramping up supply, is to slow population growth or reduce population size. However, this would have unintended consequences for a rapidly ageing labour market.Consider that the Canadian economy has grown over the years not due to higher productivity, but because of increases in population and the labour force. If population and labour force growth declines in the absence of higher productivity, Canada’s economy will likely stall. Thus, increasing the housing supply is critical to supporting labour market growth.Professor Condon’s claim that housing growth has been much higher than population growth in many cities is factual, but it is a weak argument against the obvious need to expand the housing supply. The argument’s primary fault is its conflation of population growth with household growth. For housing affordability, household formation or the household growth rate matters far more than population growth.The dramatic shift in household demographics in the former City of Toronto (pre-amalgamation) exposes the weakness in the skeptics’ reasoning. In 1961, Toronto’s population was 672,407, which grew to 841,236 by 2021, an increase of 25 per cent. However, the housing stock increased by 174 per cent, to 474,185 units, over the same period. These statistics support Condon’s thesis.Yet a contrasting picture emerges when we review growth in private households, which grew by 144 per cent over half a century, in line with increases in housing stock. This demographic transition was enabled by the monumental decline in average household size, which shrank from 3.7 persons per household in 1961 to 1.99 in 2021, a 46 per cent decline.Household and housing composition in Canada has changed rapidly. Household sizes have decreased, with the single-person segment growing fastest. Apartments have also shrunk in size to suit smaller households. Consequently, Canada’s urban core is experiencing “lonification,” with smaller and lone-person households dominating.Large changes in family composition and immigration-driven population growth have created challenges and opportunities for housing affordability in Canada. But the need for new supply is undeniable. The findings of the CMHC-supported study reinforce the importance of new supply in opening paths to affordability through filtering and vacancy chains. At the same time, public-sector interventions can incentivize the construction of deeply affordable, non-market housing.Canada’s housing crisis won’t be solved by denying the need for more supply in a country with rapid population growth and shrinking household sizes. Even relatively expensive new housing eases pressure through filtering and vacancy chains. The real risk isn’t overbuilding but underbuilding in the long term, leading to exclusion, overcrowding and declining affordability in Canadian cities.Murtaza Haider is a professor and the Radhe Krishna Gupta Executive Chair in Cities and Communities at the Alberta School of Business. Stephen Moranis is an industry veteran and former president of the Toronto Real Estate Board. Join the Conversation This website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. By continuing to use our site, you agree to our Terms of Use and Privacy Policy.