Fix Housing 4: It's Time for a Canada Housing Transfer to Get Municipalities Building

Could we use $6 billion in annual savings to get municipalities building the housing we need?

Note to reader: after a number of inquiries, we have turned on the option to support this work through a paid subscription. We appreciate the generosity of those who can contribute. The content on Fix Your City remains free to all.

---

This is the fourth in a series of common sense solutions for achieving housing affordability for all.

5.8 million more homes by 2030

The Canadian Mortgage and Housing Corporation made headline news with their assessment that Canada would need to build 5.8 million new homes by 2030 to restore affordability. 

Affordability, in other words, means that we need to build over 600,000 new homes across the country each year (assuming the CMHC report was referring to the 9 years leading up to and including 2030). Over the past five years, Canada has seen completions of about 160,000 homes on average each year. 

Business as usual is not coming close to getting us where we need to be. 

We need something new and dramatic.

You can’t solve housing without cities on board

Four out of five Canadians live in cities. Without those city governments doing everything possible to build housing, we’re going to fail. 

In Fix Housing 3, we identified three key reforms required by municipalities to get housing built: fix zoning; make surplus municipal lands available for affordable housing; and, reduce the soft costs of building.

We also noted that reform is not easy for cities. Many existing homeowners will push back on anything they believe could change the ‘character’ of their neighbourhood or affect property values. The incentive structure for municipal leaders points towards a business as usual approach.

Municipal authorities hold the levers that can shape how much housing development happens and how fast. Unless a provincial government is prepared to come in and strip away those powers, municipal leaders have considerable influence over whether we restore affordability across the Canadian housing market.

Incentivize cities to build

The big question in housing should be how to incentivize civic leaders to dramatically increase the housing built in their cities.

The federal government’s $4 billion Housing Accelerator Fund tries to provide this incentive. It provides a one-time cash payment for promises of future builds. We’re concerned that some municipalities will jump through hoops to win the funding, and then revert back to their old ways once the money is in the bank. 

So good idea, but flawed implementation.

We’d rather see payment for results, and a program which incentivizes cities to make structural changes.

To incentivize municipalities to act, we need something more than just one-time cash injections.

It’s time to create a new federal transfer to cities

To get municipalities to build homes, we’re proposing a cash payment from the federal government to municipalities for each home built. Homes that meet certain criteria, such as affordability, get a higher cash payment.

The federal government already does a lot of direct transfers. In 2023-24, half of the total $446 billion in program spending (excluding debt payments) goes out as transfers, notably:

• $97 billion to provinces and territories, including the Canada Health and Social Transfers

• $126 billion to people, primarily to seniors, the unemployed and young families

The feds also transfers money directly to municipalities, through what we used to call the Gas Tax. But that amounts to a mere $2.5 billion a year. Peanuts – especially in today’s inflationary market.

The federal government needs to do more for municipalities.

As we noted in Fix City Finances 3, cities are getting the short end of the tax dollar stick. Cities are cash strapped. They are being asked to do so much with so little. 

It’s only a matter of time before some cities find a way to carve out for themselves a larger share of the public funding pie. That’s simply a reflection of who is delivering many of the most visible and impactful public services. 

A federal government would be wise to get ahead of that reality while it still has leverage, and offer a new transfer to cities in exchange for something tangible. Something like housing.

It’s time for a Canada Housing Transfer

We’re proposing that the federal government create a new $6 billion annual Canada Housing Transfer.

The Canada Housing Transfer would be an annual, direct and unconditional payment to municipalities based on the number and type of housing units completed in the previous year. Cities get to spend the funds however they wish.

The Housing Accelerator Fund provided a sensible, if perhaps over-complicated, model for how those transfers could be structured. 

Here is a first cut at how a new Canada Housing Transfer could disburse funds to municipalities. 

Every new home built would result in a base $5,000 payment to the municipality. Homes built near rapid transit or as missing middle infills within existing communities would generate an extra $5,000. Homes that meet the max-30%-of-income affordability definition would generate an additional $5,000. Passive homes would generate a further $3,000. This would incentivize cities to do more of the denser, affordable and low-carbon development that we need. 

A municipality would receive from $5,000 to $18,000 for each new home that had been built in the previous year. This money would flow directly to municipalities, without the involvement of provinces and territories.

A new transfer of this scale would have a material impact on the finances of cities.

Consider the city of Ottawa, population 1 million. Ottawa has committed to building 151,000 homes by 2031 – close to 19,000 per year. This is double the current rate of new housing builds. That’s never going to happen without some serious incentives.

A new Canada Housing Transfer might be the incentive that turns this pipe dream into reality. If the city focused its energies on building enough homes to meet its targets, it could receive an additional $200 million annually. That’s equivalent to the amount of money the city would collect by increasing property taxes by 10%. Think about what $200 million each year would do to make life better for everyone!

Municipalities could even get creative in how that money is spent. If local opposition to projects is a problem, why not earmark half of the Canada Housing Transfer monies to stay in the neighbourhood where the new construction took place? Suddenly, the neighbourhood debate is no longer about whether a new building down the street should be 4 or 12 stories tall; instead, it becomes about whether those extra 8 stories could buy us a new park, or whatever else the community wants to prioritize.

A $6 billion total transfer envelope would allow for the scale of home building required in the 3,600 municipalities across the country. With this funding, we would have a reasonable chance at building the 600,000+ units needed every year. Without the right incentives to municipalities, we will continue on today’s path of low supply and high costs for housing.  

Can we afford it?

A $6 billion Canada Housing Transfer on top of a $446 billion total program spending budget represents a modest 1.3% increase in spending. The Canadian government can manage this additional spending without putting Canada’s AAA credit rating at risk.

As a point of comparison, the federal government has created a $3 billion annual Permanent Transit Fund available to municipalities. The new Canadian Dental Care Plan will cost $4 billion annually. $6 billion to support housing affordability for all seems like a very reasonable proposition.

But more importantly, there is money about to come on the table that will need to be allocated. The federal government’s 2023 budget announced it would refocus and realign existing spending, freeing up over $6 billion annually. What higher priority would Canadians have for this $6 billion in available spending than to restore housing affordability across the country?

Two birds with one stone

The beauty of a Canada Housing Transfer is that it solves two problems at once – it gets housing built and it helps municipalities deliver on so many of the core public services that Canadians expect of their governments. 

It’s only a matter of time before municipalities start working effectively together and are able to extract more money from the federal government. A Canada Housing Transfer would allow the federal government to set the terms for more money to cities, and to get something in return that the country badly needs – housing that everyone can afford.