Canada continues to struggle with housing affordability challenges. Despite recent declines in housing prices and rents, many middle- to low-income earners still struggle to afford housing, family formation is delayed or foregone, social trust suffers, and generational conflict is on the rise.

At a rapid pace, Canada must build far more housing across a range of sizes, tenures, and price points in order to restore affordability to earlier levels. However, further expanding the residential labour force will not sufficiently increase the production of affordable housing unless Canada addresses declining productivity standards in the residential construction sector.

A recent report by the Macdonald-Laurier Institute quantifies the decline in the residential sector’s productivity, identifies its determinants, and proposes strategies to reverse it. Here’s the bottom line: without addressing structural constraints, more hammers (i.e., more workers) will not necessarily translate into more housing.

Compared with the 1970s and 1980s, Canada has built fewer homes relative to its growing population. A surge in housing development over the past decade has partially mitigated the housing deficit, but it has also concealed a decline in housing productivity. With a workforce exceeding 650,000 residential construction workers, Canada now produces fewer homes per worker than in previous periods.

Reversing this trend requires structural change, rather than superficial measures. A significant obstacle is the proliferation of very small enterprises. The Canada Mortgage and Housing estimates that 70 per cent of Canadian construction firms employ fewer than five workers, whereas only one firm employs more than 500 employees.

The limited size of small firms restricts their capacity to invest in capital and technologies that enhance productivity, such as artificial intelligence, proptech, and automation. Their modest scale further constrains their ability to negotiate favourable agreements with suppliers and subcontractors.

Canada does not need size for its own sake, but scale with competition. As Ed Glaeser and Joseph Gyourko have shown, fragmented local rules and permitting systems discourage this kind of investment by making it difficult to spread design and development costs across markets. If governments want innovation, they should make housing markets more legible, predictable and scalable.

Embracing industrial housing production is also essential. Traditional stick-built construction will not increase productivity. Like in other sectors that have seen productivity improvements, housing construction methods need to advance. Canadian firms should invest in industrial housing production methods, including prefabricated and modular construction, where modules are manufactured in controlled industrial environments and transported to the site for final assembly.   

The industrial production of housing reduces construction time from several years to several months, and ultimately to mere weeks. Properly designed and engineered modular construction provides substantial cost savings, albeit only after initial investments are committed to industrial units intended for mass housing production. Japan and Sweden exemplify successful models of industrialized housing production.

The regulatory burdens at the municipal level, which limit the supply of developable land, and bureaucratic frameworks that stretch development application approval times to years, worsen construction productivity.

Brampton and Edmonton serve as exemplars of municipalities that have invested in artificial intelligence and technology to reduce approval times and expedite development permitting processes. Edmonton consistently delivers affordable housing outcomes for its residents and surpasses Toronto in constructing family-oriented housing. Yet many others –- particularly where housing supply and affordability are most acute –- remain reluctant to deregulate or innovate.

The much-needed increase in capital investment and attendant productivity gains will not materialize if permitting frameworks remain fragmented, development charges, permitting, and zoning processes remain burdensome.

Consequently, provincial governments should be prepared to intervene when local governments are hesitant or incapable of modernizing their outdated planning procedures. The failure of local authorities to take action on housing issues escalates into a nationwide housing crisis. The objective of urban planning should not be solely deregulation but rather to promote regulatory coherence, thereby ensuring planning certainty and facilitating developer engagement across jurisdictions.

The Carney government recognizes the immediate need to increase housing production in Canada. It has established a new federal entity, Build Canada Homes, and entrusted it with the task of supercharging housing production in Canada. But it will be for naught if burdensome regulations are not removed, and reforms are not made to incentivize larger firm structure in the construction industry.

Ottawa’s leverage is rightly limited in what must remain a primarily provincial and municipal matter. But since the issue is national and so pronounced, it should use its infrastructure and housing transfers to incentivize provinces and municipalities to legalize more family-friendly housing through zoning reform, standardize and harmonize local rules where appropriate, and reduce regulatory burden. That would pave the way for larger firm size, and the much-needed investment in capital and innovation that can unlock greater productivity, and with it, the housing supply that is holding us back.

Murtaza Haider is the executive director of the Cities Institute at the University of Alberta and the Radhe Krishna Gupta Executive Chair in Cities and Communities at the Alberta School of Business. 

Peter Copeland is deputy director of domestic policy at the Macdonald-Laurier Institute.

The views expressed are those of the author(s). National Newswatch Inc. publishes a range of perspectives and does not necessarily endorse the opinions presented.