The following is the third installment in a multi-part series tackling Canada’s housing and immigration crises. The series will focus on their root causes, intertwined nature, and potential solutions. Be sure to check out parts one and two.
Part two of this series explained how, even though Canada is a large country, in terms of where people want to or need to live, it is actually quite a small country. In terms of the amount of urban land relative to its population, it is “urban land poor” relative to comparator countries, in particular to the United States. Furthermore, there are growing constraints on the ability to convert nonurban land (e.g., farmland) to urban land on which to build new homes around Canada’s major metropolitan areas—most notably metro Toronto and Vancouver.
The proponents of the supply side argument for solving Canada’s housing crisis insist that this should not be a barrier to building more houses, that rather than building out Canada can build up and densify its existing urban land base.
The reality is that Canada has already been pursuing this densification strategy for some time.
Between 1981 and 2023, 70 percent of Canada’s total population growth was concentrated in its six largest metropolitan areas. The percentage of Canada’s population living in those six areas grew from 34 percent to 48 percent.
The increase in population has been largely accommodated by densification within existing areas. This is reflected by the changing composition of the homes built in Canada. The chart below shows the proportion of housing starts accounted for by single-family and multiple-unit homes from 2000 to 2023. In 2000, single-family homes accounted for 61 percent of total starts, while multiple-family homes accounted for 39 percent. By 2023 the respective percentages were 23 percent and 77 percent.
Graphic credit: Janice Nelson.
Canada’s major cities are already dense when compared to comparable cities in the United States. Comparing the population-weighted density within 30 kilometres of downtown shows that, amongst the 30 largest metropolitan areas in Canada and the United States, Toronto has the second, Vancouver the fourth, and Montreal the seventh highest densities.
Some will argue that we should be comparing ourselves with cities in Europe. I suggest that this argument is politically vulnerable in that most Canadians will compare their housing situations to the geographically and culturally closer United States. But even comparing Canada’s major cities to Europe’s provides an interesting context to the densification argument. Toronto, Vancouver, and Montreal would fit into the middle of the 35 largest Western European cities in terms of density. Toronto’s density is roughly equivalent to that of Milan; Vancouver’s density is roughly equivalent to that of Stockholm; Montreal’s density is roughly equivalent to that of Amsterdam.
Notwithstanding this densification, housing in Canada’s major centres has become less and less affordable. No city demonstrates this better than Vancouver. Patrick Condon, a professor of urban design at the University of British Columbia said this in a recent post:
Consider Vancouver—a city that has tripled its housing units within its pre-WWII footprint. No other centre city in North America comes close. Toronto, for instance, has increased housing by 120 percent within its pre-war limits, and American cities like San Francisco and New York have achieved far less, at around 30 percent. Yet, despite these aggressive efforts, Vancouver’s housing prices, relative to median household incomes, are now the highest on this continent.
If the population in a city were to stabilize, densification could improve affordability—with a static demand curve, an increase in supply will lead to lower prices. If, however, the densification occurs while demand for housing continues to grow at a significant rate—through a combination of ongoing increases in population, smaller average household sizes, and increased demand from non-residents—the purported affordability benefits will disappear into higher and higher prices for residential land and the houses built on it. The ongoing increases in the price of housing generate more political pressure for even more densification, and this political-economic process continues in a dog-chasing-its-tail process.
While Vancouver is the most extreme case in Canada, the effect of rapid population increases has become pervasive across virtually all of Canada’s urban areas. The think tank Demographia puts out an annual analysis of housing affordability across multiple countries. Its measure of affordability is the median price of houses to the median family income.See also this recent book.
Graphic credit: Janice Nelson.
The above table shows how housing affordability has deteriorated across the Canadian cities for which Demographia provides information. My translation of “Impossibly Unaffordable” is that it is impossible for young people to buy their first home without a well-capitalized and generous “Parents Bank” that can fund at least most of the downpayment for that home. Young people not lucky enough to have such parents will never be able to get a foot on the housing ladder
In summary, Canada’s urban areas have been densifying. It has not worked to make housing more affordable. Why should we believe that it will turn out differently if we double down on that approach?
