Build Canada Homes Can Work If We Get the Details Right
Getting the details right means fewer bottlenecks, less duplication, and more homes for families.
Highlights
The federal government has asked stakeholders to provide feedback and recommendations on its proposed Build Canada Homes initiative, which aims to both increase Canada’s stock of affordable housing and enhance innovation in home construction.
In the spirit of wanting BCH to succeed, MMI has submitted ten detailed recommendations to the federal government, with the short version of each below.
Simplify and clarify BCH’s operations.
Don’t require every project to meet every BCH criterion.
Prioritize speed through immediate partnerships with industry.
Create separation from BCH and other entities, such as CMHC, by simplifying existing programs, with BCH handling affordable housing.
Avoid the “valley of death” by creating space for innovative start-ups and early-stage scale-ups.
Allow for mixed tenure and “complete communities” projects.
Do not create innovation programs housed at BCH, but do consider offering a concierge service for innovative Modern Methods of Construction companies.
Establish alignment with other levels of government on funding, building codes, zoning, and approvals.
Collaborate with Statistics Canada and Housing, Infrastructure and Communities Canada to develop granular housing start targets that will inform BCH investment decisions more effectively.
Do not lose sight of the immediate crisis and the need to address the cost-of-delivery issues around new housing.
Making our thoughts known
Earlier this month, the federal government issued its Build Canada Homes - Market Sounding Guide, outlining its flagship program to substantially increase affordable housing construction and accelerate housing innovation. Build Canada Homes (BCH) is one leg of the federal government’s three-legged stool to address the housing crisis, along with the reintroduction of the MURB (Multiple Unit Residential Building) tax provision and a promise to cut development charges in half for apartment construction.
The Market Sounding Guide for Build Canada Homes outlines how the new organization will work, and invites individuals and groups to provide feedback. Mike read it and had strong concerns, which he expressed in a piece at The Hub. Since then, MMI has spoken with dozens of groups involved in various aspects of the housing sector to share notes and ideas.
Despite Mike's misgivings expressed in the piece at The Hub, we sincerely believe that, if designed and implemented well, BCH can be an important tool to address the housing crisis, particularly given Canada’s lack of deeply affordable and community housing. In the spirit of wanting BCH to succeed, MMI has submitted the piece below federal government. A PDF of our letter is available at the end of the article.
The crisis grows more urgent by the day
The federal government has set an ambitious housing target to double Canada’s housing starts, aiming to reach 500,000 per year. Unfortunately, Canada is moving further from this goal, as the CMHC forecasts that housing starts will continue to fall through 2027. The 2027 forecast of 220,000 units represents a 50,000-unit decline since 2021, which will not only exacerbate the housing crisis but also result in billions of dollars in lost tax revenues, as taxes in Ontario account for over 30% of the cost of a newly constructed home.
Almost all of the actual and forecasted decline in starts stems from reduced activity in Southern Ontario and the Lower Mainland of British Columbia. Falling home prices and rents in these markets have improved affordability, and further price and rent drops are needed. However, the combination of falling prices and rents, combined with escalating costs, has substantially reduced the economic viability of homebuilding.
Given the deterioration in the housing supply outlook, it is even more vital that the federal government’s election promises on housing, including the reintroduction of the MURB tax provision, lowering of development charges, and the creation of Build Canada Homes, happen as quickly as possible, and be scaled up to meet Canada’s growing needs.
Our reading of the Build Canada Homes guide
On August 11th, the federal government released a Market Sounding Guide for the Build Canada Homes (BCH) initiative, outlining how BCH will work and requesting feedback from interested stakeholders. The new BCH will be tasked with a number of tasks, including (but not limited to):
Providing long-term financial support for affordable housing projects, which can include a combination of loans, equity, providing land, loan guarantees and other risk mitigation instruments, as well as contributions and other grants.
Investing in innovative companies and technologies in “modern methods of construction”, through a combination of loans, grants, equity, and other tools to help these companies achieve scale.
Acting as a developer to build affordable housing, which would then be leased to affordable housing providers.
Acting as a facilitator, bring together stakeholders to facilitate projects.
For an entity that does not yet exist, this is already an incredibly ambitious set of tasks, and the lack of indication of what this entity won’t do leaves it wide open to scope creep.
The sheer number of initiatives under the entity can be attributed to BCH's attempt to achieve multiple goals simultaneously. The Market Sounding Guide lists the following two objectives:
Build affordable housing at scale. For a large segment of the working population, students, seniors living on fixed income, the private market alone cannot provide affordable housing options. We need to dramatically scale up affordable housing to create a mix of homes that respond to needs of a diverse range of households, including low-income, while building strong, resilient communities, following the clear example of those countries that have been successful. Build Canada Homes will partner with builders and housing providers that are focused on long-term affordability - including cooperatives, community housing developments or builders that promote attainable homeownership solutions. It will also accelerate timelines to bring federal lands to market, reducing projects costs and supporting the delivery of affordable housing. (The document goes on to state that to achieve scale that the focus will be on “substantial individual projects (e.g., 300+ units) or a collection of smaller projects grouped within a broader portfolio”.)
Build faster, better and smarter. Canada can scale up its housing supply to meet the needs of the population by modernizing the way we build. We need to build housing using advanced materials with manufacturing and construction methods that improve productivity and scalability to reduce the cost, time, and environmental impacts of building. Build Canada Homes will support and accelerate the housing sector’s adoption to modern methods of construction (e.g., standard designs, building information modelling (BIM), low carbon materials, offsite manufacturing, kit-of-parts approach, rapid assembly) by procuring from leading Canadian suppliers for its developments on public lands and filling market gaps in financial product offerings.
Based on the rest of the Guide, as well as the federal government’s public statements, we would interpret their objectives somewhat differently. Our interpretation is as follows:
Build affordable housing at scale, while keeping federal expenditures under control by leveraging existing federal assets (such as land) and partnering with other groups that can provide expertise, capital, and other resources.
Allow annual housing starts to grow beyond 300,000 a year. Given several existing constraints, including labour, it will be challenging for Canada to increase starts beyond 300,000 per year, which is well below the federal government’s target of 500,000 per year. New methods and enhanced productivity are needed, and hopefully, this will lead to spin-off benefits (cost, carbon, etc.) as technologies and innovative firms grow.
Reduce the carbon footprint of housing construction and enhance the energy efficiency of homes. The document emphasizes the need for “low-carbon, climate resilient and net-zero construction”. This is strongly aligned with the thinking and recommendations in the Blueprint for More and Better Housing.
Support Canadian companies and technologies, and reduce Canada's reliance on the United States. There is a clear “elbows up” subtext to the Guide.
The challenge here is that, for any given project, there will be trade-offs between these objectives. Building inexpensively and at scale favours tried-and-true methods, whereas using nascent technologies has quantity limitations and is more expensive, until those technologies reach scale. The goal to grow Canadian capacity is admirable, but if that capacity is lacking, it will limit the number of homes that can be built.
The biggest issue here is state capacity. The track record of governments, at any level in Canada, in implementing such a complex plan is incredibly poor. The risk is that Build Canada Homes becomes a hybrid of 1940s-50s era CMHC, coupled with ISED (innovation programs, regional development, procurement), with a dash of Finance thrown in (SR&ED, tax credits). It is unclear how such an organization would seamlessly coexist within a single agency and also be integrated with the activities ongoing in those other departments. Many of the initiatives identified as BCH priorities (shown below) already exist in other departments.
Three high-level goals for the federal government
In the view of MMI, all of the federal government’s housing offerings should be aligned towards a common vision or a common set of goals. BCH’s lack of clarity may be due to a lack of articulation around how the federal government views the housing crisis, or what it is trying to accomplish, beyond reaching 500,000 housing starts per year.
Build Canada Homes, along with other federal housing offerings and commitments, such as the reintroduction of the MURB program, to their commitment to lowering development charges, should all be focused on three key areas:
Reducing the cost of construction of new homes. New home prices and rents must fall, particularly in British Columbia and Ontario, if affordability is to be restored, as detailed in the piece “Can Homes Become Affordable Without Prices Going Down?” However, all else equal, lower home prices and rents erode the viability of home building. The only pathway to increased affordability and increased housing starts is through large reductions in homebuilding costs, including taxes, as outlined in “Why Lower Construction Costs and Taxes Are the Only Path to More Homes and Lower Prices”. It will be impossible for the federal government to build the quantities of affordable and deeply affordable housing needed at current construction costs.
Unlocking $2 trillion in capital to build homes and ensuring homes get into the hands of families. A report from RBC finds that Canada will need $2 trillion in capital over the next five years to meet its housing ambitions; a fivefold increase from current levels. Canada must reduce barriers to capital in homebuilding, while also ramping up programs such as CMHC’s ACLP financing vehicle. It also must ensure that this enhanced homebuilding creates opportunities for both rental and ownership options. It can achieve both at once through measures designed to funnel investor capital towards building new homes and away from buying existing ones.
Ensuring housing supply and demand are aligned. Much of Canada’s housing dysfunction over the past two decades stems from a combination of accelerated (and often unplanned) population growth, coupled with measures that slowed homebuilding (increased development charges and approval times, regulations preventing densification, and overly restrictive land-use policies). Government policies must align supply and demand, while also avoiding “unit is a unit” thinking by ensuring the right type and size of homes can be built.
We provide ten recommendations, applicable to BCH and the details presented in the Market Sounding Guide, on how governments can achieve these three goals.
Recommendations in detail
Recommendation 1. Simplify and clarify BCH’s operations. The Market Sounding Guide states that BCH will have two separate, often contradictory, objectives, will be involved in both financing and building homes, have four principles, and leverage 11 different instruments. It will be challenging for BCH to develop scale and expertise, given its involvement in so many different activities. As well, it will make it challenging for potential partners to understand how the agency operates. Streamlining these offerings will increase the odds of success.
Recommendation 2. Don’t require every project to meet every BCH criterion. There is a short-to medium-term trade-off between building affordable housing at scale and building more innovatively. Building inexpensively and at scale favours tried-and-true methods, whereas using nascent technologies has quantity limitations and is more expensive, until those technologies reach scale. BCH must be willing to take on projects that are strong in affordability and scale, but weak in innovation, and vice versa.
Recommendation 3. Prioritize speed through immediate partnerships with industry. Canada remains in a deep housing crisis; it will be vital that projects get started as quickly as possible. Currently, there is significant idle homebuilding capacity and shovel-ready land in Southern Ontario and Lower Mainland British Columbia that can be immediately put to use building affordable homes.
Recommendation 4. Create separation from BCH and other entities, such as CMHC, by simplifying existing programs, with BCH handling affordable housing. BCH is advertised as “Canada’s new federal entity responsible for building affordable homes”. However, the CMHC already has programs devoted to affordable housing, such as the Affordable Housing Fund (AHF), and the Apartment Construction Loan Program (ACLP), which requires a minimum number of affordable units. Pure-play affordability programs, such as AHF, should transition to BCH, and other programs, including ACLP and MLI Select, should become pure-play market-rate programs without affordability requirements. Future initiatives, such as the reintroduction of the MURB tax provision, should not incorporate affordability or innovation requirements.
If ACLP continues in its current form, BCH and CMHC will compete with each other for the same projects. Consider a project with a high number of affordable units. The developer would be eligible for both ACLP and BCH financing and would likely apply for both, partly to increase their odds of success, and partly to be able to play one provider off of the other, to get the best deal possible. This is inherently wasteful, so the federal government should create a separation between CMHC and BCH, where the former focuses on market-rate housing and the latter on below-market-rate housing.
BCH’s responsibilities should extend beyond affordable and deeply affordable housing, and also aim to substantially increase the stock of community housing. We share the sentiment of Dr. Abe Oudshoorn, when he states:
[M]odels named in the Market Sounding Guide, such as building units and leasing them to the affordable provider, would not be a good fit for this sector. Rather, using public land, building the new units, and turning them over to the community housing provider would be the most reasonable means of increasing this form of stock. This is expansive, but is a vital approach if we are going to come anywhere close to matching our economic peers and addressing those in greatest housing need.
My fear is that the Build Canada Homes approach will follow the current path and only increase the stock of affordable housing and not increase the stock of community housing. While affordable housing is vital and fills a very large need of those in low income, it does not meet the needs of those in the lowest income level. For these individuals and families, we need to increase our community housing stock and this requires federal and provincial/territorial governments to carry the full cost given the capital deficits of community housing providers.
Recommendation 5. Avoid the “valley of death” by creating space for innovative start-ups and early-stage scale-ups. BCH has the potential to help established companies in the Modern Methods of Construction sector grow and achieve cost reductions through achieving scale. However, innovative start-ups may be unable to meet the 300+ unit volumes required by BCH. BCH should consider funding highly innovative, but smaller projects.
Recommendation 6. Allow for mixed tenure and “complete communities” projects. While BCH’s focus is on affordable and deeply affordable housing, BCH should allow for projects that combine housing tenures, including market-rate and below-market-rate, as well as integrated retail and office spaces, to create more complete communities. Build Canada Homes must create homes that meet the diverse needs of Canadian families, including a range of unit sizes, as well as both rental and ownership housing options.
Recommendation 7. Do not create innovation programs housed at BCH, but do consider offering a concierge service for innovative Modern Methods of Construction companies. The federal government offers a suite of innovation policies, from IRAP to SR&ED. Although BCH is tasked with accelerating innovation and productivity in housing construction, any gaps should be addressed outside of BCH, such as the creation of a Housing Technology Investment Tax Credit. However, there is value in aiding housing innovators in navigating existing program offerings through a concierge service.
Recommendation 8. Establish alignment with other levels of government on funding, building codes, zoning, and approvals. Modern methods of construction often fail to achieve scale in Canada due to regulatory differences between provinces and municipalities, unpredictable approval timelines, and duplication in inspections. How productive would the automobile industry be if safety and fuel efficiency standards were different in every municipality, unpredictable approval times made just-in-time manufacturing impossible, and every car assembled in a factory also had to be inspected by a municipal official when it arrived at a dealer’s lot? The federal government can help create regulatory alignment through instruments such as the Housing Accelerator Fund and federal-provincial agreements. We echo the words of the Canadian Alliance to End Homelessness when they state that BCH needs “the full support of Team Canada”.
The approach of using instruments and agreements, such as the Housing Accelerator Fund, to create regulatory alignment will require the federal government to be willing to enforce those agreements. Unfortunately, as seen with the City of Toronto’s recent vote on sixplex reforms, municipalities believe they can opt out of the reforms without forfeiting full HAF benefits. Payments without progress are a luxury the federal government cannot afford.
Recommendation 9. Collaborate with Statistics Canada and Housing, Infrastructure and Communities Canada to develop granular housing start targets that will inform BCH investment decisions more effectively. Dollars are limited, and the federal government will need to allocate investment dollars where they can do the most good, ensuring that home construction keeps pace with population growth. The federal government, in collaboration with BCH, should introduce annual housing start targets that are broken down by unit size and ownership type, make these targets available to provinces and municipalities to aid in planning, and update them in response to changes in immigration targets and other policies that impact population growth.
Recommendation 10. Do not lose sight of the immediate crisis and the need to address the cost-of-delivery issues around new housing. Even with a perfectly designed and implemented Build Canada Homes program, housing will never be abundant and affordable unless there is a substantial reduction in the cost of building new homes. There are many ways the federal government can reduce the cost of homebuilding, including (but not limited to):
Lower the GST on new housing, a tax on the construction of new homes, as detailed in the MMI piece “Why Lower Construction Costs and Taxes Are the Only Path to More Homes and Lower Prices”. Specifically, it can offer a temporary three-year expansion of the existing GST/HST New Housing Rebate to provide a rebate of 100% of the GST on new homes valued up to $1 million, and a partial rebate for homes between $1 million and $1.5 million, but otherwise keeping the existing rebate criteria in place.
Removing tens of thousands of dollars of interest costs, junk fees, and tax-on-tax from the cost of new homes by implementing a transparent direct-to-buyer development charge (DC) billing model that exempts DCs from HST and land/property transfer taxes and provides in-stream homebuyer protection from DC increases. This idea is explored at length in the reports Legislation, Loans, and Lock-Ins: The Mechanics of Direct-to-Buyer DCs and How a Direct-to-Buyer Development Charge System Can Save Homebuyers $68,000.
Implementing the proposed Multi-Unit Rental Building (MURB) tax provision.
It can modernize regulations to allow for the construction of family-sized European-style apartment buildings with single-egress designs and size-appropriate elevators.
These are on top of the other cost-reducing recommendations already mentioned, such as:
Tying infrastructure dollars to densification legalization and by enforcing past agreements, such as Toronto’s requirement to implement sixplex reforms.
Accelerating factory-built housing innovations through reforms such as implementing the Housing Technology Investment Tax Credit, equal to 30% of the cost of investments in new machinery and equipment used to manufacture low-carbon and climate-resilient housing, similar to the current Clean Technology Investment Tax Credit.
These recommendations will lower the costs of both BCH-funded and non-BCH-funded housing.
For a copy of the letter MMI submitted to the federal government, click on the link below.
